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How to do layoffs right

meIt is not only twitter. The pink papers are piling up on some of the biggest names in tech. Mark Zuckerberg, the founder of Meta, is cutting more than 11,000 roles, about 13% of the social media company’s workforce. on november 22 half pension announced up to 6,000 job losses, which would be around 10% of the IT’S firm staff. Amazon boss Andy Jassy has warned of more cuts next year, on top of those already laid out in the retailer’s gadget and book businesses. Stripe revealed that 14% of the digital payments company’s staff were being laid off. Snap and Shopify announced their own rounds of layoffs earlier in the summer.

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Jobs are disappearing in other industries, too. Investment banks have begun cutting staff in anticipation of a slowdown in trading. Real estate firms are laying people off as housing markets cool. Beyond Meat, which makes plant-based products, cut nearly 20% of its workforce in October.

The people who suffer the most from layoffs are those who lose their jobs. But colleagues who are left behind also suffer lasting consequences; and for managers, this group is the one that determines success. Some suffer a form of survivor’s guilt, wondering why they kept their jobs and their colleagues didn’t. (Only on Twitter do people who leave feel guilty for those left behind.) Others must grapple with the practicalities of replacing workers who leave and with the stress of increased job insecurity: if the ax has fallen once, he can do it again.

The results can be depressed morale, lower productivity, and unexpected costs. Research conducted in 2008 by two University of Wisconsin-Madison academics found that, for the average company, reducing the workforce by 1% was associated with a 31% increase in voluntary turnover rates. That means more interruptions, as well as additional money spent filling open positions.

To keep survivors motivated, managers need to get three things right. The first imperative is to appear fair. This is a capacious concept. Fairness means treating departing colleagues well: One particularity of today’s tech layoffs is that they affect many immigrant workers whose eligibility to remain in the United States is now in question. It means being sensitive about executive compensation: Saying that downsizing is the hardest thing you’ve ever done is less credible when earnings-related bonuses end up paying for another weekend house.

Equity also means sharing the rationale for why individual people have left, either because they are satisfied with failing businesses or because their own performance was questionable. “Stacked ranking” systems, in which employees are forced to rank from highest to lowest performers, are increasingly out of favor. But at least in theory, they provide a merit-based measure for decisions about where to cut. According to informationa news site, Google is going to increase the proportion of employees it identifies as underperforming.

If the decision-making about who gets the cut seems capricious, managers will also fail to achieve their second goal: reassuring survivors that they don’t need to start looking for a new role, too. It matters that layoffs do not become regular events. Research conducted at a large manufacturer in 2003 found that workers who had been exposed to repeated rounds of cutting felt less secure in their jobs and had a greater intention to quit. In his August memo, Evan Spiegel, the head of Snap, noted that a 20% reduction in the social media company’s workforce should substantially reduce the risk of further layoffs.

The third area of ​​focus is workload. Reducing the number of employees and asking the survivors to do more might seem like a wonderful idea at the head office. Some bosses say it openly: Elon Musk, head of helicopters on Twitter, is open about his belief in the long hours of small teams. But it’s a risky approach, as likely to reduce job satisfaction as it is to increase productivity. Downsizing has a better chance of success if the burden on the remaining employees is not increased.

None of this is easy territory. Layoffs are bound to leave scars. But managing the consequences is easier if the employees left behind still trust their bosses to make things right. Many of the memos sent out by tech leaders contain apologetic admissions that they expanded their workforce too quickly as a result of the pandemic. Honesty is necessary, but another question may loom in the survivors’ minds: if they can be wrong once, why not do it again?

Read more from Bartleby, our management and labor columnist:
Management Lessons From Upcoming World Cup Winners (November 17)
Elon Musk’s challenge to managerial thinking (November 10)
How to think about gamification (November 3)

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