Some guidelines when cutting jobs | Retrenchment

Cutting back on headcount during hard times can be very draining for both the employer and the employee(s). The process should be handled gracefully and fairly by the company, to avoid unreasonable negative impact on employee morale and company productivity. A few basic guidelines can help make the process a bit easier for all concerned.

1) Do a proper/long run cost-benefit analysis before reducing headcount

In efforts to cut costs and headcount, companies often fire too many people and simultaneously put a freeze on hiring. This is a classic way to overwork remaining employees, causing burnout, resentment and turnover. It can also increase costs in the long run. According to Dr Stewart Black, executive director of the INSEAD’s Centre for Human Resources in Asia - “Before companies reach for the axe, they should first do a cost-benefit analysis of how much it will cost in the future to recruit, train, develop and get a replacement worker up to speed. Quite often, companies underestimate this when they reflexively cut people. They are penny-wise, pound-foolish, saving money at the moment only to spend more money in the future”

2) Limit the number of rounds

It is common for companies to have a few rounds of retrenchment, as the downturn continues. However, this approach can be counterproductive. After the first or second round of cutbacks, the remaining employees spend more time worrying about their jobs, rather than working hard to keep it. This view is shared by Dr Black, “It is better to do your calculations thoroughly and then retrench in one fell swoop, than make multiple cuts as things worsen. Because misery loves company, they will spend all their time commiserating in the hallways. Productivity will plunge further.”

3) Be supportive and fair to those leaving

For most people, losing their jobs will be emotionally and financially challenging. If the company provides them with a reasonable amount of support, the separation will be on a much better note. This could include an outplacement package to help them find another job quickly and maybe even monetary compensation to get through the initial months.

Also, it is important to train the managers, who are giving the employees the bad news. They should be well prepared for the variety of reactions and emotions they will encounter. They should also be able to answer basic questions regarding redundancy payment, benefits, notice periods, outplacement support, and exact next steps.

These practices will help protect the company reputation, since employees leaving will not drag the company name in the dirt. Furthermore, employees still with the company will also notice this and will see the company in better light.

4) Make sure to give enough/extra attention to surviving employees

The employees (hopefully top performers) who survive the cutbacks need to be managed properly.

Ø Ensure that they receive ample/clear communication about the company’s current state and future plans. The last thing you need is more uncertainty floating around

Ø Managers must be told to over-manage their employees during this time. Regular check-ins should be done to make sure employee morale, motivation and performance is doing fine

Ø Managers must be supportive and show their employees that they care

Ø Provide as stable an environment as possible (i.e. keeping even small things as they were before) and also provide hope that things will get better. Involve employees and let them know what they can do to help the company,

Ø If possible, do not cut back on employee training/ development and other important areas. Focus on reducing excess/ unnecessary expenditure and overheads instead. This helps maintain motivation and also means that when things turn, the company will be ready with well trained/prepared people, to take full advantage of the acceleration. Research has shown that over 85% of companies enjoyed a positive return on their investments in marketing, operations and human resources made during recessions (provided of course that their balance sheets and liquidity are not a complete disaster)

Sources: Sandbox Advisors; INSEAD Knowledge