Cover Story Side Bar

  The Realit
of Down


ies
sizing


by Alice E. Winkler

   There is no question that as a nation, we have fallen on hard economic times. But whether you like it or not, your actions today will have an impact on your companyís performance when the economy picks up and you need to act decisively to protect your most important asset, your human capital.

Cutting Costs

   If your first instinct is to cut costs by downsizing, remember that a layoff is a dramatic step that will have lasting implications. The experience and knowledge that your employees have accumulated over time, not to mention the relationships they have developed with your clients, are priceless.
   In fact, contrary to your gut instinct to stay afloat by cutting staff, a study conducted by Watson Wyatt after the recession in the early 90s found that fewer than half the companies that downsized met their profit goals. Similarly, another study conducted by Bain & Co. concluded that companies that underwent mass layoffs underperformed the market for the following three years. Although the reasons for these productivity losses are complicated, you can bet that they had something to do with the exit of talented human capital and the resulting drop in morale among surviving employees.
   So, what you really need to do before laying off valuable employees is to evaluate all your options. Can you reduce expenses another way? For example, perhaps a payroll cut or workweek reduction will do the trick. Offer your employees the opportunity to take sabbaticals or share jobs. Donít neglect the obvious; a close examination of your monthly bills may reveal mistaken billing practices or alternatives to current purchasing policies. And donít forget to ask your employees for ideas ó after all who is better qualified to streamline your business practices?

Downsizing

   But, if you simply cannot see yourself out of your current economic condition without downsizing, donít make the critical mistake of alienating your surviving employees. These employees are crucial to your companyís turnaround and youíve got to maintain their morale and loyalty.
   In this respect, communication is critical. Keep your employees in the loop by explaining what you are doing and why and explain your long-term projections for the company. Offer them opportunities to voice their opinions as you reorganize and redistribute work. Try setting up meetings where employees can address top executives directly. Most importantly, communicate a long-term vision for the company to reassure surviving employees that they have a future.
   Another critical factor is the treatment of outgoing employees. If you lose the respect of your surviving employees now, you will have a hard time regaining it and they will take the first opportunity to jump ship when the economy turns around. So think carefully about how to conduct terminations and stay away from group layoff announcements where several employees are notified at the same time and immediately whisked out of the building. In the case of a mass layoff, make sure you comply with any applicable legal regulations including the notice provisions of the WARN act. Also, remember that jittery surviving employees are monitoring your severance package policies to gauge their own treatment in the event of another round of layoffs.
   Also, downsizing employees does not mean you need to lose contact with them. After all, when the economy picks up who will be better to suited to fill vacancies in your company than former employees with a proven track record and expertise? Get their e-mail addresses or create a website to keep them informed of job opportunities that become available in your company. Cisco Systems has developed one of the more creative programs in this area by continuing to pay laid-off employees a third of their salaries for a year if they choose to work for an approved non-profit during that time. With the same goal in mind, some companies have announced generous rehiring bonuses for former employees.

After The Axe Falls

   Finally, if you have already been laid-off, there are a couple of things you should remember. First and foremost, donít panic and donít take your companyís actions personally. Use your friends and family as support systems, max out your usage of any outplacement services that came in your severance package and if you are really feeling stressed, seek professional help.
   More practically, review your former employerís employee handbook so you have a clear understanding of your entitlements. These entitlements are not necessarily limited to severance packages and may extend to unexercised stock options as well as unused vacation or sick pay. It is, of course, critical that you continue health insurance coverage either through COBRA, an alternate vendor or under your spouseís plan. Apply for unemployment immediately and re-evaluate your budget and living expenses. Depending on your particular situation, you may be able to reduce expenses or may need to prioritize the payment of your bills. (As a general rule, secured debts such as car payments, should always be paid before unsecured debts, such as a credit cards.) Finally, remember that you should only raid your 401-K plan and take out a second mortgage on your home in an emergency. Donít do anything rash that you will come to regret in the future.

Conclusion

   Remember that as an employer, you need to safeguard your companyís long-term outlook for recovery and as a former employee you need to protect your long-term financial position. So no matter how tough things get, donít panic. Take a close look at the implications of your actions and make sure that every step you take will set you up for the future.