How to Make Layoffs Your Last Resort - research by Challenger, Gray and Christmas - Brief Article

Employers are faced with a dilemma that would perplex Solomon.

On the one hand, they're faced with a slowing economy and rising labor costs. On the other, jobs are still being created faster than they're being eliminated. It's a paradox that's at the heart of today's workplace issues.

"Employers can no longer offer long-term tenures and long-term loyalty," says John Challenger, CEO of the outplacement company Challenger, Gray and Christmas. "At the same time, they deeply need people who are competent and committed. In this period of downsizing, the number one issue is retention."

Challenger began monitoring layoffs in 1993. The heaviest period for downsizing that the firm has seen was December 2000 and January 2001, when there were 133,713 layoffs. At press time, unemployment stood at 4.2 percent, indicating that at least some new hiring is still occurring.

"These announcements are leading indicators," Challenger says. "I think they portend where the economy is going, but even if unemployment begins to rise, we have a long way to go before the 7 percent of the last recession."

Business professor Kenneth De Meuse of the University of Wisconsin-Eau Claire is co-author of a forthcoming book, Resizing the Organization. He believes that many companies have locked themselves into a cycle of binge hiring and purging, dependent on the short-term fluctuations of the market. He refers to the trend as "corporate bulimia."

"There's a lot of uncertainty with the new administration," De Meuse says. "Greenspan's on TV every night, and American families are reacting to the energy crisis. There's a lot of paranoia out there, causing companies to overreact.

"Too often, layoffs are a company's first resort rather than their last."

While the effect has been more pronounced throughout December and January De Meuse points out that there have been at least a half-million layoffs a year in the United States in the past decade. In his opinion, this is a symptom of many businesses' failure to take a long-term view of how many employees they need.

"I truly believe that a company's most valued asset is the people who work for it," De Meuse says. "If you look at two organizations, what separates them is not the technology or the computers, the smokestacks or the bricks and mortar, but the employees. And if you really believe the employees are the most important asset, why would you get rid of them?"

Possible steps to take in order to stave off a layoff

* Consider where excesses have developed, and eliminate those expenses where possible.

* Leave jobs unfilled when there's attrition, or hire only part-time employees.

* Give extra assignments to current staff, rather than making new hires. Ask them to work longer hours. Practice good strategic management.

* Offer less overtime pay and vacation time.

* Consider a four-day workweek. Charles Schwab has asked its employees to take off three Fridays over the next five weeks as paid or unpaid vacation to cut back on costs.

* Offer fewer perks. The days of in-office air hockey are gone.

* Cut back on benefits.

* Eliminate bonuses.

* Throw cheaper holiday parties and other company celebrations.

What to consider when implementing a layoff

* To prevent drastic action, make sure you've taken every possible step to cut expenses. Make sure you're not damaging your own production by cutting employment costs.

* Reconsider the expenses that will be incurred directly and indirectly by the layoff. For many companies, there is an added expense because of severance packages, and also a marked increase in health costs. Employees who know they will be downsized are likely to take care of their health by scheduling physicals and dental work that they've previously put off. This results in a burst of expenses. At the same time, incidences of stress-related illness and accidents are commonplace among "surviving" employees. That further affects health-care expenses and productivity.

* Make certain you are not discriminating against particular groups. Try to eliminate staff by using the fairest standards possible.

* Take stock of individual performance. Who do your managers feel they can't do without? Who are they willing to let go?

* Consider the timing of the layoffs, and decide which timetable will cause the least disruption to your work flow.

* Decide how to deliver the announcement. Before getting the word out, determine who will be privy to the information. In one regrettable incident, New York Times employees read about their own layoffs in the paper before they were officially notified. There have been several cases of layoff announcements going out on company e-mail prematurely.

* Train people to deliver the news. A well-handled and compassionate layoff can dissuade ex-employees from disparaging your company.

* Give proper advance notice, and proper outplacement support. Partly because of their experiences in the early 1990s, companies are much more focused today on decent outplacement services. They can help circumvent problems with former employees later on.

* Decide in advance the size of severance packages, including whether or not they provide outplacement assistance and health coverage throughout the period of severance. Advise workers immediately on options for their health coverage and retirement packages.

* Be sensitive to the "survivors." The employees who remain will determine the success or failure of your company. Too often, management overlooks their needs. Survivors need counseling, training, and care. One of the inevitable results of layoffs is a dispirited workforce. They're unlikely to serve customers well, and a declining level of service is the last thing your company needs.

Average severance packages

* At a mid-sized company, an executive employee receives, on average, one to four weeks of severance pay for each year of service.

* A middle manager receives, on average, one to two weeks of severance pay for each year of service.

* Rank-and-file employees receive, on average, a minimum of a week of severance pay for each year of service.

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