Strategy

The playbook (HR): Minding who's left behind

Layoffs hurt those who are let go, but they also have an effect on employees who are staying.

Laying off employees is no doubt one of the toughest acts a manager has to face. But the ensuing problems caused by downsizing are just as daunting. Employees who remain can suffer from stress and low morale, and experience a drop in company loyalty, which can take a toll on productivity.

In such situations, the importance of communication can’t be underestimated, says Debra Horsfield, organizational effectiveness practice leader at consulting firm Watson Wyatt in Toronto. Managers should meet with team members individually after a wave of job cuts to explain what each can contribute, and the support available to them from management. “That rallies the team and gets people enthusiastic to move forward,” Horsfield says.

It’s helpful for leaders to think about how they would like to be treated in the same situation, and act accordingly. Of course, managers may actually be worrying about their own jobs, but there is a higher onus of responsibility on leadership to keep their emotions in check, lest they further traumatize staff. “If you’re going to show your own insecurities and fears, that will have an impact on your team,” says Bonnie Flatt, leader of PricewaterhouseCoopers’ total rewards practice, which advises clients oneverything from salaries to employee appreciation programs.

With so much uncertainty in the air after downsizing, it’s not surprising that some employees consider leaving. A study from the University of Wisconsin-Madison published last year found downsizing can lead to greater turnover rates, leaving organizations understaffed and less efficient. Monetary incentives to keep valued employees may not be an option during strained times, but they may not be the best way to build loyalty, even at the best of time. “Top talent needs to feel like they’re making a difference or adding value,” Flatt says. Employees should also be asked for possible solutions to problems to make them feel engaged. “They may come back and have ideas that you wouldn’t have even thought about, because you’re not there in the trenches,” Flatt adds.

Even with such measures, job cuts can end up damaging a company in the long run. “You’re paying indirectly the equivalent of the salaries of the people you lost, because of lost productivity, increased absenteeism and increased benefits costs,” says Linda Duxbury, a professor of management at the Sprott School of Business in Ottawa. Companies should look at every possible option instead of layoffs, including four-day workweeks, voluntary layoffs and unpaid vacation.

The risks of layoffs are even greater these days because the country is still facing a talent shortage. “You lay off now, and in a year and a half you’re going to be in deep trouble, because you’re going to be competing against everybody and his brother,” Duxbury says. “But you’re also going to be wearing the bad reputation of somebody who really isn’t loyal to their employees.”