How to Handle Layoffs Appropriately

Eric Mochnacz
November 11, 2022

Every morning, I log in to LinkedIn and I see more news of layoffs. Specifically, the tech industry is being hit hard by an unpredictable financial market. Twitter recently laid off 75% of its workforce after Elon Musk’s acquisition of the social network, and Meta has recently laid off 11,000 employees.  In and of itself, this type of workforce disruption is newsworthy, but the response to both companies’ approaches – and the approaches of other tech firms in similar situations – is also making headlines. In this blog, I outline the importance of approaching layoffs strategically and with human cost in mind.

Think Through Why Your Workforce Planning Requires Layoffs

One of the significant things about the Meta layoffs, which seems to hold true for a number of the other tech layoffs we are witnessing unfold in real-time, is that there wasn’t strategic workforce planning. Meta reports that they grew too quickly in light of changing habits, and increased revenue, during the pandemic – but didn’t think about how behaviors would change over time. Ultimately, they solved short-term problems without consideration of long-term impact or affordability. Meta, and similar companies, like Peloton, hired people in the moment to meet an immediate need but didn’t consider what would happen to those people if revenue streams dried up or customer habits changed. And that’s what happened; these companies found themselves with employees whose positions couldn’t be financially supported based on market outlook. Positions were costing the company money but weren’t making any money for the company. It’s hard to rationalize the cost of a large recruiting team, built during a growth phase, if you’re implementing a hiring freeze. If you don’t have the money to build phase two of your software product because there isn’t customer interest, it stands to reason you don’t need the team of newly hired senior software engineers.  

There are lessons to be learned here about strategic workforce planning. Moving forward, companies need to clearly identify business goals and understand how their current workforce – and any future hires – impacts business continuity and success. It is essential for HR and hiring managers to critically evaluate workforce needs going forward. Employers need to ask: 

  • How does this position contribute directly to company success?
  • What short-term business need does filling this position meet? What long-term need does filling this position meet?
  • What happens to this position if goals change?
  • If market conditions change, can the person in this position perform other job duties?
  • If not, can the company financially support this role until things even out?

It’s time for businesses to evaluate their organizational structure and develop a go-forward that contributes to strategic growth, business continuity, and operational efficiency. Moving forward, workforce decisions need to be intentional and practical as well as have a direct impact on company growth.  

A note here – it’s a good time for companies to evaluate their recruiting spending. As tech firms went through hypergrowth hiring phases, logic dictates that they relied on internal recruiting teams, but also partnered with agency recruiters. The standard recruiting fee is 20% of the annual base salary, but we’ve seen that number explode up to 35%, with some recruiting firms basing their commission off of the entire salary package. This means recruiters are requiring a percentage of potential total earnings, including commissions, bonuses, or other incentive compensation. And, more often than not, layoffs are not covered by the recruiters’ guarantee.  So, companies should evaluate the actual value attached to their recruiting efforts, and what the true loss is after considering all the fees from working with an external recruiter. If these companies find themselves in a position to hire again, they should consider lean recruitment processes, or working with an RPO service provider, to help manage costs.

Approach Layoffs with Empathy and Transparency

Layoffs aren’t easy, but at times, they are an unavoidable business necessity. How an employer approaches layoffs makes all the difference. A key example is how Twitter communicated layoffs to its workforce compared to Stripe. Twitter closed its offices and sent an email to all employees – if you received an email to your company email, you still had a job, but if you received an email to your personal address, you were no longer employed. That was the extent of the initial memo sent to employees, with very little explanation as to the rationale behind the decision, and no further clarification for impacted employees or the retained workforce on next steps. When you take an employment action that impacts a significant amount of your workforce population, and it’s done via a brief email, there’s going to be negative fallout. And the fallout was swift, with employment lawyers and politicians stepping in to educate former Twitter employees on the legal requirements of WARN notices, and the employees themselves speaking frankly about the lack of empathy and transparency they experienced under new leadership. 

On the other hand, Stripe, who laid off about 14% of its workforce, seemed to receive more positive feedback about the way it handled its layoffs. First, the CEO took responsibility for overhiring, thus being unable to support outsized operational costs related to economic downturn and instability. In the initial memo, he communicated impacted employee entitlements – 14 weeks’ worth of pay, depending on time served at the company. On top of that, he noted that Stripe will pay the full 2022 annual bonus (pro-rated for newer employees), all unused paid time off (PTO) will be paid, and Stripe would be providing healthcare coverage for six months.  

Simply put, layoffs suck. How your company handles them makes all the difference. It can be the critical difference between terminated employees speaking positively about their experience on LinkedIn and employees choosing to pursue a class action lawsuit. When we work with clients who have undergone organizational restructuring requiring layoffs, our focus is ensuring the individual on the receiving end of a difficult decision is treated with respect and empathy.  Although the meetings are brief, because our main goal is to deliver the message that their employment has ended, it’s essential we approach the person as a person, who has contributed their valuable time and effort to the company. Ideally, we deliver this message in person, but given the shift to remote and hybrid work, we still mandate we have the conversation live, whether it be over a video conference or on a phone call. We prepare the company representative on delivery prior to the meeting and are present on the call to offer human resources support for the representative and the impacted employee. Again, these discussions aren’t easy but can be handled effectively while still acknowledging the dignity of the person receiving the message.  

Plan Your Approach to the Notification Meeting

When a client lets us know they are planning a termination, whether it be one employee or a larger layoff, we develop a schedule and a script to manage the process from beginning to end.  We can’t predict how the impacted employees will react, but we have control of the timing and the way we deliver a difficult message. Additionally, we work with employment counsel to ensure our process is compliant and have them draft any supporting legal documentation to facilitate as smooth a process as possible. 

The laid-off employee is going to have a lot of questions. What happens to their health benefits?  Are they eligible for a PTO payout? What happens to their 401k? Are they receiving a severance? Can they apply for unemployment? Through our partnership with our clients, and the knowledge we’ve gained about their business, we address these questions and prepare answers in advance of the meetings we have with the impacted population. We are confident in our ability to answer any questions the employee may ask. Meetings like this can quickly devolve, but by thoroughly preparing, we keep the meeting on track, are able to confidently deliver the message, and also provide clear, direct guidance to any eventual questions.  

As much as employers or hiring managers may want to “rip the bandaid off” and move quickly with layoffs, it’s critical you don’t wing it. Preparation allows businesses to mitigate risk and be thoughtful and intentional in their approach to communication and process. As demonstrated by Better, and the impact on its reputation, it’s not a good look to let people know they’re unemployed by turning off their company access in the middle of the work day while on a business call or letting them figure it out themselves when they see an unexpected severance payment on their paystub. It may be a business cliche, but when it comes to layoffs, an ounce of prevention truly is worth a pound of care.

Prepare to Provide Outplacement Services

The common theme with some of the more maligned large tech layoffs is leadership didn’t plan appropriately. They made the decision, communicated it poorly, and left their former employees scratching their heads about what to do next. We have a lot of conversations around our conference room table talking about how tech employers throw big money at candidates to get them to accept offers (and lure them away from their current employers – sometimes, our clients), but it doesn’t mean much if they are just turning around and firing them 6 months after due to “market conditions.” So, if you’re a company that pulled out all the stops to get candidates “across the line”, it’s time to show them the same level of support and investment in their career when you choose to separate employment. You do this by offering company-sponsored outplacement services. Courtesy of the employer, employees have access to resume writing services, interview preparation, networking, and other support services to help them find their next career move.  

Have a Plan for Your Remaining Employees

Although your retained workforce is still employed, they have concerns too. They may feel uncertain and wonder if they’re next. Also, you’ve just fired their friends and colleagues, which is undoubtedly going to have an emotional impact. So, your ability to address their perceptions is through a clear, succinct communication plan. Generally, you set expectations before the notification communications begin so that individuals who aren’t part of the layoff understand what milestone indicates they are still employed. Once the action is complete, it’s essential for the decision-makers to host a meeting for the retained workforce, outlining what occurred, setting the path forward, and encouraging questions. As we developed a script and FAQ for impacted employees, the same effort should be put into talking points and FAQs for the remaining employees. Managers should also be trained on navigating the subsequent conversations, to ensure an aligned, consistent, and clear message about the go-forward for the company and each individual contributor.

Consider What’s Needed for Your Transitional Period

Additionally, as you undergo the transition, the retained workforce will be curious about how their jobs and day-to-day at the company will be impacted. Generally, they are concerned they will be taking on others’ work without much change in pay or the ability to hire support. They may assume that they are going to be expected to do more with less. So, to address these concerns, the company should overcommunicate its plans for the transitional period. The other obvious concern is employees will be concerned about another round of layoffs, so they may begin a job search in earnest. Although you can’t control if someone chooses to leave your company, you can assuage their concerns by being as direct and transparent as possible.  Sometimes, one period of layoffs is enough to right set the organization and if that’s the case, communicate it appropriately to employees. Never guarantee anything, but articulate the net benefit of the layoff and what the company’s outlook is for the future. This will allow employees to understand their position in the company, the level of risk, and what steps they may want to take in the future for their own job security. Anytime a company goes through a significant change that impacts its people, there is a risk of some natural attrition. Since we know this is likely to happen, it’s important to prepare for this eventuality.

Understand Your Workforce Planning Moving Forward

So, if we accept that some people will naturally leave an organization after a layoff, it’s a call to be as proactive as possible in your workforce planning. Although it’s likely you aren’t going to backfill any of the positions you eliminated, it stands to reason that the positions you retained are business-critical. And if any of them become vacant, you’ll need to fill them to maintain business continuity and achieve company goals. So, what do you do?  

This is a great opportunity to critically evaluate your current organizational design, your job descriptions, compensation structure, and career ladder. Before rushing to post the job on LinkedIn, evaluate the job description. Is it still accurate? Does it serve the new organization the same way it served the pre-RIF business? Is the position mission-critical? Does it need to be at the same experience level as its predecessor?  

In my experience, a director-level employee will leave an organization. This person started in the company as a coordinator, but through their time, they were promoted. It’s based on tenure and performance or the new title and pay raise are used as a retention tool and not much else.  And in some cases, the business never backfills the previous positions held by this person. The question becomes – “Do we really need to hire a director-level professional?” It’s time to critically evaluate if the job can be done by someone with less experience or if the work can be distributed among the organization. These approaches result in cost savings, which is exactly what influenced these widespread layoffs in the first place. It makes sense for your company to understand the financial impact of your hiring and address vacancies in a way that allows you to innovate in your organization while also reducing spending. Effective workforce planning and management are about breaking the habit of “this is the way we’ve always done it”, but rather trying different data-driven approaches to move into the future – and not find yourself in a situation where you need to undergo more significant layoffs.

An HR Company Can Provide Support for Laying Off Employees

The team at Red Clover has direct experience in organizational restructuring projects, some of which result in layoffs. Our proven process guides a company through the decision-making and the requisite communication planning that’s essential to execute a reduction in force properly.  We believe how we approach these difficult discussions is critical to mitigating risk while still treating the impacted individuals with respect and dignity. If your company finds itself in a position where layoffs are imminent, work with a skilled HR consulting firm to avoid becoming the next Twitter cautionary tale.

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