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What Else Besides Termination? Layoffs may seem like the easiest fix to boost your profit margins, but the repercussions will have dire effects. Discover some better options to keep your business afloat.

By Dr. David G. Javitch

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Opinions expressed by Entrepreneur contributors are their own.

Every day, you read in the papers that the U.S. recession is deepening with repercussions felt throughout the world. Large and small organizations are affected. Old, well-established companies in the auto and banking industries are bleeding. Bankruptcies and corporate closures are becoming commonplace. Stock and bond markets are down, and credit is increasingly more difficult to obtain, despite previous positive corporate financial statements. Unemployment is reaching record levels.

Do you want to be a victim of those events?

Decision time: In your own company, costs are mounting, credit lines are disappearing and revenues are decreasing. You have to make some serious decisions regarding the enormous expense generated by staff salaries and benefits. Do you terminate some and lay off others? Or do you risk bankruptcy, serious negative financial status or closure? What will you do?

One easy way to approach this complicated set of conditions is to fire enough employees to help turn around your profit and loss statements. However, there are serious costs to this move. Morale will plummet, productivity will decrease, the remaining employees will feel threatened--angry that they have to do the job of the terminated employees, and quality will inevitably decrease.

So what else can you do? Plenty. But, it takes creativity, flexibility and an ability to have effective, two-way communication with your staff.

The first step is to meet with your employees. If you have a large company, you can meet with all of them at once or in small groups. I suggest the latter. The advantage to meeting in one large group is that everyone will hear the same message at the same time--no room for the rumor mill to be activated. The clear disadvantage to working with a large group is that they feel depersonalized--the rage, disappointment or shock felt by some can easily be spread to many. When that happens, the next step may be increased and continued anger, bickering, and a loss of control and direction of the meeting.

That is why meeting in departments, sections, units or small groups can be preferable. Working with a more manageable number of employees, you can create more of a constructive, interpersonal atmosphere that leads to positive interaction with your employees. They will feel that they can relate to you on a personal level and ask key questions. This will usually be done without the anger or yelling of larger settings. However, the clear disadvantage is that this process takes a long time to reach the entire company; the message may be slightly different and not all of the information generated by employees in one session may come up in other sessions.

Whichever format you use, the process of delivering your message should follow these basic steps:

  • Describe the dire financial situation faced by the country, the region and your own company.
  • Share with them the crucial fact that you need to face some very critical challenges that threaten the very existence of your enterprise.
  • Honestly state that the actions you need to take, in some cases difficult for you, the individuals and the overall company, are being made to ensure the survival of the company.
  • Present some options that you and your senior team have created. Ask for participant feedback on these options. Then, encourage them to create other options. Employees who feel like they're part of the process are far more likely to carry out the results than employees who are simply told to implement the options.
  • Announce what the changes are and when they'll occur.
  • State that you and others will be available to hear their reactions, and yes, their complaints.

Above all, your employees need to understand that you're trying to spread the burden of cutting back or giving back to everyone rather than firing a certain number of employees.

Here are some moves employers and employees can make to avoid outright terminations or layoffs:

  • Take a percentage decrease in salary for a given period of time. This action begins with executives.
  • Offer voluntary retirements with an incentive to resign early.
  • Institute a policy of nonreplacement for retirements.
  • Implement a non-paid day or week, per month if necessary.
  • Mandate a decrease in number of hours worked.
  • Ask for overtime work at no pay or reduced pay.
  • Move to part-time status.
  • Pay a greater share of benefits such as health care costs or insurance policies.
  • Make it known sick leave can be uncompensated up to a limit of days off.

Layoffs and terminations can have a devastating impact on a company, with repercussions lasting a long time. A cohesive organization that's concerned for the well-being of others is often willing to sacrifice something of its own to help ensure the viability of the company. An entrepreneur interested in alternatives to outright firing can enlist employees to help ensure the continuing success of the entity. In that way, all employees can feel a little pain rather than a few employees feeling a great deal of pain.

Dr. David G. Javitch is an organizational psychologist, leadership specialist, and President of Javitch Associates in Newton, Mass. Author of How to Achieve Power in Your Life, Javitch is in demand as a consultant for his skills in assessment, coaching, training and facilitating groups and retreats.

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