The Layoff

November 5, 2009

Wow, talk about some tough decisions. With his company struggling and missing its profit projections, Robin Astrigo has a host of unappealing options available to him as he tries to cut costs. Obviously the easiest of these options is to dip into the company’s savings reserve. That will keep the employees happy if it helps him avoid or minimize any layoffs, but it probably is not the best decision for Astrigo to make. First of all, emptying the company’s savings will go over like a lead balloon with the board. And, more importantly, what happens if things keep getting worse or the company finds itself facing an emergency situation where it needs cash in a hurry? If that savings reserve is gone, the company has nothing to fall back on to deal with any unexpected emergencies or changes in market conditions that may occur, which could result in even worse results, cause the company to take a loss, or even cause the company to fail.

The question then becomes, if you are going to have to do layoffs, how do you do it? It seems likely that, outside of the cost savings, none of these options is going to be good for the company unless Astrigo can figure out a way to use the layoffs to get rid of poor performers. So, what I think Astrigo needs to do is figure out which of the layoff options will be the least damaging to the company, and that is the option he should go with. Assuming that it is financially feasible, to me, the best option is to first try and offer early retirement packages to those who are the closest to retirement. This does two things—it offers folks who may be counting the days until retirement an incentive to take off early and it eliminates those who are earning some of the highest salaries based on seniority. If, after this round of cuts is made, the company still needs to downsize I would then go based on performance. I realize last in first out is easier and is probably the standard, but, as one of the higher ups in the article points out, it can be really damaging to the company as you may be eliminating future stars and it certainly makes recruiting new talent once the economy recovers much more difficult.

Regardless of what option he ultimately chooses, Astrigo has a tough job ahead of him. No matter how they are conducted, layoffs are never good for morale, and he is going to have to put an appropriate spin on this to make sure that it does not hurt customer service, which has been something that the company has prided itself on. If this is handled the wrong way, it will set off a sense of panic in the company that things are about to get really bad, which could ultimately become a self-fulfilling prophecy if those attitudes start to impact employee performance and customer service.

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