How to Manage a Layoff

All companies, yup that includes the successful ones, eventually have some form of layoff.  Before you go ballistic on me, let’s first define a layoff.  According to Wikipedia, a layoff is:

the termination of employment of an employee or (more commonly) a group of employees for business reasons, such as the decision that certain positions are no longer necessary. Originally the term “layoff” referred specifically to a temporary interruption in work, as when factory work cyclically falls off. However, the term has long been applied also to the permanent elimination of positions as a cost-cutting measure (or for other reasons).”

So, a number of employees (one or more) that are terminated for larger business decisions as opposed to for poor individual performance is a layoff.  Even successful companies at times make decisions to get out of a business or change a focus that results in the laying off of some employees.  Similarly, an acquisition of another company with some degree of overlap of people can necessitate a layoff of redundant people after the merger.

More likely, of course, are layoffs that are the result of a downturn in business.  Here again, terminations are not related to individual performance (other than, perhaps, the decision to lay off one person instead of another), but are a result of a business restructuring required to help the company deal with its financial difficulties or other current crappy situation.

A layoff has nothing to do with firing employees, though.  I frequently talk to CEOs or other high-level managers who say that they are laying off people when they are really firing them.  In my opinion, these people are less confused about the terms than they are in hiding behind the softer term, layoff.  They think it sounds better to the people being fired as well as those who remain.  When somebody isn’t cutting it and you’ve done your best to make it work, you’re firing them.  Period.  Call it what it is.  Everyone is happier with clean, honest straightforward messages in the end.  ’nuff said.

If layoffs are inevitable, then it’s critical that strong leaders and managers know how to do them.  As with firings, in the broad business scope, it’s critical that you optimize the management of any layoff so that your business or organization is set up to be successful moving forward.  That means thinking about the people and the organizational situation left after the layoff as much as, if not more, than the people being laid off.

With that in mind, here are my 9 guidelines on how to manage a layoff, in no particular order:

• Do it quickly – nothing will drain the life out of an organization faster than mass fear of job loss.  Rumors are uncontrollable and people pick up on small signals incredibly well.  While it’s very important to make sure you spend the time to get a good action plan in place, don’t let the time between a decision to do a layoff and the execution of it extend longer than it absolutely has to.  As a corollary to this one, avoid sending up red flags before you’re ready.  The rumor mill is powerful, there’s no need to help it along.
• Do it once – this is a mistake I see made all the time.  A layoff is done in stages because management: is afraid that they’re cutting too deep; know they’ll need some folks to complete their current tasks before they’re laid off; miscalculate the savings they’ll get from the layoff; or, is just wimpy.  Not completing a layoff in one pass will kill the productivity of those who remain.  They’ll wonder if they’ll be in some subsequent round, even if none is planned.  They won’t believe it’s really over until loads of time has passed without incident or they’ve left the company.
• Cut deep – you may think that you’re a spreadsheet wizard who can run detailed sensitivity analyses indicating the precise range of the financial impact of your layoff.  Trust me, you can’t.  People who you thought would stay will quit; you’ll have legal fees that you didn’t expect; there will be a severance issue that you didn’t even consider; or, one of 10,000 other unpredictable things will happen.  Leave yourself some room, cut more people than you think you need to.  You’ll be happy that you did when it’s all said and done.
• Plan ahead – Decide how you’re going to handle the termination details – have any severance, benefits, insurance, outplacement service offerings or reference policy well documented ahead of time (can you afford any of these?).  Plan for and know exactly how long each employee should stay around before they are laid off (generally speaking, people should be walked out the door the day the layoff is announced).  Have the complete package (written) ready to hand to the employee when they are told they are being laid off.  Have a script ready if more than one manager is laying people off.  Consistency is important.
• Cover your ass legally – while tight cash may be the issue that led to your layoff, getting some legal advice if the layoff is in any way extensive might be a good idea.  As you likely already know, there are no bounds to the legal problems that employee matters can bring about.  Run your plans by your lawyer at least for a sanity check.  It’s money well spent.
• Do it in person – as absurd as this sounds, you’d be surprised at how often people are laid off by email or on the phone.  The manager of each person being laid off should take the employee aside, explain what is happening and what benefits are part of the layoff.  If a manager is laying off multiple employees, they need to balance the need to spend time with each one, with the fact that everyone else in the group is waiting to see if they’re next.  So, be kind, but be clear and to the point.  Don’t beat around the bush.  You don’t have time.
• Communicate – Make it clear to everyone (those being laid off and those remaining) why it happened and what has been done or is being done to make sure it doesn’t happen again.  Emphasize that the layoff as just witnessed is OVER and that no one else will be laid off because of the current situation (new situations may, of course, come up).  Stand up and take responsibility if poor decision-making or a specific strategic choice led to the current situation.  Be clear – nothing complex.  Explain why those being laid off were selected for the layoff instead of those remaining.  Be respectful of those departing and thank them for their efforts, they are not being laid off as a result of anything they did, after all.  Be ready to meet with each person you manage one-on-one in order to allay any fears or address any concerns.
• Learn from it – it’s unlikely that you planned for the situation to come about.   Was it a business issue you should have predicted?  A change in the marketplace that you should have flagged?  Had you grown too fat?  Costs gone out of control?  Change in strategy or focus?  Whatever.  Understand it now so that you can avoid the situation in the future.
• Keep communicating – don’t stop communicating with employees left after the layoff just because the layoff is over.  They need to know why they won’t be subject to similar mistakes or problems in the future.  Everyone wants to work for a winner.  You need to tell them why they are going to be successful right where they are.  Don’t give false reassurances, though, tell it like it is.  This doesn’t mean you shouldn’t sell the positive future prospects for the company.  Just don’t candy-coat the current situation.

I wish I could say that I never had any substantial layoffs in companies that I’ve run, but truth be told, I’ve had to do it more than once.  I’ve also made most of the mistakes above.  It’s certainly not easy and there are almost an infinite number of ways that the situation can get out of hand quickly.  If you use the guidelines above, though, you have a better shot of avoiding the case where the situation gets totally beyond control.