Managing Employees in a Downsized Environment

Overview

Human resource professionals are key to enabling an organization to manage and resolve whatever issues arise after it has downsized its workforce through layoffs. The challenges facing HR in the post-downsizing period fall into eight general categories of professional responsibilities. Each is described and discussed in this article:

• Communications necessitated by downsizing.
• Reallocation of job responsibilities.
• Adjusting compensation and benefits.
• Retraining.
• Maintaining engagement and satisfaction.
• Retaining and rehiring.
• Maintaining customer relationships.
• Evaluating systemic and individual performance.

This toolkit focuses on managing in an environment where downsizing has already taken place; it does not deal with planning or implementing a downsizing. For details on those aspects of the downsizing process, see Managing Downsizing by Means of Layoffs.

Background

Workforce reduction can be accomplished through attrition, voluntary termination, early retirement incentives or compulsory termination. Situations in which employees are required to leave—the most difficult type of downsizing for both the employees and the employer—require careful preparation and implementation. But those are just two of the three major stages of downsizing. The third stage—as important as the other two stages—is managing the HR responsibilities after the downsizing has been accomplished.

Essentially, the major aspects and effects of downsizing continue into the period after the organization has shrunk its workforce. Surviving employees harbor concerns about job security. Many are uncomfortable with change, and most survivors in a downsized environment are likely to feel that they have to work more, that their jobs will be less satisfying and that they will be paid less.

At least some of the remaining employees will likely need retraining, which HR typically arranges. There may also be administrative obligations pertaining to employees no longer on the payroll but still connected for a time with the organization's benefits program. HR may find it is fielding more queries about retirement plans from laid-off employees and helping more former employees find new jobs. Additionally, at least some of the legal concerns that arose during the planning and implementation stages will likely be present for a time after the downsizing.

Communications

Managing communications is a major part of the process of transitioning to a post-layoff workplace environment. After an employer implements a layoff, the theme of communications changes—from specific types of information for employees losing their jobs to types of communication tailored for those who remain with the organization. Until the downsizing has been completed, communications include issuing Worker Adjustment and Retraining Notification Act (WARN) notices, identifying and informing employees who will be laid off, explaining COBRA benefits, conducting exit interviews, and setting up outplacement services. After the downsizing, communication turns its focus to employees who remain.  See Managing Organizational Communication.

Communicate the new world order

The purpose of a layoff is to realign the workforce with current business conditions. Therefore, a fundamental communication after a layoff is to explain to employees how management believes the change will improve the organization. Essentially, management wants to convince employees that the layoffs were necessary, appropriate, legal, fair, and compassionate and designed to create a stronger organization—all of which should be true.

Although such communication might seem like a "pep talk," it should be planned and carried out as a serious effort to bring the surviving employees together in a cohesive and enthusiastic team. The employees who have survived should be convinced that they are still employed because the organization needs and values their knowledge, skills and abilities to fulfill ongoing roles.

Depending on the organization's particular circumstances, this communication process might require educating employees about the organization's economic conditions, information that they would not ordinarily deal with in their day-to-day work. For example, the organization may have to tell employees: "We needed to outsource these jobs because our major competitors have already done so, which enabled them to lower their labor costs and increase their sales. Bottom line: Our competitors were making money, and we were losing money."

The first such talk with employees should involve those most affected by the layoff. Subsequent talks may be necessary for the entire organization. Over time, the talks should become strategy sessions and eventually standard business meetings. See How Do You Handle More Layoffs?

Communicate what employees need to hear

HR professionals or others responsible for organizational communications should keep in mind that employees need to feel safe before they can go on to become productive in a downsized environment. Various employees have differing concerns. For some managers or executives, maintaining the value of stock options may be paramount. For other employees, maintaining salary, bonuses, health insurance benefits or work/life flexibility may hold more value. In all instances, communicators must be truthful and encouraging, but they should never make unrealistic promises.

Keep communication continuous and comprehensive

Communication should expand on a variety of fronts, including the business's progress in the post-downsizing environment. The communication should go both ways, with members of upper management realizing that they learn more by listening than by talking. Keeping the dialog going until it evolves from crisis mode to business-as-usual is crucial.

Analyze employee responses

A downsized organization should analyze the feedback to its communication efforts to determine if any refinements are needed, whether in the organization as a whole or at the individual level. The employer may discover it needs to restructure workgroups, provide training, implement additional layoffs, adjust compensation and benefits, or find ways to mollify disgruntled customers. Employers should listen to what survivors are saying because their knowledge is part of why they survived the layoff.

Reallocating Job Responsibilities

Conducting a layoff involves prioritizing job requirements, analyzing the existing workforce and making the layoffs in such a way that the most vital jobs will continue to get done. If this analysis is not done before the layoff is implemented, the layoff may appear to be—and in fact may be—unfair and clumsily executed. But the process cannot stop there, because reshuffling surviving employees' job duties involves significant disruption to the entire employment relationship.

As soon as it has been decided that there will be layoffs, but before the decision is announced to the workforce, HR and senior managers should identify what work needs to be performed following the reduction and what restructuring and reassignments can help ensure that the work is performed efficiently and effectively. See Restructuring Your Organization Post-Pandemic? Maintain DE&I Commitments.

Retraining

Organizations may not have time or resources during the implementation of a layoff to make decisions on retraining the surviving employees. When the layoffs are completed, however, the question becomes how the employees who remain can best help the organization achieve its mission. The answer may emerge one employee at a time. An excellent IT specialist, for example, may require training and education to become the manager of a team of excellent IT specialists. And so it may go throughout the downsized workforce.

Moreover, surviving employees will be more engaged and feel more satisfied when they see their organization reinvesting some of its savings from the layoffs in retraining them and developing their careers. See Upskilling Benefits Companies and Employees.

Adjusting Compensation and Benefits

Although adjusting compensation and benefits should be considered during the planning and execution of a layoff, some issues in that area may possibly require attention after the layoff is completed. Most likely, surviving employees will think that they should be paid more for taking on added work or that they should be recompensed in some way for any loss of fringe benefits. No one wants to take a step backward. But accommodating such expectations may undercut the cost-reduction purposes of the layoff.

Nonetheless, making some adjustments in compensation and benefits plans for the survivors may be necessary. If an employer refuses to do so, employees who have been identified as critical to the organization's ongoing operations may start looking for greener pastures.

Maintaining Employee Engagement and Satisfaction

Downsizing can take a toll on workforce morale; employees may feel betrayed. Long-term consequences of altering the work environment include increased voluntary turnover and decreased innovation. In the aftermath of an organizational downsizing, the surviving employees will engage in comparing what they now have with what they had before—and with what they think they could get elsewhere. Some employees may feel fortunate to still have a job and may be resolved to help the organization succeed. Others may feel bitter toward the employer for not having received a raise, for example, and may be resolved to sue the organization.

David Noer, an honorary senior fellow at the Center for Creative Leadership, in Greensboro, N.C., describes a malady called "layoff survivor sickness."¹ It is caused, he says, by a pervasive sense of personal violation. It is "a toxic set of feelings and emotions"² that include:

• Fear, insecurity and uncertainty.
• Frustration, resentment and anger.
• Sadness, depression and guilt.
• A sense of unfairness, betrayal and distrust.

Charles O. Trevor, associate professor of management and human resources at the University of Wisconsin-Madison School of Business, and Anthony J. Nyberg, associate professor at the University of South Carolina Moore School of Business, as well as Noer and other experts, have identified HR practices that can help address such post-layoff emotional problems. Among their recommendations:

• Overcommunicate and tell the truth.
• Ensure a perception of fairness in decisions on restructuring.
• Adopt a helping relationship, rather than one of command-and-control management.
• Facilitate grieving and venting.

In their research, Trevor and Nyberg also examined another circumstance that HR professionals could encounter after their organization has downsized—namely, increased turnover. They found that the more people an employer laid off, the higher its rate of subsequent turnover. For example, organizations that laid off 0.5 percent of their workforces sustained, on average, an annual turnover rate of 13 percent—a rate 2.6 percentage points higher than the average annual turnover of organizations that did not cut staff. In other words, an extra 2.6 percent of the workforce left of its own accord, more than five times the percentage of workers who were laid off.

The researchers added, however, that certain HR practices can substantially buffer the effects of downsizing on subsequent employee turnover. Practices that foster "job embeddedness," or attachment, serve as one kind of buffer, according to Trevor and Nyberg.³ These include defined benefits plans, sabbaticals, onsite child care, hiring for organizational fit and flextime. Another category of buffers consists of practices that convey a concern with "procedural justice"⁴—in other words, practices that give employees a sense that the company is just and fair; these practices include providing ombudsmen, confidential hotlines and formal grievance processes. Implementing or strengthening such practices before layoffs might help an organization mitigate employee flight after a downsizing, the researchers reported. See Developing and Sustaining Employee Engagement and Pandemic Leaves Some Struggling with Survivor Guilt at Work.

Retention and Rehiring

When an organization has completed a downsizing, it may determine that it lost more good employees than it had expected or that conditions now indicate that it should start planning to expand its workforce as economic conditions improve. See How long after eliminating a position should we wait before filling a position?

Hiring a new employee involves so many uncertainties and costs that it is often better to retain, retrain and reassign a person already on the payroll or to rehire a former employee. Rehiring laid-off workers could be advisable for various reasons, such as curtailing outlays for severance payments or unemployment benefits. In addition, rehiring laid-off employees might increase company morale.

Evaluating Systemic and Individual Performance

A layoff presents special challenges for HR professionals because both individual performance and organizational standards may be in flux at the same time. Enduring a layoff may require greater flexibility on both sides. The situation is dynamic, not static. The process is a continuous effort of comparing how the employees and the organization are doing after the downsizing, until the downsized organization feels like it is the organization. See Managing Employee Performance.

Endnotes
¹Noer, D. M. (1993). Healing the wounds: Overcoming the trauma of layoffs and revitalizing downsized organizations. San Francisco, CA: Jossey-Bass.

²Ibid.

³Trevor, C. O., & Nyberg, A. J. (2008). Keeping your headcount when all about you are losing theirs: Downsizing, voluntary turnover rates, and the moderating role of HR practices. Academy of Management Journal, 51(2): 259-276.

⁴Ibid.