Management - Termination, Downsizing, Layoffs

Common Sense ManagementTermination & Downsizing Basics, Nick Krym 05-25-07

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Certainties of Business Life• Business Fluctuations

– Start up / Rapid growth– Stagnating during “maintenance” stage– Changes in direction / loss of key initiatives– Mergers and Acquisitions– Business decline

• Exacerbated by management– Lack of general management skills– Lack of attention to personnel issues– Hiring and casting mistakes

• Never ending challenge– Hiring spree, resource acquisition – Resource retention and motivation– Skill / personality miscast– Poor performers– HR Nightmares

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Why get involved?• It’s your job

– It could be your job responsibility– It could be perceived as your responsibility

• It’s your paycheck– Layoffs are typically done to keep “survivors” employed

• Its’ your company – Minimize the probability of future layoffs

• It’s your team– Getting rid of poor performers could act as motivation for the rest of the

team– Getting rid of poor performers could actually improve productivity –

some people you are better off without– Keep remaining troops in the best shape possible

• It’s your network– A person you layoff today could be employing you tomorrow

• It’s your life– Workplace violence

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Termination, Downsizing, Layoffs, etc.• Termination for Cause (TFC)

– Termination as a result of unlawful behavior, breaking company policies, conflict of interest, etc.

• Performance-based termination (PBT)– Termination based on track record / history of poor performance, failure

to deliver on job responsibilities or against business / position objectives

• Surprise / emergency layoffs (SL)– Terminating of several employees based on business needs executed

without appropriate planning / analysis.

• Planned reduction in work force (Downsizing or RIWF)– Terminating of several employees based on business needs carefully

executed based on appropriate planning and in-depth analysis.

• Odd cases

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Termination for Cause• Termination as a result of unlawful behavior, breaking company

policies, conflict of interest, etc., for example:– Embezzlement – Receiving bribes– Breaking NDA– Mishandling ePHI– Major negligence

• Act swiftly– Consistency (in acting upon similar misconduct)– Stay exceptionally careful– Get HR and potentially legal / law enforcement support

• Communicate– Consult with HR / Legal whether and what you can communicate– Communicate to the team reasons for dismissal (see above)– Communicate action plan to prevent similar misconduct in the future

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PBT: Unpleasant Duty• Why we fear and loath terminating poor performers

– The replacement could be worse– It will go away– It won’t work anyway– We might be sued– Upper management won’t support me– I’m too tired and overloaded– I may not do it right– It will be a lot of work – Hate conflict– It’s unpleasant

• PBT could be hard on the manager but not acting is much worse– Negative impact of poor performance itself on the organization – Negative impact of poor performance your personal work load– “Fishbowl” effect leading to disrespect for management

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PBT: Basics• PBT should be a logical outcome of performance tracking

• Termination should not be a first act toward under-performing employee, never a surprise

• Disciplining employee, guiding principles:– Immediacy – Consistency– Brevity – Impersonality– Positivism

• When PBT is inevitable act swiftly– Similar to TFC with less drama / law involvement

• PBT is good for the team it could be still hard– Some employees disagree with your decision– Void in skills / fulfilling duties may seem “was not worth the termination”

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PBT: a few Tips• Recognize “due process” obligations: NO CITIZEN SHALL BE DEPRIVED

OF LIFE, LIBERTY OR PROPERTY WITHOUT DUE PROCESS OF LAW– PROPERTY = An interest protected by contract, law or regulation. For

example: “just cause” employment– LIBERTY = An employee’s liberty to secure future employment (arises

where the reason for an employee’s termination involves moral turpitude and could therefore jeopardize their ability to secure future employment) - Even when the employee is probationary.

• Draft disciplinary notices to avoid “roller coasting”• Clearly identify the cause for termination• Separately set forth any factors that mitigate against a lesser form of

discipline.• Avoid “over-thinking”• Don’t back pedal• For “inherited” bad performers, give the employee sufficient time under new

supervision to form independent conclusions. Utilize “slate cleaning”approach to raise the bar / reset expectations.

• Don’t say Layoff when you mean PBT or TFC• When appropriate, permit an employee to resign in lieu of termination

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Surprise Layoffs• General

– Most common method of layoffs in small companies– Sometimes SL used to disguise TFC or PBT– Most of the time SL is a late “recovery” or “damage control” action by

management to deal with macro or micro issues of the company performance• Minimizing Surprise factor

– Be prepared… Always• Performance tracking • Totem Poles• Keep salaries in tact with the Market

– Keep you hand on pulse of the company– Watch for red flags, warning signs, writing on the wall

• Minimizing impact– DR & BC is not just IT task– Everything in CVS– Documentation is your friend– Maintain balanced teams and skill redundancy – Always invest in marketability of your employees– Make them to keep resumes – Don’t forget the #1 (your family) NEVER

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Downsizing• What is downsizing?

– A downsizing strategy reduces the scale (size) and scope of a business to improve its financial performance.

• Why do firms downsize?– Reduce costs– Reduce layers of management to increase decision making

speed and get closer to the customer– Sharpen focus on core competencies of the firm, and outsource

peripheral activities– Generate positive reactions from shareholders in order to

improve valuation of stock price– Increase productivity

• Is there an alternative?– A reduction of the workforce is one of only several possible

ways of improving profitability or reducing costs.

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Alternatives to Downsizing

Infrastructure

Expensive initiatives

3-rd party services

Offshore

Sales

Pricing changes

Alternative sources of revenue

Financing

Cost Cutting - Non HR

Revenue and Financing

Cost Cutting HR-related

Pay freeze

Cut over time pay

Use vacation and leave days

Pay cuts

Profit sharing

Variable pay

Transfers

Relocation

Job sharing

Demotions

Retraining

Attrition

Hiring freeze

Cut PT employees

Cut temps

Voluntary time off

Reduced work hours

Payments and Benefits

Re-designing the Job(s)

Employment Policies

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Facing Layoffs• Downsizing might be unavoidable

– Financial situation and revenue can not be sufficiently changed– Non-HR measures do not provide sufficient financial impact – Alternatives do not provide sufficient financial impact or executing on

alternative is not feasible• When it’s inevitable

– Carefully plan• Use weighed totem pole• Aim to have sustainable full functional team • Redundancy for post downsizing attrition

– Put additional safeguards in place (BC&DR)– Execute

• As fast as reasonably possible• As deep as reasonably possible• Stay legal and err on overcautious side• With professional (HR) support and oversight• Be prepared for … anything

• Get ready to deal with ripple effect

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Planning Layoff: Totem Pole

33.50245554334Ali Ahmad

41.70435544554Jane Black

24.90455552005Kim Su

38.70555554335RaviSharma

41.60253535555Joe Smith

110.70.50.50.70.721.81.5Weight

Weighed Rank

Tiebreaker

1/$$Aptitude

Retention

Attendance

Work Ethics

RCIKey Contributor

Spear Knowledge

Technical Skills

Name

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Executing: How (not) to Conduct a Layoff• Remember

– Focus on those who stay– Survivors will judge you / organization by the way layoff was conducted

and downsized employees were treated– Everything that might go wrong, will

• Do…– Break the news individually and confidentially– Explain why a downsizing is happening– Describe what effect is expected on the organization– Provide a timeframe– Provide psychological and career counseling

• Do not…– Hoard information– Escort employees out the door with security– Let the news media break the story– Cut jobs across the board. Rather, make the tough decisions to

selectively cut jobs

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Downsizing Effects: Overall• Mixed effects on firm performance: some short-term

costs savings, but long-term profitability & valuation not strongly affected.

• Firm’s reputation as a good employer suffers. Example: Apple Computer’s reputation as good employer declined after several layoffs in 1990s.

• Downsizing forces re-thinking of Employment Strategy. Lifelong employment policies not credible after a downsizing. Example: IBM abandoned lifelong policy after several layoffs in early 1990s.

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Downsizing Effects: Employee Morale• Employee motivation disrupted: increase in political

behaviors, anger, fear - which is likely to negatively impact quality of customer service

• Violation of psychological contract, leads to cynicism, lowered work commitment, fewer random acts of “good will”

• “Survivors” experience more stress due to longer work hours with re-designed jobs, and increased uncertainty regarding future downsizings

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Downsizing Effects: Workforce Quality• Many senior employees leave due to application of early

retirement incentives: result is loss of institutional memory.

• The use of voluntary workforce reductions (buyouts) results in the most marketable employees leaving (“stars”) -- difficult to control since all employees must be legally eligible to qualify.

• Early retirements & voluntary reductions often result in too many people quitting, and some are hired back as consultants at higher cost to firm.

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Immediate Consequences• Layoff = Increase in Job Insecurity for the “survivors”• Job Insecurity = Decrease in

– Job Satisfaction– Organizational Commitment– Safety Compliance, Safety Knowledge, and Safety Motivation– Physical and Mental Health– Creativity– Work Quality

• Job Insecurity = Increase in– Turnover– Work Withdrawal Behaviors– Negative Affective Reactions to Organizational Change– Accidents, Injuries, and Near Misses– (Temporary) Productivity

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Coping with Layoffs• Stages of Grieving

– Denial: “I’m sure the company will come to its senses”– Anger: Directed toward organization, supervisors, and coworkers – Fear: “How will I pay the bills…feed my family”, etc.– Acceptance: “Ok, it’s going to happen. What steps can I take to make

this work out for the best?”

• Tips for Laid Off Workers– Tell your family– Give yourself time to get through the grieving process– Do not make any quick major life decisions in terms of changing career

paths– Do not make major purchases– Explore with company officials what government services and

resources might be available (e.g., $ for job retraining; tuition $)– Contact workforce development centers (e.g., WorkSource)

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“Survivor Syndrome”• Focus on self-preservation rather than team

performance

• Risk aversion

• Absenteeism

• Mistrust of leadership

• More stressed, anxious, cynical, etc.

• Greater role conflict and role ambiguity

• Lower self-confidence

• Lower creativity

• Reduced morale and job satisfaction

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Re-energizing Employees after Layoffs• Back to Basics - brash up you CSM skills… Nick’s formula for success:

– S = ∏oi*P – success is a product of organizational factors and team’s productivity

– P = (∑ei)T – team’s productivity is sum of employees’ contribution in a power of the team

– e = ∑fi*aC – employee contribution is sum of environmental factors times employee ability in power of commitment

• C - Employee Commitment– Focus - Clear goals, expectations, and values are established.– Involvement - Employees have input into planning, problem solving, and decision making that affect their

job.– Development -Development of knowledge, skill, and experience that build competence and confidence

occurs.– Gratitude - Recognition and appreciation are shown for employee efforts and accomplishments.– Accountability - Responsibility is given and producing results at high standards expected and upheld.

• T – Team– Common Purpose – bringing together efforts of the team members towards common goal, result or an

outcome.– Team Composition – appropriate for the purpose knowledge, skills, experiences, background and

personalities of the team members. – Synergy – cumulative effect of capitalizing on members strengths, cross-pollination, cross-training, multiple

perspectives.– Leadership – abilities of the team leader to inspire team members to perform at their best and achieve

beyond of what is expected– Shared Accountability – the reinforcement of high standards and the shared responsibility for the results the

team needs to produce.– Organization – an appropriate structure of the team that corresponds to the team purpose, enables the

synergy, and mitigates the risks – Atmosphere – environment allowing each member to perform at their best.