The Psychology of Downsizing

As a Licensed Marriage and Family Therapist (LMFT) with a Ph.D. in Psychology, my education causes me to see the psychology in everything. So with all the downsizing reports these days, I can’t help but notice what this business decision does to the people who keep those businesses going. 

Not only are those laid off affected by the stress of losing their jobs, but so are the “survivors” who remain at the company to do twice the amount of work with less help and the constant fear that they might lose their job next. 

In these situations, communication is key. Executives and Human Resources (HR) professionals must constantly and consistently communicate the reality of the downsizing and its aftermath to both types of employees in order for that reality to fully sink in. They should also promote the company’s Employee Assistance Program (EAP) services for all employees to utilize during this time. 

Numbers Don’t Lie

The psychology of downsizing also affects employees at companies who are not downsizing or who have not announced such a business decision yet. These employees’ morale and productivity is just as likely to decrease due to the worry that their company might lay them off next, since many of their friends and family members have experienced this shocking reality.

According to a Pew Research report, “Job Worries Climb the Economic Ladder,” based on a poll taken Feb. 4 to Feb. 8: “The proportion of Americans citing jobs or unemployment as the nation's most important economic problem has more than quadrupled—from 10% to 42%—since early October and job worries now far surpass concerns over the financial crisis. People's perceptions of the availability of jobs in their areas have worsened as the unemployment rate has increased. Fully 80% say that jobs are difficult to find in their local communities—up seven points since December and 16 points since early October.”

There is Hope

Despite the decreased morale and productivity downsizings can cause in the business world, there is hope. In the Feb. 11 CNBC.com On the Money blog written by Bob Rosner entitled, “The CEO Patriot Pledge: Just Say ‘No’ to More Layoffs,” Rosner encourages CEOs to go to the Web site Workplace911.com and sign the “CEO Patriot Pledge” to show their commitment to doing their part to keep their employees.

The pledge is: “As an executive my primary motivation is to act for the good of my company, not just my own financial gain. No one at our company will earn a guaranteed base salary more than 40 times of our lowest paid worker and we will offer the same health care and 401(K) matches to employees as we do for executives. We support pay for performance, so when our company’s performance serves investors and employees, we’ll share in the gains. When our company’s performance does not adequately serve our investors and employees, we’ll share in the sacrifice.”

Wow, what a concept! According to Rosner, the average CEO makes a salary 262 times the salary of their lowest paid worker. If each of those “average” paid CEOs would reduce their salaries to what the pledge suggests—just 40 times that of their lowest paid worker—then, Rosner says, this salary reduction could allow 200 workers to keep their jobs.

Quite a difference! Rosner also has a YouTube video explaining the pledge and giving an example of a CEO whose company is successful because he keeps his salary at or below the pledge’s suggested level.

Action Steps

So what can you do to improve the negative psychology of downsizing in the business world today? Save as many jobs as possible so the least number of employees have to experience the reality of downsizing!

Go to www.workplace911.com and sign the “CEO Patriot Pledge!” Read Rosner’s blog and watch the YouTube video to learn more and don’t just sign the pledge, commit to do what it says! You can change this downsizing psychology!

Despite the decreased morale and productivity downsizings can cause in the business world, there is hope.