The Art of the Layoff

We’re in a bubble again. It’s not as frothy as last time, but hallelujah, this time we know what to do, right? One good thing about the dotcom implosion in 2000 is that we got lots of practice laying people off, and I’m afraid that this valuable knowledge may get lost.

If you are scoffing (“Guy’s clueless: We’ll never downsize because we’re growing so fast.”), then you’re my intended reader.

1.Take responsibility. Ultimately, it is the CEO’s decision to make the cuts, so don’t blame it on the board of directors, market conditions, competition, or whatever else. In effect, she should simply say, “I’m the orifice. I made the decision. This is what we’re going to do.” If you don’t have the courage to do this, don’t be a CEO. Now, more than ever, the company will need a leader, and leaders accept responsibility.

2.Cut deep and cut once. Management usually believes that things will get better soon, so it cuts the smallest number of people in anticipation of a miracle. Most of the time the miracle doesn’t materialize, and the company ends up making multiple cuts.

Given the choice, you should cut too deeply and risk the high-quality problem of having to rehire. If nothing else, it enables you to declare victory: “We’ve turned things around and we’re hiring again.” By contrast, multiple cuts are terrible for the morale of the employees who have not been laid off.

3.Move fast. One hour after your management team discusses the need to layoff employees, the entire company will know that something is happening. If you think you need to layoff people, then do so because it’s unlikely that a miracle will happen. Once people “know” a layoff is coming, productivity drops like a rock. You’re either laying people off or you’re not—you should avoid the state of “considering” a layoff.

4.Clean house. Painful as it may be, a layoff is a good time to terminate marginal employees. It’s good for the company because it can take care of many personnel issues at once without having to differentiate between people who aren’t performing and positions that you’re eliminating. It’s good for the marginal employee because he’s not tainted with getting fired. Finally, it’s good for the employees who remain because they can see that you have a clue about who’s performing and who isn’t—assuming you’re not clueless in making decisions.

5.Whack “Freddy.” Most executive have hired a friend, a friend of a friend, or a relative as a favor. When a layoff happens, all the employees will be looking to see what happens to “Freddy.” “Did he survive the cut or did he go? Is it cronyism or competence that counts at the company?” It should be true that Fred is dead.

6.Share the pain. When people around you are losing their jobs, you can share the pain too. Take a smaller office. Turn in the company car. Reassign your personal assistant to a revenue generating position. Fly coach. Stay in motels. Sell the box tickets to the ball game. Give your thirty-inch, flat-panel display to a programmer who could use it to debug faster. Do something, however symbolic.

7.Show consistency. I cannot understand how companies can claim that they have to cut costs and then provide severance packages of six months to a year of salary. You would think that if they wanted to conserve cash, they’d give tiny severance packages. Typically, there are three lines of reasoning for generous severance packages:

* Cutting headcount, even with severance packages, is cheaper than keeping the employee around indefinitely, and we don’t want any lawsuits.

* We have lots of cash, so our balance sheet is strong, but we need to cut heads to make our profit and loss statement look better.

* Wall Street (or your investors) is expecting dramatic actions, so we need to do this to show the analysts that we’ve got what it takes to be a leader.

None of these reasons makes sense to me. If you need to do a layoff to cut costs (and conserve cash), then provide minimal severance packages, cut costs as much as you can, conserve as much cash as you can. If nothing else, it’s a consistent story.

8. Don’t ask for pity. Sometimes managers go to great lengths to show the person they’re laying off (or firing) how hard it is on them. This reminds me of the old definition of chutzpah: a boy murders his parents and then asks the court for leniency because he’s an orphan. The person who suffers is the one being terminated, not the manager.

9.Provide support. The odds are the people getting laid off aren’t “at fault.” More likely, it was the fault of top management—the same top management with golden parachutes. Hence, you have a moral obligation to provide services like job counseling, resume writing assistance, and job search help. There are firms that specialize in helping employees during “transitions,” so use them.

10. Don’t let people self select. We had a joke at Apple during the dark days of the late eighties that went like this: We should announce that employees who want to quit should come to a big meeting. Those who wanted to stay at the company should not attend. Then we would let the people go who didn’t attend the meeting and keep the ones who wanted to quit—because they were smart enough to know that we were in bad shape or that they had better opportunities elsewhere.

The point is that if you let people choose to get laid off or retire, you might lose your best people. Deciding who to layoff should be a proactive decision: Select the go-forward team to ensure that you never have to lay people off again. You should not leave this to chance.

11.Show people the door. With few exceptions, all you should do is let people finish the day—maybe the week. (My theory is that Friday is the best day to do a layoff because it lets people have a weekend to decompress.) Showing people the door seems inhumane, but it’s better for both the people leaving and the people remaining.

12.Move forward. Let people say goodbye and then get going. This is when leadership counts because any yoyo can run the show in good times. It’s bad times when you separate the men from the boys and the women from the girls.

After the layoff, this is what the remaining employees will be wondering about:

* Guilt: “Why did I survive the cut and my colleagues didn’t?”

* Future of my job: “Will I survive the next round of cuts if there are more cuts?”

* Future of the company: “Will the company survive at all?”

So you need to set, or re-emphasize, goals, explain what everyone needs to do to get there, and get going because the best way to move beyond a layoff is to get back to work.

13. Circulate with the troops. You might want to retreat to your office, turn off the phones, stop answering emails, and avoid everyone. This would be the worst actions to take. This is the time for you to motivate by walking around. Employees need to see you, talk to you, and seek your help and advice. They don’t want to think their leader is cowering in some foxhole. The brave face that you put on may be a charade, but it’s an important charade.