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July 05, 2006

The Art of the Layoff

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We’re in a bubble again. It’s not as frothy as last time, but hallelujah, this time we know what to do, right? One good thing about the dotcom implosion in 2000 is that we got lots of practice laying people off, and I’m afraid that this valuable knowledge may get lost.

If you are scoffing (“Guy’s clueless: We’ll never downsize because we’re growing so fast.”), then you’re my intended reader.

  1. Take responsibility. Ultimately, it is the CEO’s decision to make the cuts, so don’t blame it on the board of directors, market conditions, competition, or whatever else. In effect, she should simply say, “I’m the orifice. I made the decision. This is what we’re going to do.” If you don’t have the courage to do this, don’t be a CEO. Now, more than ever, the company will need a leader, and leaders accept responsibility.

  2. Cut deep and cut once. Management usually believes that things will get better soon, so it cuts the smallest number of people in anticipation of a miracle. Most of the time the miracle doesn’t materialize, and the company ends up making multiple cuts.

    Given the choice, you should cut too deeply and risk the high-quality problem of having to rehire. If nothing else, it enables you to declare victory: “We’ve turned things around and we’re hiring again.” By contrast, multiple cuts are terrible for the morale of the employees who have not been laid off.

  3. Move fast. One hour after your management team discusses the need to layoff employees, the entire company will know that something is happening. If you think you need to layoff people, then do so because it’s unlikely that a miracle will happen. Once people “know” a layoff is coming, productivity drops like a rock. You’re either laying people off or you’re not—you should avoid the state of “considering” a layoff.

  4. Clean house. Painful as it may be, a layoff is a good time to terminate marginal employees. It’s good for the company because it can take care of many personnel issues at once without having to differentiate between people who aren’t performing and positions that you’re eliminating. It’s good for the marginal employee because he’s not tainted with getting fired. Finally, it’s good for the employees who remain because they can see that you have a clue about who’s performing and who isn’t—assuming you’re not clueless in making decisions.

  5. Whack “Freddy.” Most executive have hired a friend, a friend of a friend, or a relative as a favor. When a layoff happens, all the employees will be looking to see what happens to “Freddy.” “Did he survive the cut or did he go? Is it cronyism or competence that counts at the company?” It should be true that Fred is dead.

  6. Share the pain. When people around you are losing their jobs, you can share the pain too. Take a smaller office. Turn in the company car. Reassign your personal assistant to a revenue generating position. Fly coach. Stay in motels. Sell the box tickets to the ball game. Give your thirty-inch, flat-panel display to a programmer who could use it to debug faster. Do something, however symbolic.

  7. Show consistency. I cannot understand how companies can claim that they have to cut costs and then provide severance packages of six months to a year of salary. You would think that if they wanted to conserve cash, they’d give tiny severance packages. Typically, there are three lines of reasoning for generous severance packages:

    • Cutting headcount, even with severance packages, is cheaper than keeping the employee around indefinitely, and we don’t want any lawsuits.

    • We have lots of cash, so our balance sheet is strong, but we need to cut heads to make our profit and loss statement look better.

    • Wall Street (or your investors) is expecting dramatic actions, so we need to do this to show the analysts that we’ve got what it takes to be a leader.

    None of these reasons makes sense to me. If you need to do a layoff to cut costs (and conserve cash), then provide minimal severance packages, cut costs as much as you can, conserve as much cash as you can. If nothing else, it’s a consistent story.

  8. Don’t ask for pity. Sometimes managers go to great lengths to show the person they’re laying off (or firing) how hard it is on them. This reminds me of the old definition of chutzpah: a boy murders his parents and then asks the court for leniency because he’s an orphan. The person who suffers is the one being terminated, not the manager.

  9. Provide support. The odds are the people getting laid off aren’t “at fault.” More likely, it was the fault of top management—the same top management with golden parachutes. Hence, you have a moral obligation to provide services like job counseling, resume writing assistance, and job search help. There are firms that specialize in helping employees during “transitions,” so use them.

  10. Don’t let people self select. We had a joke at Apple during the dark days of the late eighties that went like this: We should announce that employees who want to quit should come to a big meeting. Those who wanted to stay at the company should not attend. Then we would let the people go who didn’t attend the meeting and keep the ones who wanted to quit—because they were smart enough to know that we were in bad shape or that they had better opportunities elsewhere.

    The point is that if you let people choose to get laid off or retire, you might lose your best people. Deciding who to layoff should be a proactive decision: Select the go-forward team to ensure that you never have to lay people off again. You should not leave this to chance.

  11. Show people the door. With few exceptions, all you should do is let people finish the day—maybe the week. (My theory is that Friday is the best day to do a layoff because it lets people have a weekend to decompress.) Showing people the door seems inhumane, but it’s better for both the people leaving and the people remaining.

  12. Move forward. Let people say goodbye and then get going. This is when leadership counts because any yoyo can run the show in good times. It’s bad times when you separate the men from the boys and the women from the girls.

    After the layoff, this is what the remaining employees will be wondering about:

    • Guilt: “Why did I survive the cut and my colleagues didn’t?”

    • Future of my job: “Will I survive the next round of cuts if there are more cuts?”

    • Future of the company: “Will the company survive at all?”

    So you need to set, or re-emphasize, goals, explain what everyone needs to do to get there, and get going because the best way to move beyond a layoff is to get back to work.

  13. Circulate with the troops. You might want to retreat to your office, turn off the phones, stop answering emails, and avoid everyone. This would be the worst actions to take. This is the time for you to motivate by walking around. Employees need to see you, talk to you, and seek your help and advice. They don’t want to think their leader is cowering in some foxhole. The brave face that you put on may be a charade, but it’s an important charade.


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Comments

Friday is not a good day, at all, to fire people who work for you. Especially someone who is close to retirement and/or has given 20+ years to the company. Unless all you care about is accounting cleanliness, do not fire on a Friday. If you do, I hope you never gain empathy from a similiar life experience.

wow. just another inhumane human being posting trash on the web. surprising.

your ten rules were brilliant. see you in a back alley sometime.

I agree with the comments about the small severance package. A small package means rehiring will be very hard, and it sends a pretty clear message to current employees. It also means that there may be a vengeful ex-employee waiting out there.

Some will like the message (presumably Guy would) the small package gives, others won't.

#12 A great example of what to do.

However, when the polar opposite occurs; when upper management keeps a tight lid on everything here are a few things that happen to the people that didn't get fired once they get over the "why didn't I get the axe over the other person" type of thinking.

A. Productivity sinks to "just enough to get by" level.

B. The people that are smart, update their resume's, step up their networking and do their best to get out before the company decides to make even more cuts. Unless of course the already saw it coming and prepared for it.

Chances are (which is the case with me) that the company is or was doing well but somewhere down the line a VP made a few bad decisions, realized them and made up for it with more bad decisions. In the end, a few good men and women loose their jobs while he/she (our VP in this case) keeps driving his leased beemer for a little while longer...

#9 is too often overlooked. I'm glad you included it in the list.

Dev makes a good point, by the way, though I wouldn't go quite that far. Giving up a big chunk of their earnings and inserting it into the "ailing" company as a mea culpa might go a long way towards showing their stakeholders and employees that they accept responsibility for a mistake that was really theirs in the first place. Call it a "character tax".

If you have to cut costs, why not cut everyone's salaries, CEO on down, about 15% and go to a four-day work week? You would get some attrition from people who are over-extended financially (or were close to it), and those who stay would probably come to work on that "free" day anyway when needed.

Guy -

I've read that laying off or firing anyone on a Friday is not a good thing. Yes, it gives them the weekend to decompress, but it also kills their weekend and makes you look like the bad guy. What if they have a birthday party for their 3 year old planned (or any other number of events). The layoff/firing muddies their weekend and makes your company look - in their mind - like the bad guy. Unfortunately most HR departments recommend layoff/firing on Friday because it's easy to deal with the salary and accounting issues this way.

However - psychologically, it is better to do it on Monday. This lets people have a full business week to organize their needs - with both your HR department, and with their local unemployment agency. Questions about continuing coverage, severence and such can be answered in a timely manner, rather than stewing over the weekend.

I truly wish most employers would adopt this tact - Monday is the best day to let someone go from their job.

--*Rob

The company I work for lays off people who really do the work -- developers and testers. Then retains first-and-second-line-do-nothing managers in two ways: demoting them to "contributor" positions, or just keep them where they are.

Part of being an ethical leader is giving people warning of what might happen. Layoffs may be necessary, but they should never, ever, ever be a surprise. Employees should know months in advance of any possible layoffs that now might not be a good time to buy a new car, or a house, or whatever.

Since being a CEO is essentially the financial equivalent of winning a lottery these days, token symbolic gestures like moving into a smaller office don't impress me one bit. Even firing a CEO doesn't impress me because they all get huge financial bonuses for being terminated. In short, the only CEO behavior that might impress me is ethical behavior.

I wouldn't lay people off on Friday. According to something I read years ago, firing/laying off on Friday causes people with psychological problems to go over the edge without the ability to get help quickly. Doing it during the week allows them time to talk with HR professionals, mental health people and you, if necessary, to plot a course of next actions. I've always followed this path and it seems to have worked well with me.

Your advice on lay-offs is relevant and timely. The sad thing is a number (more than we think) of CEOs are poor leaders. Therefore when the times get rough they will more than likely embrace the twenty-first century trinity; me, myself and I. This creates a vacum for those that follow.

I guess leadership isn't a soft skill after all.

Guy ... excellent post. Few things I noticed that made a 100% sense.

As a CEO, one needs to be tough, and at the same time leave a "good" taste in someones mouth.

It's all about how you make people feel AFTER you've interacted with them.

Toward the end of the .com bust, Our Company went through 6 or so layoffs to go from 300 plus to less than 60 about a year. (I got shown the door around 80) So two points,

A) fewer layoffs would have been better. but,

B) we got pretty good at the timing of the
layoff with all that practice.

First, the layoff happened before noon.

Next, Everyone was called into the managers office to be told their status. That way nobody got that look when the phone rang or tap on the shoulder.

Employees that were retained were told to take a long lunch and report back around 2 or 3 for the "state of the union" all-hands meeting. Employees that were let go had Manager/HR access (to go over the termination package, coverage etc.) and given a little time to clear out the office only with other people going through the same experience.

Retained and Terminated Employees knew which Sports Bar to meet up for the long lunch were they could "contructively talk"
about the current situation.

This worked pretty well until it happened to me and found out that no matter what the process, the "I've-been-punched-in-the-gut feeling" is still there big time.

Good Post. As we are talking about the layoff, I would like to bring one more issue.

When should an employee ideally switch company?

Excellent post Guy - having recently been made redundant myself I find myself agreeing with most of your points. It's not the end of the world (despite people thinking so) and often (certainly in my case) turned out to be a blessing in disguise.

What you talk about is for leaders to be humble and take responsibility

http://www.digitaldigressions.net/blog/2006/07/humble_leaders_.html

and this we see far too seldom. It feels ok to leave a company when the leaders have that stance rather than being a bunch of cronies just laying people off, because they don't have the strategic nouse to save money in any other way.

What? You hired permanent employees? Why didn't you just use contractors in the first place? Then there would be none of this touchy-feely stuff to worry about anyway.

Even though I may be the one to get the axe this time I still agree that this is great advice. Change is not easy but good can come from unwanted change.

Great post Guy. One thing I have always been a believer in is practising an open book policy with all employees.

By that I mean, at all times every employee of the company should know how we are doing. If sales aren't coming in, and people know our burn rate, there should be no surprises when the day of lay offs come.

This helps soften the blow, and gives everyone a chance to make adjustments accordingly.

Thanks for the post.

This is one of your best posts ever, Guy. There's no good way to sack people but there is a right way. I hope to god the people who are deluding themselves now about the coming need for layoffs have the guts to follow your advice when the time comes.

Excellent post Guy!

I have to agree with frumiousb. I worked in a place where we had a few waves of layoffs. First it was to pare down and "make the place profitable" - and in the dot com bubble that sometimes literally meant pennies of profitability!

In the next few rounds (and that slow repetitive death is a total drag to say the least), they got rid of the workers - developers, engineers and customer service people. As people left, the rest of us were left trying to do the same amount of work with fewer and fewer people. And the end result was that there was no one to develop and grow new services and products and no one to support the existing product or fix anything that broke. We all know what happens then!

Meanwhile, most of us were torn between trying to find new work and trying to hold on where we were, while not feeling very enthused or loyal.

Cutting deadwood and excesses is good. Cutting the people who actually do work is pretty darn bad.

Bottom line on the company where I worked -- they consolidated the productive but remotely located part of the company to the high rent admin location. Paid severence etc to those of us who couldn't go. Paid bonuses, stock options etc to those who did. Within 9 months more than 50 per cent of those who moved had been escorted to their cars in a sudden "layoff". The company still limps along but no one in the industry really cares about them anymore.

I agree with a more generous severance package. It says something for the years people have given their lives to the company.

I also agree management should take a paycut. Personally I like the corporate wide paycut that some companies have done in the past. It takes guts to keep people on when other companies are ditching people like they don't matter any more.

I will have to disagree with number 7, not that it doesn't use capital, it clearly does.
My argument for humane severance packaging is this.

1. dont screw the employee because you the manager screwed up the business model and the funding. they in all likelihood cannot afford a few missed paychecks as well as you can.

2. Everyone is watching. anyone who did not get fired has their finger on the dice.com/monster.com/careerbuilder.com "Submit" button. You arent just firing employees or co-workers, you are firing thier friends, buddies, lunch crew etc. They know thier kids names, and will stay in touch afterwards. if you show them that you did number one above, it doesn't take a lot of imagination for someone to see the same thing happening to them. *CLICK* now you have lost the people you wanted to keep.

3. you may need to hire them back. I have personally seen this, where some critical unaccounted for process was entirely cut out. It may have been something that only had to be done once a month and 3 people knew how to do it, but all three of them got fired. you need to keep the good Karma open in case you need to come back to them and beg for help.

4. Not only are current employees watching, but so are all future employees. did you see the one about the company that gave out Ipods, then asked people to give them back two weeks later when they got laid off. who wants that press?

Excellent post, Guy. "Sharing the pain," even symbolically, is all too often overlooked, but it goes a long, long way in deepening the relationship between the management and those employees who've survived the cut.

Been laid off, scooped the severance (no claw back) and was working the next day.

Why?

Because execs announced a 20% cut two months in advance with a firm date. 20% meant cutting to core and I was a project person.

Unfortunately, the project people were also the movers and shakers, the risk takers, the I-have-skills-so-I-can-take-risks-with-my-career group.

The company tried to hire me back the next day (in another division) but like I said I (and almost everyone else) was already working.

The Lesson?

Don't automatically cut project people.

In regards to #10, a company is going to lose top talent regardless. When a layoff or even the rumors of a layoff occur, anyone that's been around knows enough to start networking immediately, and if you happen to get a better offer, it's considered best practice to take the offer rather than try for a counter offer from your current employer.

In some cases, the layoff doesn't eliminate only dead wood. Whole divisions can get laid off and there's no room to keep the top performers. I've seen extremely talented individuals know that a layoff was coming and time it perfectly where they had a new job lined up and got the package as well.

After having experienced the rollercoaster of the high tech industry, I've overcome some of the naiveté of youth and live by 5 simple rules regarding employment.

1) God and Family first, then everything else.

2) I have as much trust and faith in the company I work for as the company has in me.

3) The company is an entity whose primary goal is to make money.

4) I as an individual have a primary goal of making money for my family.

5) I will work for the company for as long as they pay me or at least until I get a better offer.

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