Layoffs were never easy for me; they always had a significant impact not only on those laid off, but their families and on the organization and since I felt personally responsible as the owner or President/General Manager, the decision was never made lightly.ÿ Over the years, it never got easier, but I did develop a number of practices that seemed to be effective.
Taking action quickly, early on, took a while to learn. ÿInitially, I would wait until there were lots of troubling signs-generally many months or a few quarters.ÿ When sales revenues fell off and we learned that our customers just had too much inventory, we would watch for the next buying cycle; sometimes many months would pass.ÿ Order bookings would fall off and there would be no clear signals in the economy from reading the WSJ or BusinessWeek that a recession was coming so it was easy to chalk it up to seasonality or an anomaly.ÿ Often, 3-6 months would pass where we were convinced the situation was just temporary, and before we knew it we found ourselves in the middle of a recession.
Over time, I began to develop a good sense about which of our customers were good “leading” indicators, especially by looking at their previous order patterns!ÿ Well-run customers often were very good at reading their own bookings and custumer reactions and would start reacting quickly by slowing down their orders to us; I knew we had to act.ÿ In fact, I developed a rule of thumb that two months of declining orders in excess of 15% from the previous 3-month average was the “red flag” signaling that we had to take action and reduce headcount.ÿ By then, we had already curtailed overtime, and were very cautious about inventory build and limiting any future “buys.”
I never used pay-cuts, wage freezes, shortened work weeks or benefit suspensions.ÿ In my opinion these measures too often “penalized” the entire workforce and were demoralizing. Sure, everyone stayed on the payroll, but it did not feel right to ask people to take less pay and expect them to do the same or a greater amount of work.ÿ Yes, the work force that got laid off were “demoralized”, but I wanted to be sure that those that were left got raises, were competitively paid, had an opportunity for promotion and knew that their benefits were intact.ÿ We always focused on a “deeper” cut than we felt we needed, because we wanted to avoid having multiple “bites” at the apple. ÿIf we had cut back too deeply, we could rehire if we needed to.
Making the selection of who was to be laid off was never “across the board” and always started at the lowest managerial levels in the organization.ÿ Once we clarified what the general percentage of resources needed during the downturn was, say 75%, we charged the Department supervisors with coming up with the names of individuals in their area, asking them to come up with a ranking of up to a 40% reduction.ÿ Not every area had to cut, and in fact some areas might still be adding people; we avoided hiring “freezes.”ÿ The criteria was each person’s skill-set for the downturn, their skill-set for once the recovery began, competency, attendance and finally, all other things being equal, seniority. ÿSince this process was similar to our annual performance reviews, there were generally no surprises.ÿ We made a couple of “passes” at the lists and in a number of instances would shift people to other departments to hold on to a particularly good resource.ÿ We even might offer a “demotion”, never “redlining” pay, but always bringing it down to the new pay grade to hold on to an employee; some times they would leave anyway but often times stayed on as loyal employees.ÿ
Often, we would ask employees if anyone wanted to volunteer for a layoff and invariably we got a few who did-they could start collecting unemployment and more importantly, be considered early on in the “call back”, but no guarantee, when we began to re-hire. ÿNot everyone was selected who volunteered; we did not want to lose our high performers. At a business I ran in northern Michigan, much of our workforce were part-time farmers and welcomed the opportunity for a springtime layoff.
The selection process would take about a week, and if asked about “layoffs” my standard answer was “there are no layoffs today!” I never made promises.ÿ We spent a lot of time on the process during the day of the layoff to insure that we provided as much information to each person about their final pay, benefits and unemployment and encouraged them all to find another job. We would never speculate on the length of a layoff.ÿ Everything was in writing. Each person was met with separately, with their supervisor and away from their department, generally after the morning break; never at the end of the day, or on Mondays or Fridays.ÿ
Once everyone was told and had cleaned out their desks or lockers, we held an all employee meeting to discuss the situation and focus on the survivors and their future.ÿ We made sure to refer to those laid off with dignity and respect and reminded everyone that they would need support over the coming months, after all some of them were their good friends.ÿ Generally, we would hear back from the survivors that we had “selected” the proper people and they were ready to move forward, often carrying some extra load. ÿ
Unless the employees worked directly for me, I did not sit in on the layoff one-on-one discussions.ÿ However, from time to time, laid off employees would ask to see me.ÿ Although I was anxious about these meetings, I was always firm about the “finality” of the event and most just wanted to vent a little.ÿ Difficult and sometimes tearful, listening came with the territory of “being in charge.”ÿ
Moving quickly, cutting deep and focusing on the survivors made this process effective for us and allowed the business to focus on the future direction of the company and changes in tactics and plans as we focused on customers during a downturn. ÿHowever, it never got easier!
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Jim Sharpe (MBA `76) is one of theÿHBS Entrepreneurs-in-Residence for the 2009-2010 academic year, who ran an aluminum manufacturing business for 21 years while working with his wife, Debby Stein Sharpe (MBA `81) after both left careers at GE and large companies and sold the business in late 2008. ÿJim can be reached at: firstname.lastname@example.org, 310 Rock Center, 617-496-6285.