Layoffs are not a Panacea

As in previous recessions, layoffs are the order of the day. The statistics convey the grim tale: unemployment at 7.6%, 3.6 million jobs lost in the last 12 months, about half of them lost in the last 3 months. For many companies, layoffs are the only way to survive this tough economic climate. However, for many others we believe it would be beneficial to seriously consider other alternatives for the following reasons:

There’s not that much fat to trim: In the face of increased global competition, American companies responded by creating a leaner workforce. Recent studies show that more than 60% of employees work over 40 hours a week and 45% of managers work over 70 hours a week. In addition, with the widespread use of technology such as Blackberrys, many employees are expected to be available 24/7. Studies show that overworked employees make costly mistakes and are less productive overall. Taking an already stretched workforce through the layoff process has detrimental effects that could easily outweigh the financial benefits of layoffs.

Human capital is at bargain prices: It might appear to be counter-intuitive but this is actually a great time to hire high quality talent. With few alternatives, employees are currently willing to work for less. Given that we are in a knowledge economy human capital needs to be viewed as the most important of corporate investments. Companies that let go of good employees now are abandoning the basic tenet of investing which is to buy assets when prices are low and to sell when prices are higher. They will be forced to recruit at much higher rates and may not even find the quality of talent they want once the economy turns around.

Layoffs worsen the macroeconomic situation: This recession has left no industry untouched. Day after day we hear news of companies in all sectors of the economy laying off workers to deal with the recession. As news of these layoffs make waves across the country, consumers nationwide begin to anticipate that they will lose their jobs and then reduce their spending. The reduced spending of those laid off and those saving in case they are laid off has a negative effect on the entire economy, depressing it even further. Soon enough, as we have already begun to see, companies find they need another round of layoffs thereby creating a vicious cycle of reduced spending and layoffs.

Since we have established that layoffs are not the panacea to this economic crisis the obvious question is - what other choices do companies facing financial pressures have? We propose the following alternatives:

Engage your employees: By now your employees are all very aware that this recession rivals the Great Depression. With their jobs on the line and the future of their employer at risk, employees will be very motivated to help identify cost cutting and revenue generation opportunities. Don’t limit the input to high level employees as senior management may be too far removed to identify potential opportunities that are obvious to those in the thick of things. You will be surprised to see how much employees are willing to sacrifice to weather this storm with their jobs intact. Employee generated solutions will be easier to implement and will have staying power since the buy-in is already built in.

Take advantage of desire for flextime: Employee surveys show that the many employees would sacrifice a portion of their pay for a flexible working arrangement. This is not surprising given that the majority of the workforce is now dual-career parents and the number of employees with elder care responsibilities is on the rise. Requests for flexibility which have hitherto been viewed as an inconvenient accommodation can now be viewed as a tool to reduce payroll costs, motivate good employees and improve productivity.

Offer sabbaticals/leave of absence: Universities have long understood the benefit of sabbaticals in restoring the vitality and refreshing the mind of their professors. Knowledge workers are valued for their minds just like university professors and this is a great time to offer them time off to re-energize, tackle passion projects, or take care of other facets of their lives that they have been unable to while working.

Ask for volunteers: Few companies are offering voluntary separation packages and those that do often only offer them in the context of early retirement. Even in this tough economic climate several people have told me that though the idea of being laid off terrifies them they are so unhappy in their jobs that they would welcome a separation package that will give them enough time to regroup. No matter how talented they are or how well they have done in the past, keeping on disgruntled employees is counterproductive for both the company and the employee.

by Feyi Boroffice, President of 2Hats Network LLC