How to Give Layoff in a Humane Way
How to show compassion during tough times
When there is a layoff, people will perceive it as the company's fault.
Every time there is a layoff, there is always a shake-up in the management. Better.com laid off half of its staff in 2020, which made Vishal Garg step down as the CEO. Elon Musk was criticized heavily by the global community for laying off half of Twitter’s staff after the acquisition.
One reason layoffs have a bad connotation for companies is that they are being done cruelly. Vishal Garg conducted a layoff announcement over Zoom and needed to be more transparent regarding the company's current economic situation. No one can stop Elon Musk from laying off Twitter’s staff because he singlehandedly bought Twitter with his own money. However, his actions leave a bad reputation for the Twitter brand as an employer and reinforce people to perceive him as ruthless.
Layoffs don’t need to be ruthless. Your company doesn't have to break its image to potential future employees during a layoff. You can maintain your company's brand image by laying off your staff with empathy.
Giving More Than They Expect
Everyone working for the company counts as a human being, in the business sense, a shareholder.
When companies reduce their workforce, they also have to allow people to leave with dignity.
A generous severance package and benefits help the employee to have a fair amount of time to find their next job.
For instance, all laid-off employees of Airbnb in 2020 received 14 weeks of base pay plus one additional week for every year at Airbnb. Stripe layoffs give out 14 weeks of severance pay at minimum. The company will also pay for all unused PTO.
Aside from severance pay, every employee working for a company is also a shareholder. That is why software engineers are willing to work long hours at tech companies, especially startups, because they are also company shareholders.
Airbnb dropped the one-year equity cliff for everyone they hired in the past year, so everyone who left is still a shareholder. Stripe will accelerate every employee who has already reached their one-year vesting cliff to the February 2023 vesting date (or longer, depending on the departure date). They'll waive the cliff for those who still need to reach their vesting cliffs. Stripe also mentioned that all laid-off or current employees are eligible for the yearly bonus.
Lastly, employees who are impacted the most are the ones with an H-1B visa. They are always on their toes regarding tech layoffs because they know that a layoff may cause them to lose their working visa status. Thus, the company should also consider helping employees with working visas and supporting them in their next journey. For instance, Stripe will support H-1B Visa holders by providing access to consultation and help with transitioning to non-employment visas when possible.
The underlying message is that more companies need to think from their employees’ perspectives and support them in their next journey.
Transparent Message
Transparency builds trust, then revenue and profit are built on top of it.
Building trust is harder than building an audience.
"It takes 20 years to build a reputation, and five minutes to ruin it." - Warren Buffet.
If those who helped build your business lose trust in your company's value and loyalty, it will be hard for your company to achieve long-term success.
With a reduced workforce, the company should inform everyone about its plan.
Stripe leadership acknowledges their miscalculated judgment. They mentioned that besides reducing their workforce, they would also reduce other cost sources. In addition, they also communicated with transparency that the headcount changes would not be even across the organization, and recruiting may be disproportionately impacted more than engineering.
"We were too optimistic about the internet economy's near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown. We grew operating costs too quickly. Buoyed by the success we're seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in." - Stripe
In 2020 when COVID impacted travel, Airbnb CEO, Brain Chesky, sent a transparent letter on how they arrived at the decision to lay off. Airbnb mentioned in their external company news that they are still determining when exactly travel will return, and if travel does return, it will be different. They were required to reduce their workforce and change their business strategy.
A transparent message also means that when giving out the message, be clear about which departments were laid off and why. In the recent layoff, Stripe mentioned that they need to apply the reduction of headcount changes not evenly across the organization. Thus, recruiting organizations will be disproportionately affected since they will hire fewer people next year.
Please communicate with employees being laid off by having 1:1 conversations and allow them to ask any questions and hear their concerns.
Stripe is helping set up 1:1 conversations for those impacted by layoff to communicate with their manager, "We are going to set up a live, 1-1 conversation between each departing employee and a Stripe manager over the next day. Look out for a calendar invitation if you are in an impacted group."
Be prepared to answer the “Why Me?” questions. Be honest to your team if the layoffs are based on business needs or performance decisions, and give guidance and transparency to your team. Although some bad news is hard to swallow, they are honest, and your team will trust you with your decision.
Be clear about what you can and cannot share, but never hide or share the wrong reasons.
Professional help to those laid off to find the next position
The most empathetic action a company can take to help their employees is to help them find their next position.
When Uber and Airbnb laid off employees in 2020, both companies created a list that employees could opt into, giving external recruiters easy access to offer job opportunities. Airbnb allowed everyone affected to keep their laptop computer to help them find new work. Moreover, Airbnb also offered four months of career services through RiseSmart.
According to the Pragmatic Engineer, when Hopin laid off employees in early 2022, it contracted with a recruitment agency to offer their former employees dedicated recruiters who helped place all laid-off employees. During the 2020 Booking.com layoffs, the company offered professional recruiters and created the "Booking Alumni" LinkedIn group to allow former colleagues to offer jobs in their network.”
In the recent Stripe layoff in November 2022, they not only created an alumni directory for affected employees but also helped them create an `alumni.stripe.com` email address so they can find new work or start a new venture.
When you minimize the impact on your employee's life during unprecedented times, you'll also help minimize negative perspectives and the dark side of the situation. You are showing the way of a compassionate layoff. You allow your employees to leave gracefully with hope.
Alternatives to Layoffs
The choice of layoffs may cause a bad image of the company’s brand and values, and a bad image weakens trust and engagement. The surviving employees may feel like they are not in control of their job. Layoffs can cause employees to feel they've lost control: The fate of their peers sends a message that hard work and good performance do not guarantee their jobs.
Many management thinks about reducing the workforce to manage the current economic situation. However, management should also consider how their choices during the downturn will affect their future performance during recovery.
According to HBR, layoff survivors experience a 20% decline in job performance. As experts say, layoffs should be the last resort, and if you really have to pull the trigger, you better cut it once and cut it cleanly.
Aside from reducing your workforce, these are some alternatives that the company can choose instead.
Furlough
Furlough is a temporary leave of absence from which the employee is expected to return to work at a future date or with a reduced work schedule.
Honeywell furloughed employees for one to five weeks, providing unpaid or partially compensated leaves, depending on local labor regulations. Furloughs allowed Honeywell to retain the talent it needed when demand resurged. It helped them stay profitable throughout the 2012 recession and achieve strong growth five years after the recovery.
One of the benefits of leave is that you don't need to retrain any new employee when the economy recovers.
Executive Paycut
Instead of reducing the workforce, why don't we first try cutting the salary of management and higher up?
Disney Streaming, home to Disney Plus, adopted this strategy when Covid hit the entertainment industry in 2020. It furloughed a portion of its theme and park resort workers and cut all VP and directory salaries by 30%. In addition, bonus payouts were halted.
Cutting an executive's salary helps signal to employees that management and leadership are here with them to go through the uncertainty together. The best leaders should be willing to make the first sacrifice during these unprecedented times to demonstrate trust in the team.
Reshuffle and retrain your employees
In 2013, AT&T management foresaw that 100,000 of its 240,000 employees were working in jobs that would no longer be relevant in a decade. Instead of letting these employees go and hiring new talent, AT&T decided to retrain all 100,000 workers by 2020.
When Credit Karma took a 70% revenue hit in 2020, the Chief People Officer McCreary said the company cut pay to keep jobs and offered employees optional "off the bus" packages if they proactively resigned. Then Credit Karma moved several dozen employees in departments like recruiting and marketing (that needed to shrink) to other positions.
For example, the philosophy of the French tire maker Michelin includes hiring people for their potential rather than for the job description. The company describes its commitment to employees' long-term growth in its labor relations policy. Each employee is assigned a career manager who oversees their development and helps ensure it aligns with Michelin's long-term goals.
Reshuffling and retraining your employees help increase employee loyalty and engagement. It builds the company's culture and spells out values of commitments as priorities of the company.
Recap
Every company will face the decision of layoffs during unprecedented times. How senior leadership and management handle layoffs can dramatically impact the company's long-term brand, value, and growth.
Treat your employees as human beings instead of numbers by giving them enough support during their transition. This includes:
Giving them more than they expect as part of severance.
Giving a transparent message of why such layoffs must occur and “why me”. This includes revenue transparency and which departments are the most impacted.
Providing professional help for their next job search.
Alternatively, you can conduct a furlough, reduce the executive payout, or proactively retrain and upskill your employees in different areas before reducing your workforce.
Disclaimer: This is from my perspective as a software engineer and hearing the experiences of others in my network.