Look at Alternatives to Layoffs

By Beth Mirza Dec 29, 2008
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For businesses facing tough economic times, layoffs might seem like the only answer to monetary challenges. In the third quarter of 2008, the number of mass layoffs in the United States reached its highest level—1,330—since 2001, according to the Bureau of Labor Statistics. More than 218,000 workers were separated from their jobs for at least 31 days.

But layoffs can thin the number of workers on the payrolls in unexpected—and undesired—ways. According to research cited in the November 2008 issue of HR Magazine, companies that laid off 0.5 percent of their workforces experienced a turnover rate 2.6 percentage points higher than companies that didn’t cut staff. The more people that were laid off, the more people quit, researchers said.

Of the employees who stay, many report less productivity and more stress on the job. They say customer service has declined, they see more errors, and they think their organizations’ prospects have worsened. (See “Layoffs Pack Punch to ‘Surviving’ Employees,” Dec. 22, 2008, HR News.)

Companies can avoid layoffs and reduce payroll with some innovative methods. Jason Zickerman is president and CEO of The Alternative Board, an organization that brings together executives of similar-sized, noncompeting companies for monthly meetings to brainstorm strategies and learn from each other. Thousands of business owners have found creative ways to hold onto their employees, he said. These include:

  • Reduce your workweek. Going from a five-day workweek to a four-day workweek reduces payroll by 20 percent, Zickerman noted. Employees stay on the job, for less money, meaning companies don’t have to rehire workers once the economy is on the mend.
  • Extend time off. Instead of offering two weeks of paid vacation, offer five weeks, two of which are paid. “The younger generation sees that as a perk,” Zickerman said. “After they left college, they thought they’d never have a long break from work again.”
  • Challenge employees to save money. Employees look for ways to reduce spending. For every $1,000 identified to be saved, pay the employee who had the idea a $200 incentive. While not spending the money might mean increased work for the employees or fewer perks, “the [employees] said to do away with it, not the senior management,” Zickerman said. When the employees take ownership of the problem and identify cost-cutting measures, it doesn’t feel like something has been taken away, he said. “Make them part of the solution instead of a victim of circumstance.”
  • Offer sabbaticals. These extended periods of time away from the office are different from long vacations in that managers challenge employees to step away from the office, take a pay reduction, get some training or learn a new language, and then come back at full pay with more skills. Sabbaticals are successful with established, high-performing professionals, Zickerman said. “They come back better and more valuable,” he added.
  • Swap employees or lend them to another company. Procter & Gamble and Google recently swapped more than 20 employees each to learn one another’s tricks in targeting consumers, according to a press release from The Beacon Group, which is helping facilitate the swap. Or a company can lend an employee to another organization, which will take on his salary, Zickerman said. “You have to be careful that expectations are set clearly. This is more complicated.”
  • Look to your peers for help. “We are in unprecedented times,” Zickerman said. “These ideas came out of [The Alternative Board member companies]. Don’t be alone or make decisions by yourself. Other business owners have done these tactics successfully. There is no better investment than to be with other business owners and share ideas.”

Society for Human Resource Management (SHRM) research also has found that many companies employ tactics other than layoffs to cut staffing costs. The 633 randomly selected members responding to an Oct. 30, 2008, poll reported using these measures:

  • Attrition (72 percent).
  • Hiring freeze (48 percent).
  • Not renewing contracts with existing contract/temporary/contingent workers (21 percent).
  • Reducing employee work hours (17 percent).
  • Hiring more contract/temporary/contingent workers (12 percent).
  • Retraining employees for new positions in the organization (10 percent).
  • Reducing the workweek for the entire organization (9 percent).
  • Shutting down the business for short periods of time (7 percent).
  • Offering early retirement (6 percent).
  • Offering job sharing (5 percent).
  • Reducing salaries (5 percent).
  • Freezing salaries (3 percent).
  • Reducing or eliminating overtime (3 percent).

However, 48 percent of respondents said that their organizations had laid off employees in the past 12 months. Respondents reported spending more time calming employee fears about job security (52 percent), counseling employees worried about retirement funds (50 percent), and devising and recommending alternatives to layoffs (37 percent).

Nearly half (43 percent) reported spending more time managing organizationwide communications. Sharing information with employees is vital to keeping them onboard and working productively, Zickerman said. Retaining “layoff survivors” will be important, as 60 percent of respondents to the SHRM poll said it was very or somewhat likely that their organization would lay off employees in the next 12 months.

“I can’t emphasize enough the amount of time, communication and morale support you have to give the people who are still there,” he said, adding that senior leaders will be relying on these workers to take on more work, report in for longer hours, and do more for the same or less pay. “You need to communicate and celebrate the small wins along the way. Give them thanks, kindness and recognition.”

Clueing layoff survivors in on why the layoff took place and how the company sees the future shaping up can help build a better corporate culture. Jason Jamrog, senior vice president of research at i4cp Inc., advised participants in a webcast to “give employees a sense of context. Why are these changes being made? What are we here to achieve? Is there a clear direction for the organization?”

To build engagement, let employees speak up about the company’s direction and delineate clearly what is up for discussion and what is not. Provide rewards and recognition, Jamrog said, and let the survivors know why they are still there to help build a sense of belonging.

“Make them part of the solution,” Zickerman said. “There’s more to deciding whether to do layoffs—there’s also how you run your company and manage the morale of the corporation.”

Beth Mirza is senior editor for HR News. She can be reached at Beth.Mirza@shrm.org.

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