Downsizing the Right Way

“The layoffs happened on the sixteenth,” recalls Tom (not his real name), a survivor of a massive blood-letting at a major financial services firm. Employees learned they were being let go in a glass-walled conference room at the back of the trading floor. “It was like a goldfish bowl. And to make matters worse, when people left the conference room, they had to walk across the trading floor — hundreds of feet — and everyone could see that telltale blue folder with the severance information tucked under their arm and would understand that person had been fired.

“Everyone was treated this way, from associates all the way up to managing directors,” Tom goes on. “Employees on other floors found out who had gotten laid off before the names were officially announced, because the traders spread the word. People in other banks also knew, because traders talk to each other all the time. And what they were saying was, ‘I can’t believe that’s how they’re laying people off! That company is a mess.'”

Tom concludes, “That decision — to conduct layoffs in such a humiliating way — cost the firm a great deal of loyalty and respect, not just within the organization but all across Wall Street.”

Let’s face it, “terms of disengagement” matter. Poorly handled reductions in force (RIFs) leave a bad taste in the mouths both of those employees shown the door and those picked to stay. Surveys conducted for my forthcoming book, Top Talent: Keeping Performance Up When Business Is Down, quantified the impact of layoffs on survivors’ morale: 73 percent felt demoralized, 64 percent felt demotivated, and 74 percent said they shut down and turned off. In other words, just when a company needs its top performers to charge the hill, they retreat to the bunkers.

Badly handled downsizings reverberate for years. The talented employees tossed on the scrap heap will be back in the marketplace — as customers, clients and, when business picks up, competitors, eager to lure their former colleagues to their new teams. And if those A-team players are still scarred by a callous layoff, they won’t think twice about leaving.

If RIFs are unavoidable, how can companies protect and reassure their stars? How can they ensure their best and brightest stay fully engaged even as their colleagues are being let go?

Here are two examples of organizations that RIF-ed the right way:

In early 2008, the International Monetary Fund (IMF) downsized its workforce for the first time since the organization’s inception in 1944. The IMF understood that the unprecedented staff cuts would be traumatic for its 2,600 employees, so it created a variety of tools to facilitate a fair restructuring process.

Communications were key. The IMF’s comprehensive approach included: a dedicated committee to act as an employee ombudsman; an internal website to provide one-stop information, updated daily; and an open channel to the Fund’s managing director, Dominique Strauss-Kahn, via e-mail, townhall meetings and regular coffee talks and brown-bag lunches.

Like many organizations, the IMF tried to minimize mandatory layoffs by offering voluntary separations. To help employees assess their alternatives, the IMF created what became an award-winning interactive internal website as well as in-person, on-site workshops. It also amended existing policies for people who volunteered to leave. For example, pension benefits, which usually kicked in at age 65, were extended to early retirees who were at least 50.

Lastly, Dominique Strauss-Kahn personally reached out to sister organizations such as the United Nations and the World Bank to request that ex-IMF-ers be treated as “internal staff” and given preference in applying for jobs at those and similar organizations.

Ultimately, more than 600 employees volunteered to go — nearly 20 percent more than the IMF needed. At the same time, the IMF’s thoughtful approach helped support morale for the people who stayed and preserved the organization’s reputation with clients around the world.

While the extraordinary efforts of the IMF aren’t always possible, other concrete compassionate gestures construct a solid foundation of goodwill at the cost of only a few hours’ work. When Time Warner laid off employees in its corporate office in February, Maggie Rubey Lynch, senior vice president of worldwide recruitment and executive search, ensured that the exit booklet contained more than the usual cut-and-dried severance information. Instead, if offered optimism — and options.

Call it re-employment through re-deployment. Rubey Lynch and her staff searched thousands of job postings within the company to create lists of open positions, customized for each person being let go. Exiting employees were offered preferential “current employee” status if they chose to apply. In addition, Rubey Lynch’s staff contacted divisional heads of human resources to let them know which employees from the corporate office were newly available for employment.

In tough times, knowing that management cares enough to offer more than a cursory “goodbye and good luck” builds the kind of loyalty that won’t be forgotten when things get better.

For more information on IMF’s fair restructuring and Time Warner’s customized exit booklet, download these success stories.