Laying Off Is Hard to Do, but Alternatives Come with Own Problems

By Adrienne Fox Feb 10, 2009

Employers have shed more than 1.8 million jobs in the past three months, pushing the unemployment rate to 7.6 percent—the highest in 16 years. This recession, which started in December 2007, is expected to continue through 2009, according to the National Association of Business Economists. The February 2009 SHRM LINE survey found employment expectations to be at a four-year low in both the manufacturing and service sectors.

With all this bad news, it’s hard to believe that one day the economy will rebound and companies again will be competing for talent. But that day will come, and to prepare for it, companies can get creative about hanging on to their top talent through the storm.

“Employers know this too shall pass, and they’ll need their top people when the economy picks up again,” said Martha Fields, president of Fields Associates Inc., an international management consulting firm in Boston. “How do employers hold on to them if they can’t pay them full salaries?”

Fields said that while it’s clear what’s in it for employers to reduce employees’ salaries, it’s not as clear what’s in it for the employees. “You have to sweeten the pot,” she said. “Ask employees what else the employer can offer them.” Some possibilities:

Reduced hours with full benefits.

Tuition reimbursement so that employees with reduced hours can pursue an advanced degree.

Training opportunities within the company.

An exclusive contract with the company to provide freelance or consulting services until the company can hire the employee back full time.

Volunteer sabbaticals at partial salary.

“Not everyone is going to take you up on your offer,” Fields cautioned, “because top talent can find full-time, full-paying jobs even in this economic climate. People are stretched financially and need full pay.”

Real-World Reality Check

John Frehse, chief strategist at Core Practice LLC, a management consulting firm in New York, has been getting numerous calls from his Fortune 100 clients asking for creative solutions to staving off layoffs.

“Even though laying off people is an appropriate strategy in this economic downturn, management is still struggling with letting their people go,” Frehse said. “So companies are trying to find every other way to make it work” by entertaining options.

“The problem is [that] this is not a short downturn in the economy,” he cautioned. “You can train all the people you want, for example, but if it’s not a short-term blip, you won’t be able to use this increased capability.”

Frehse doesn’t advise his clients to reduce hours while retaining full benefits because it becomes “cost ineffective.” The cost of benefits for a full-time employee, he explained, is spread over 40 hours. As the employer reduces the hours, the cost-per-hour for benefits goes up.

“You could prorate the benefits and paid time off, but that won’t work in a union environment,” Frehse said. “In a non-union environment, it creates a lot of unrest and dissatisfaction. People can’t pay their bills right now, and cutting pay is not going to retain the people you want to retain.”

Despite these reservations, Frehse says creative solutions can work if you expect the economic downturn in your business to be short, and if you focus on high-skilled workers in positions where talent shortages are forecast.

“I would keep those people and cross-train them,” he said. “For instance, put your maintenance workers in production and lay off production workers. You can hire production workers easily once the economy rebounds. But those maintenance workers are a rare commodity. Every business has a ‘maintenance worker’ type worker that it can’t afford to lose.”

But don’t focus on employees that can be easily recruited and trained, he added. “Millions of employees in America only require two weeks of training or less. Why would we keep these people and train them? It doesn’t make sense.”

In the end, though, make the hard choice to conduct layoffs if that’s what the analysis points to. “This is not a gentle issue, so gentle solutions will not work,” he said.

Adrienne Fox is a freelance writer in Alexandria, Va., and former managing editor of HR Magazine.

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