Once a company makes the decision to initiate layoffs, leaders and employees alike ask, “Why these people?” The answer matters to the company’s future. Here’s how to decide who to layoff.
Layoffs across industries and around the country continue to make headline news. Cuts have been announced in many industries, including technology, finance, media, automotive, retail, and more. In the technology sector, for example, January was the worst, and February the third-worst, layoff month since TechCrunch began tracking job cuts data in 2022. A common theme driving the cuts is that the companies over-hired during and after the pandemic and are now adjusting headcount in anticipation of a recession.
Whatever the reasons, once a company makes the hard decision to initiate layoffs, making choices about who stays and who goes can be just as challenging. Leaders and employees alike are asking themselves, “Why them?” Depending on how companies make their layoff decisions, the answer to that question can either strengthen or weaken a company’s strategic direction.
Who Goes? How Companies Decide Who to Lay Off
Company leaders are faced with how to decide who to lay off. Yet there is no one size fits all approach determining who stays or goes.
Here are some common approaches companies have used to make the tough decisions:
- Last In, First Out. In workplaces where employee seniority is highly valued or where unions have negotiated a premium on seniority, a last-in, first-out policy may direct employers to lay off their newest employees first. While this approach was once quite common, how long someone has been with the company is less often a primary factor for layoff decisions these days.
- Across-the-Board Percentage. Considered a “fair” way to cut costs across an organization, many department heads have been directed to identify people on their teams to lay off so that each team (and, ultimately, the company) has X% fewer employees or Y% lower costs.
- Lowest-Performing Workers. Another way to hit a cost-cutting target is for companies to let go of the employees with the lowest performance reviews in the organization, regardless of the team or department they work for. This approach is quite common since a) firing or laying off an employee for poor performance is generally supported with today’s employment contracts and b) losing underperforming workers generally has a lower impact on a team than losing high performers.
- Shut Down Unproven Initiatives. During a recession, companies often contain costs by pulling back on R&D initiatives or closing lower-profit lines of business. The employees who were working on such projects are frequently laid off as part of the shutdown.
- Rely on AI. Perhaps it’s inevitable. Just as HR departments have adopted artificial intelligence to screen job applicant resumes, some are looking to AI to help make firing decisions, too. AI can be used to quickly assess employees using sales data, skills data, performance metrics, and a range of “productivity scores” based on how much time employees are using email, whether they are using the camera on Zoom or Teams meetings, and what they do on their company-provided cell phones.
- Quiet Firing. This approach is controversial, and most companies won’t admit if they’re intentionally (or unintentionally) making the job less appealing as a way to encourage some employees to leave. While quiet firing is not technically a layoff approach, the end result is the same: employees leaving the workforce due to employers’ desires or preferences.
Why Care? Dangers of Mismanaging Your Layoffs
Managing a layoff is hard. It’s a many-layered effort that is complex, time-consuming, and emotionally draining. It’s also really important to do well, if a company wants to be able to move forward and, ultimately, thrive in the future.
Here are just a few of the risks to mismanaging layoffs:
- Poor Public Relations. Layoffs are often judged in the court of public opinion, as well. When Google laid off employees via email, for example, the workforce and media jumped to express their shock and disappointment with the “cold” communication. Google was left to not simply navigate the changes within the organization, but to explain and defend its moves to the public.
- Damaged Internal Culture. No one enjoys a layoff and its impact can run deep. As Josh Bersin points out, “Every time you have a force reduction you damage your internal culture.” While company and HR leaders may breathe a sigh of relief when the layoffs are finally “done,” it’s really just the beginning. Employees who are left behind will need information and support in order to successfully navigate the changes.
- Legal troubles. Businesses need to comply with federal and state laws guiding employment activities related to the selection process for layoffs, protected classes of workers, and notification periods. Also, employers and employees enter into individual contracts for employment that need to be honored if there are any special clauses for layoffs.
- Burdening Remaining Employees. With fewer employees, it’s tempting to ask those left behind to pick up the slack. In fact, ActivTrak has spotted a trend of more people working weekends in 2022 compared with one year earlier. One reason, they say, is “mass layoffs, especially in tech, made it necessary for employees to pile on a greater workload to make up for the shortfall in headcount.”
- Disrupted DEI Initiatives. The less intentional the process for laying off employees, the more it may disrupt key initiatives a company has in place. In 2021, many companies ramped up their diversity, equity, and inclusion efforts to better engage employees and customers. One unintended consequence of layoffs could be to disrupt DEI and other inclusivity efforts a company has fostered.
- Loss of Valuable Skills. Too many layoff decisions are made without regard to employee skills and competencies. When companies don’t know what skills they need – or what skills their workforce has today, they might lay off employees with the very skillsets they will need to thrive.
Who Stays? How to Decide Which Employees to Keep
So how do you navigate the layoff conundrum? How do you responsibly answer the question, “Why these employees?” Starting with an aim to clearly answer that question is the first step! Then, putting thoughtful reduction in force guidelines in place can help with the next ones.
Here are some best practices for deciding which employees to keep:
- Start with your company strategy. Where do you need to be five years from now? What’s working to put you or keep you on that track? What’s not? (And why?)
- Identify the skills you do need. Once you have a clear strategy, adjusted for anticipated economic and market conditions, identify the leadership and workforce skills you need to get you where you want to go.
- Assess employee skills. Align your desired skills with job descriptions and conduct skills assessments to understand what skills and competencies they have today. Take a look at the result – without worrying too much about what job those employees are in today. It’s relatively easy to move a skilled employee to a different job if they aren’t best suited doing the work they’re assigned to do now.
- Explore which employees are good candidates for upskilling or reskilling. If you have employees who are performing well in their current jobs, engaged in the company culture, and/or actively managing others well, you will likely want to keep them – even if they were recently hired or the project they’ve been working on is going away. Instead, consider upskilling or reskilling this talent pool.
- Revisit your need for a layoff. Many companies are entering 2023 with open positions they’ve not been able to fill due to a talent shortage. Overlay your updated strategy with your current workforce skills and competencies to see if you already have about the right number of people and skillsets to do the work that needs to get done. Perhaps a realignment and development of talent will better serve your company in the long term.
If a layoffs is the right business move for your company, do it well. Be respectful. Be as generous as you can be. Communicate, communicate, communicate. Remember that departing employees may be your future re-hires, customers, or partner contacts. Remember that communication is a two-way effort; communicate consistently with your remaining employees – including actively listening to their concerns and reactions as you move through next steps together. If you consistently communicate with words and actions, you’ll better engage and develop your workforce for all that’s ahead.
If you’re interested in learning how a competency management program can inform strategic business decisions such as layoffs and employee development, download our Competency Management Toolkit to get started. Or contact us to find out how Avilar’s WebMentor Skills™ competency management systems could support your team.
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