Alternatives to Layoffs

Here are some interim steps to reduce payroll costs that are less damaging to morale than wholesale firing

Dear Liz,

I'm an HR manager in a company that, like many others, has experienced a run of tough quarters. My CEO has asked for a proposal for a reduction in force, along with at least two alternatives. Can you help?


Dear Sam,

Sorry to hear about the difficulties your organization is facing. You certainly wouldn't be alone in having to make workforce cuts if you end up taking that route. There are alternatives to layoffs that may serve the company better in the long run. Here are three of them to consider as you build your proposal.

The downside to downsizing are clear: The work must be reassigned, and job descriptions juggled. That takes time and sucks energy that could go to serving customers and increasing sales. "Survivors" are rattled and quite likely concerned about their own longevity with the company. Voluntary turnover may become an issue, and a rash of unemployment-compensation claims could easily lift the rate of unemployment taxes that your company will have to pay.

The business community and your clients will have their own reactions to a layoff. Financial analysts may love the idea or see it as harbinger of bad things to come. Clients may be distressed and worry that they've backed a losing horse (that's you) to supply their needs.

There may be no alternative to eliminating jobs. But here are three ways that companies have saved money without wholesale job elimination:

1. Take another look at nonperformers.

Even in a tightly run ship, you may find that much of your payroll-budget-cutting exercise can come through finally saying goodbye to weak performers. If you had perennially underperforming folks on the payroll whose departures could save the jobs of excellent but currently underutilized employees, you'd be wise to evaluate those problem-employee files first.

2. Ask for volunteers.

If your layoff plans call for severance or other types of assistance (e.g., job-search support or a training grant) you might learn that a call for volunteers gives you a long enough roster of willing employees to avoid involuntary layoffs altogether. By the same token, you may hear from full-time employees who'd be happy to switch to part-time in order to attend school or take care of other matters, or even to take another part-time job. Asking for volunteers is also a good way to involve employees in the something's-got-to-change process without summarily announcing reductions with no input from the troops.

3. Reduce hours/furlough

If your performance-based termination—and plans for voluntary layoffs or schedule changes—don't give you the full savings you require, you can look at reducing work hours for some of your staff members and/or establishing a set of week-long unpaid vacations. These are short-term measures that may make up the gap if you expect business to rebound next quarter.

With any of these initiatives, thorough and thoughtful communication is key (, 9/12/08). Keeping employees in the loop and letting them know that the reduced hours, unilateral vacation days, and volunteer-layoff programs are your carefully considered alternatives to job elimination are critical steps. As you seek to turn the company's fortunes around without losing what you've built up in employee goodwill and motivation, you can't overcommunicate—keep the information flowing. Also, asking for feedback and ideas from employees is never a waste of your time or energy, and again, reinforces the idea that they are part of the solution. Best of luck, Sam.


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