Hopefully, the worst of the recession is over and discussions of layoffs will become a thing of the past. That hasn't quite happened yet, however. For instance, Tyco International—reeling from the mismanagement that landed former CEO Dennis Kozlowski and three others in court—in November announced that it will close more than 50 businesses and 219 facilities and lay off 7,200 employees.
There are several ways for managers to approach layoffs, according to consultant Patricia Wallington. Wallington should know: As CIO of Xerox Corp., she had to conduct multiple layoffs when the company struck a massive outsourcing deal with EDS in the mid-1990s. Wallington spoke at the Society for Information Management (SIM) Conference in New York City this fall.
The issue of voluntary versus mandatory layoffs is multi-layered. Wallington is a proponent of mandatory layoffs. She said voluntary layoffs can leave the company vulnerable because the wrong people may leave: the best people and the people on whom the company spent the most money for training.
Wallington, who was the one executive insisting on involuntary layoffs during the Xerox retrenchment, thinks the control of talent is important. "In today's world, such specific skills are required that you can find yourself very short on the kind of skills that are needed to survive," she says. "If a company is cutting back and survivability is important, how can you be as strong an organization as you can be if you're letting skills go out the door?"
The training issue also is important. If a company has invested heavily in a worker, it makes no sense simply to let him or her walk out the door—and with a good package, to boot. "There are people you spent a lot of money training," she said. "It's a big investment. You may not want them to leave them open to voluntary cuts."
There are, of course, shades of gray in the debate. It is possible, for instance, to "wall off" certain skill sets. The IT, accounting, or sales staff could be exempted from the voluntary program. "It's done more than you think," Wallington said.
Another gray area between voluntary and involuntary layoffs focuses on keeping key people in place—until they are not key anymore. For instance, Wallington was brought into a company with a division that was being dismantled because its technology was antiquated. The unit had existing contracts to fulfill. However, it was clearly a situation in which no recruitment was going to take place.
Wallington's strategy was to negotiate with the group of folks she wanted to retain—about 50—on a one-to-one basis. This type of individual attention can benefit both parties. The parent company—especially if it is large—offers valuable things to entice the needed employee to stay. Of course, there is always a monetary carrot. On top of that, Wallington could offer such things as assistance in relocation and a job elsewhere in the company.
Executives suggest a number of different approaches to layoffs. William Hollett, a retired senior vice president for organizational consulting for the human resources consulting firm Thompson/DBM, says that voluntary programs are the best option. The possibility of losing folks who are needed can be mitigated, he said. "You can exclude by title, salary grouping, by geography," he said. Another way is to limit attrition to individual departments. "[For example] you can select the older first, then the youngest, which protects the middle income people."
Bill Coleman, the senior vice president of compensation for Salary.com, thinks that voluntary layoffs are a bad idea. "Anything where the employer leaves the decision up to the employee puts the employer at risk," he says. "It's a common problem with layoffs—and in a down economy when companies are not giving salary increases—that the best people, [who] are the ones likely to be the most marketable and employable, leave." In the worst-case scenario, he says, they end up working for a competitor.
Coleman acknowledges that it is possible to set limits, but says that this adds "complexity," such as having to tell people who apply to leave that they must stay and providing folks with extravagant packages to not work, while folks left behind have to keep their noses to the grindstone without extra reward. "The issue is that loyal employees have to show up to collect their paycheck, while the former employees don't," he said.
Instead, Coleman suggests exploring early retirement as an option to layoffs. He says there are IRS-compliant ways to accelerate and increase pension benefits. "You may be getting rid of good workers, although you are getting rid of a class likely to leave within the next five or ten years, so you certainly are not getting rid of the future of the company, anyway, which is the risk of voluntary layoffs."