Alternatives to Layoffs in Hard Economic Times

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By Bruce Katcher - You can't pick up the newspaper today without reading about yet another organization that has decided to improve their bottom line by conducting a major layoff. Layoffs, however, have many negative consequences.

  • There are huge financial costs associated with layoffs including legal fees, severance packages, outplacement expenses, increased unemployment insurance, damaged customer relationships, and negative public relations.
  • Much of the work performed by the departing employees still must be done. Therefore, organizations inevitably either end up hiring more expensive contractors to perform the work, hiring new employees that must be trained to do the work of those who left, or rehiring those they let go.
  • New product development, research and development, and sales are critical employee-driven components of most businesses. Cutting employees in these vital areas can be penny-wise and pound foolish.

In the wake of their departed coworkers, many of the surviving employees lose their psychological commitment to the organization. Their productivity declines. And they are more apt to leave if they learn of another employment opportunity.


Cut Other Expenses - Look for other ways to reduce cost. Organizations spend millions of dollars on raw materials, energy, and supplies. Why not put some effort into reducing some of these costs before resorting to layoffs?

Increase Revenue by Selling Non-core Assets - Instead of eliminating employees, sell parts of the business that are not critical to its success.

Become an Outsourcing Center - Establish long-term relationships with organizations that may temporarily need your talented workforce. These could be organizations that are busy when you or not.

Also, explore selling the services of your support staff, engineers, and supervisors to other organizations on a temporary basis. Your employees would gain valuable experience, bring revenue in to your organization, and be available when your business picks up again. This can be a win-win situation.

Retrain Employees - Many organizations are often hiring in one part of the organization while laying off in other parts. Wouldn't it make sense, instead, to retrain your loyal employees so that they could perform other types of work for you? This would save the costs associated with both laying off employees and hiring new ones. It would also enable employees to expand their skill set. This is another win-win situation.

Offer Flexible Work Arrangements - Many employees are eager to work part time rather than full time. Indeed, they accepted full time work only because they could not find a part-time position. Wouldn't it make sense to offer this possibility to existing employees rather than just assume they would only want to work full time? Indeed, in many cases, employees can perform most of their valuable functions while working only part time. This could be yet another win-win situation.

Furlough Employees - Many organizations schedule temporary plant shutdowns when work levels decline. This is a less drastic measure than a layoff. Although pay is often suspended during the shutdown, employee benefits continue.

Cut Executive Bonuses - Other organizations have temporarily suspended executive bonuses in order to prevent widespread layoffs. Few would argue that senior executives should shoulder some of the pain when their business is ailing.

Dr. Bruce Katcher is an Industrial/Organizational psychologist and President of The Discovery Group, a Massachusetts-based firm that specializes in conducting Employee Opinion and Customer Satisfaction surveys. He can be reached at 888-784-4367 or via email at [email protected].

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