No One Wants to Fire Employees. Here Are Some Alternatives to Layoffs. Try these strategies for cutting costs, not people, during the crisis.
By Krister Ungerboeck •
Opinions expressed by Entrepreneur contributors are their own.
Companies around the globe are announcing major layoffs because of the economic impact of COVID-19. Even if you're a leader who has held onto your staff thus far, you've probably considered letting some people go. Before you head down that difficult route, I encourage you to look into viable, sometimes unconventional, alternatives to downsizing a workforce.
It's not just about avoiding a layoff (although that in itself is a strong motivator). Businesses that handle this unprecedented situation well by retaining their superstars will bounce back faster and enjoy increased levels of employee loyalty.
If you're poised to initiate reductions, wait until you have no other option and investigate how to avoid workforce reduction. Getting rid of workers may ease the short-term strain on your budget, but letting go part of your workforce has long-term effects.
Why layoffs leave lasting wounds
Research shows that letting go of just 1 percent of your team can significantly decrease the engagement, performance and job satisfaction levels of your remaining staff. Why? The ones who are left experience survivor guilt and feel they're expendable when it comes to the company making ends meet. Sure, you'll still have the rest of your workers, but they're apt to lose their sense of faith, loyalty and confidence in your company after saying goodbye to co-workers.
So regardless of what you may have heard or read, you don't want to trim your workforce. Instead, look at the coronavirus pandemic as an opportunity for your corporation to stand out and illustrate humanity and compassion. The best way to do that is to learn how to cut costs without laying off employees (and then apply those cost-cutting strategies ASAP).
Related: How to Trim Payroll Without Layoffs
In addition to exploring how to avoid workforce reduction, you should encourage open communication throughout your company. Withholding information could lead to employee assumptions: "If that company let everyone go, my employer will, too!" Your employees know you're trying to figure things out, so the more you communicate as a leader, the less they'll wonder whether you'll start letting people go. You may even want to announce that you're actively looking into alternatives to layoffs and downsizing to allay rumors and fears.
It's time to consider anything and everything, from limited workweeks to changing employees' pay rates using a sliding scale. Don't resort to saying "no" even if a temporary fix sounds downright bizarre. When the coronavirus pandemic passes, many businesses will have truly unique stories to tell. Who knows? Your company may revolutionize the way we think about crisis management.
How to cut costs without laying off employees
If you're looking for alternatives to layoffs, use these cost-cutting strategies and best business practices to navigate today's difficult business landscape:
1. Reduce hours
Why not shave hours instead of personnel? Reducing work hours according to an employee's role allows you to retain all of your talent. You may have to lower wages and curtail bonuses for a while, but you'll highlight your dedication to your workforce. A 30-hour workweek isn't unprecedented, either; plenty of Scandinavian workers clock in around that level, and their businesses can still compete globally.
How do you divvy up work hours among staff? First, separate your employees into three tiers. The top 20 to 30 percent are mission-critical and need to work at least five days a week. The next 50 to 60 percent of your employees should be considered essential, but you could shorten their workweeks to three or four days without sacrificing business results. Yes, they may net only 60 to 80 percent of their normal compensation, but that's better than losing their jobs. This leaves the bottom 10 to 15 percent, who may be subject to bigger cuts (more on that later).
2. Buffer employees' pain
Never make your employees do something that you're not willing to do yourself. Numerous CEOs have announced that they're taking little to no salary this year. Disney Executive Chairman Bob Iger and new CEO Bob Chapek are taking 100 percent and 50 percent salary cuts, respectively. The mass media and entertainment company expects to struggle in the wake of the coronavirus due to theme park shutdowns and postponed movies, so the leaders took a hit to help the company.
Follow in their footsteps and cut back your pay, too. It would be callous to ask your team members to make a sacrifice that you won't. By absorbing some of the economic blow, you'll actively reduce the fiscal pain points of your personnel.
3. Factor in economic stimulus possibilities
As you work diligently to avoid a layoff, keep in mind that government assistance is on the horizon. Though corporate bailouts raised ire among some in 2008, they're more welcome this time around due to the medical nature of the COVID-19 emergency. Check here for the latest on stimulus possibilities for your business.
4. Open the floor to suggestions
Brainstorms are needed now more than ever, so give your employees opportunities to voice innovative ideas for limiting losses. Consider how their solutions could help prevent a workforce reduction. What you need right now is a colossal dose of brainpower, and your colleagues are just the people to provide new perspectives.
When opening the floor to suggestions, make sure your mind is open to the suggestions you receive. When I was 17 and working at my father's company, he asked me to come up with a solution to a problem the company was facing. The out-of-the-box solution I pitched addressed the issue in a completely new way, which unsettled my father. He was under a lot of stress, so he was unreceptive to my idea. When brainstorming around avoiding a layoff, you'll need to expand your company's comfort zone when it comes to new ideas.
Related: New Stimulus Bill Unlocks IRA and 401(k) Dollars for Financially Affected
5. Base cuts on performance
If you can't avoid a layoff, make a deep cut and let the bottom 10 to 15 percent go. This practice was preferred by Jack Welch, who passed away just before COVID-19 took hold. Welch advocated for cutting the bottom 10 percent of performers annually as a matter of course. Though not ideal, it's more calculated than just getting rid of whole departments en masse. Additionally, making layoff decisions based on performance gives you the chance to reward those who have remained driven and devoted throughout the years.
Consider cushioning the blow by letting the displaced workers keep their company laptops or extending their benefits to cover an additional month or two. More than 3 million unemployed people are concerned about health coverage, so try to ease the blow as much as you can by keeping former workers covered a little longer.
Related: 5 Ways to Ease the Pain of Layoffs
The sudden economic fallout caused by the coronavirus has been nothing short of unparalleled. Every company will be remembered by its leaders' decisions at this crossroads. If you exhibit never-ending empathy and adopt alternatives to laying off employees, you'll come out stronger at the end of the pandemic.
