Is layoff the only plausible option to keep organizations afloat?

5 min readMay 7, 2020

In the current scenario, a vast majority of corporates are considering a financial action as a result of the pandemic.

Organizations are considering downsizing the workforce to make it through the crisis. Because as a cost-cutting reflex, deep layoffs are considered the first plausible solution.

Profitability does not necessarily follow downsizing, even as long as two years later (Data from the S&P 500)

Stress-related illnesses were 50% higher in the companies that had downsized their workforce compared with those companies that had not undergone downsizing (Peter Cappelli, a Wharton professor, in his research)

Downsizing a workforce by 1% leads to a 31% increase in voluntary turnover the next year (Research by Charlie Trevor of the University of Wisconsin–Madison and Anthony Nyberg of the University of South Carolina)

To add to it, after a layoff, survivors experience a 20% decline in job performance.

Many will find downsizing justifiable and argue that leaders are obligated to make difficult decisions to keep their companies afloat. But should we really accept the first plausible solution and overlook the possibility of trying alternate, potentially superior solution/s.

Before announcing job cuts, that will ultimately cause distress to individuals and organizations, it is necessary to look for creative measures to save as many jobs as possible.

Here is a list of some measures that organizations and leaders can consider before announcing deep layoffs

Promote sabbatical/furloughs

Furloughs are often a much better alternative to layoffs and are best used as a worker-retention strategy in the face of interim financial difficulties (like recessions and pandemics). It creates a road to return when there is once again work to do. While most furloughed employees receive no pay but can continue to utilize the health insurance benefit. In some countries, furloughed workers can draw unemployment benefits and can also work for other organizations.

Organizations also benefit as they do not have to go through the time-consuming and expensive process of rehiring and training new employees. There is an option to retain the talent that they’ve spent years cultivating.

2. Crowdsource cost-cutting ideas with Employees

Everyone knows that we are going through a global pandemic and a resulting slowdown in parts of the economy. Instead of leaving the employees to second-guess what might be in store for them, it is a good idea to Crowdsource cost-cutting ideas with them.

They will appreciate the openness and the leaders will have stronger buy-in for the initiatives that are eventually prioritized. Once you have the plausible options laid out, you can even let the employee indicate their preferences between the various options. Essentially, you will lose no control and in turn, this may enhance your standing as a leader.

3. Better cash management

Realistically assess your current situation and make cash management a boardroom priority. Maybe set up a war room to flush out all the possible cost reduction and cash management ideas.

Engage with stakeholders early and where possible seek more favorable terms from vendors and suppliers. For eg: Call all large vendors and if possible ask for lower prices. If appropriate, offer to sign a longer agreement in exchange for lower cash payments in 2020 and 2021.

Organizations can choose to freeze salary-increases, halt bonus payouts, pause payments into retirement funds, and reduce vacation days.

4. Share the Pain

The top executives can do their part by temporarily forgoing salaries or taking pay cuts and thus helping workers keep their jobs during this tumultuous time.

The CEOs of Morgan Stanley, Citigroup, Visa, FedEx, Bank of America and other corporations reported that they will not be laying off any workers in 2020. Marc Benioff, CEO of Salesforce, has put into place a “90-day layoff pledge.” The world’s largest hotel chain, Marriott, reported that CEO Arne Sorenson will relinquish his salary for 2020. His executive team will take a 50% pay cut. Through such acts, the corporate leaders are showing commitment and leading by example.

5. Variable working hours

Institute shorter workweeks or half-time working for roles with excess capacity. These options will be preferred by some employees if they know that doing so will save jobs. One can also discourage overtime as a cost-cutting measure.

6. Redeploy staff

Huge conglomerates can redeploy staff within the hardest-hit businesses to other now high-demand areas. There are already some encouraging stories circulating about such measures taken by conglomerates.

7. Consider a virtual office

Try to free up or downsize office space to rent. Organizations can do so by keeping essential staff onsite and sending everybody else home to work remotely. Off the shelf software packages can bridge the Internet divide by allowing teams to video-conference and keep a tab on priorities.

Meticulously review the Less Conventional options and consider all the obvious and non-obvious actions for reducing cost.

And in the end, if you really have to layoff, do it with compassion.

Carpenters use the aphorism “Measure twice, cut once.” The same applies to layoffs. Handle layoffs at once, do not do it iteratively for several weeks or months. Constant layoffs demoralize and paralyze the remaining workforce leaving everyone worried: ”Am I next?”. In contrast, mass layoffs create an immediate shock, but people adjust.

The key is to open and honest throughout the process.

References

Is layoff the only plausible option to keep organizations afloat?

Here is a list of some measures that organizations and leaders can consider before announcing deep layoffs

Written by Gauri Jain