Layoffs _#8212; CEO Shoptalk,BigRedCar
October 11th 2017
Layoffs are never fun. Here’s how to think about and do it.
So, it is gorgeous in the ATX — high 0f 78F, currently sunny and 67F. On Earth as it is in Texas! A day to eat outside.
So, we spoke earlier about firing folks for cause, remember?
Today, we follow up on that by talking about layoffs. Layoffs are “not for cause” terminations, while firing people is “for cause.” Know the distinction. Either way, it is a hard day at Slippery Rock when you have to fire or layoff folks.
Big Red Car, why are we having layoffs?
Layoffs are tinkering with the organization chart for a number of reasons:
1. Cash-on-hand plus operating revenue is insufficient to meet payroll at current levels. Finances mandate the payroll be trimmed.
2. The company has finished a project and the current level of staffing is no longer required as the company morphs from a developmental posture to an operating posture.
3. The focus of the company has changed or the business model has changed in such a manner that the talent pool of the company has to be changed to meet the new market forces.
4. The same level of financial performance can be achieved with fewer people.
5. Some organizational change has occurred such as a more overseas orientation versus a more national orientation.
6. The same level of performance can be achieved by some element of automation, outsourcing, experience, or skill development.
7. You are right on the edge of achieving breakeven and you want to make cuts to accelerate the progress of to fatten up the profits.
This is a partial list. You will know of other reasons, but the result is the same — too many people and some must go.
How do you decide who goes, Big Red Car?
I find a lot of CEOs making decisions as to who is to be laid off without sufficient thought as to the long term prospects for the company.
The CEO has to consider skills, longevity, compensation, culture, and other things. Obviously, if the company is staring down a short financial runway, one of the biggest considerations will be financial. In the end, the question is — What will be the impact of laying off Ivan?
Consider this carefully, dear CEO.
How do you do it, layoffs, Big Red Car?
Here are the steps. You will recognize them from our discussion on firing.
1. Make your list. Check it twice.
Document, in a memo, exactly why you are taking this action. File the memo.
2. Marshal your logic and reasons. You will want to identify the reason without explaining nuclear physics. If it is purely a matter of the company’s financial situation, be straight about it.
Apologize to the laid off persons. It is no their fault if you undercapitalized the company, is it?
As opposed to how a CEO might communicate with “for cause” termination, you want to be more empathetic in dealing with layoffs.
[Pro tip: You may layoff someone and hire them back at some future date. Do not make the process of laying them off an impediment to rehiring when the situation changes.]
3. I suggest you layoff people at 4:00 PM on a Thursday afternoon. This way the company hears the news, has Friday to chatter about it, and the weekend to heal.
4. Do it individually, in person, and quick. Have your HR person or CFO in the room with you. Use a checklist and hit every point.
If you are going to layoff four people, do it back to back, not in a group.
5. Have a Mutual General Release drafted, sign it, and spell out the severance arrangement. The Mutual General Release should include confidentiality, non-hire, and non-disparagement provisions.
Make it clear that the severance arrangement is the consideration for the Mutual General Release.
Pay the severance out over the normal payroll cycle. This is a way to maintain a working relationship.
[Real world problem: If the layoff is because of a shortage of money, it is hard as Hell to be as generous as you might be inclined to be because you are running out of money. Stay real.]
Be as generous as you can on severance. You are buying peace and rewarding performance.
6. Have a Letter of Reference prepared, sign it, and give it to the former employee at the time of notification. This is not going to soften the blow, but it is a good sentiment.
7. Think carefully about what you are going to do with company laptops, credit cards, cell phones, cars.
Make sure all confidential, proprietary, trade secret, and customer info is off the laptop if you decide to allow the laid off employee to keep a laptop.
8. Turn off access to everything. Do not allow this to become a problem. Do not allow employees to copy any company information.
9. Have an “all hands” meeting to announce it to the company as soon as possible. They have to hear it from you, not the laid off party.
Take questions, but remember, this is a personnel issue. You can’t say much.
[Pro tip: Make damn sure to tell them if this is the extent of the layoffs. They will want to know whether more layoffs are in the wings.]
10. If the individual laid off is a client-facing employee, make sure to inform the clients and to provide them with a new point-of-contact. Have the new POC call on the client the next day. Do not waste time on this because if your clients are portable, they may elect to go with the former employee. Work this angle hard.
11. Have three contacts with the laid off folks — notification, a few days later when the Mutual General Release is signed, and their last day. Don’t linger. Develop continuity and move on. Quick separations are the best way to go here.
12. Write each person laid off a personal, handwritten note offering your assistance in finding a new job. Keep it personal and individual.
So, there you have it, dear reader.
What else, Big Red Car?
Let me real world it for you, dear reader.
1. This will happen. You should try to avoid it because it is a huge disruption to the company and the culture. But, you are not the first CEO to have to trim the sails a bit. Don’t feel sorry for yourself.
2. Your company productivity may actually improve as the remaining folks ratchet up their game or want to ensure they are not next. This is why you have to be so thoughtful when you decide who to cut. I saw a sales team blossom when they got rid of 15% of the sales force which represented only 7% of sales.
3. It is always personal and how you handle it will be very personal. Don’t rush it. Be a mensch.
4. Think about span of control and consolidating management as a means of streamlining an organization. Trim some body count, but also streamline the organization.
Maybe cutting a manager and expanding the direct reports or an existing manager achieves the same impact as cutting four software engineers. Look critically at the org chart. The org chart is both body count and money.
[Pro tip: This is why dollar-weighted org charts are so damn useful and important.]
5. Move on quickly after a layoff. More frequent all hands meetings to bridge the short term pain.
6. Make a checklist. Practice. Do it quick.