Retrenchments & Layoffs: Things You Need to Consider

by | 24 Feb 2023

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When times get tough in business, difficult decisions have to be made, and sometimes that means letting go of employees for the business to remain financially viable. Let’s take the technology sector, for example. Right now, many global tech companies are letting go of a LOT of employees – one of the most significant being Twitter.

Increased operational costs due to inflation, rising wages, over-hiring from the pandemic and investor pressure to decrease expenses as revenue slows and the industry stabilises after rapid growth, are all contributing to the tech sector job losses.

While it’s not expected that the wealth management financial services industry will see retrenchments at these levels, it comes as a timely reminder of the impacts of layoffs.

Given all that we know, and the speed at which info travels now, it’s surprising that businesses are still getting so much wrong in handling retrenchments and layoffs. So many companies continue to cling to the idea that reducing staff will provide the best, fastest, or easiest solution to financial problems. Still, research has long shown that it has a detrimental effect on individuals and corporate performance.

At the end of the day, the ultimate goal for every business is to make money, but it doesn’t always have to come at the expense of employees’ livelihoods. The short-term cost savings provided by a layoff are often overshadowed by bad publicity, loss of knowledge, weakened engagement, higher voluntary turnover, and lower innovation — all of which hurt profits in the long run and can damage company morale.

Staff aren’t just resources – they’re people. For that reason, we must focus on making intelligent and humane staffing decisions that are considerate of the economic climate and the modern social landscape.

The volatile and unpredictable market is testing the agility and resilience of companies. But
companies may not have considered how it may be testing employees and its effects on company culture.

During times of financial hardship and when carrying out layoffs, there is a tendency for remaining employees to be left behind. This is fuelling what is being described as the ‘turnover contagion’. Rachel Callan, head of behavioural science at software company Humu, explains that these voluntary exoduses’ are driven by a lack of belonging, transparency, and trust, creating even more headaches for companies as they lose vital talent and struggle to retain remaining staff.

Handling layoffs poorly impacts company culture and undermines the efforts made during the pandemic to prioritise diversity, social responsibility, and employee well-being.

Perhaps one of the most topical issues when it comes to layoffs is the last in, first out (LIFO) approach. While it certainly is the easiest way, is it the best? HR Podcaster Christopher Taylor notes that if used in isolation as the sole method of selection, LIFO is a risky and blunt instrument may disproportionality penalise specific employees and, while indirect, may be considered discriminatory. This doesn’t mean LIFO has no merit as a layoff selection criteria; rather, it should not be the ONLY criteria that businesses follow.

Of course, unpredictability is a given in business, so in some instances, layoffs and retrenchments are unavoidable. However, they should never be made lightly. By creating fair selection criteria for the layoff process and fostering a supportive, diverse and transparent culture through all economic conditions, companies will be better positioned to maintain operational capacity, uphold their reputation and retain top talent. Contact the Godfrey Group today to discuss your hiring processes.

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