Employers must be careful not to downsize their reputation and increase their liabilities.
The term ‘corporate downsizing’ has become analogous with ‘a down economy.’ As everyone is likely aware, this economic downturn has been described by some as one of the most severe since the Great Depression. The U.S. economy has been experiencing employee layoffs in unprecedented numbers, and by companies previously unaffected during other recessionary times. For example, earlier this year, Microsoft announced its first employee layoffs in its history.
Why do employers turn to downsizing their businesses? As I see it, since business leaders are people, and similar to how individuals and families react, they tend to look at or evaluate their finances during times of severe economic stresses. Most businesses have been closely examining cost-cutting measures, which often take the form of workforce reductions or downsizing. Downsizing, after all, usually offers immediate and substantial cost relief.
In my opinion, and based on past history, many of these businesses would be wise to consider alternatives to downsizing. There can be unintended consequences to mass layoffs and downsizing, such as having to pay overtime to surviving eligible employees or seeing morale take a turn for the worse. Also, once the economy recovers, ironically, companies will have to go through the expensive and laborious processes of recruiting and hiring top talent again.
Some companies, instead, can consider other cost-reduction actions that do not involve layoffs, which can result in losing top talent and experienced employees to competitors.
However, if all other cost-reduction options fail, and before implementing a downsizing initiative, the following may help decision-makers think through the process carefully and strategically:
- Take time to prepare; you should not expect to implement a downsizing overnight.
- Establish your layoff selection criteria; you will want to use measurable and objective, not subjective, criteria and follow them uniformly. Make sure you document your actions.
- Use a due diligence approach and make sure you are following all laws, regulations and statutes, including local, state and federal. This step is critically important and complicated, and legal counsel should be consulted.
- Evaluate business locations, employee positions and skill sets; some companies analyze which locations and positions are critical and which ones may not be as critical to the business. What skill sets are critical to the survival of your business?
- Decide if, and what type of, severance packages you will offer to employees. For instance, if you distribute severance checks, are you going to base the amount on their years of service or on some other factor?
Finally, a downsizing can be one of the most difficult and challenging events even for the most experienced and knowledgeable human resource professionals. Employers are always encouraged to seek legal counsel when considering such serious actions relating to their employees.