Tough times Featured

8:00pm EDT October 26, 2008

The turbulent financial markets are leaving business owners with some tough choices to make, one of which may include the need to reduce their work force.

Bob Holden, senior vice president with Employco Group, points out that employers have a responsibility to display compassion during the process to those let go while remaining decisive and optimistic for the remaining employees.

“How and what you communicate to your employees during a layoff is very important. You need to be honest and explain what’s going on in the company, in each department and how individuals may be affected. It may also be beneficial to clarify how outside factors are impacting the company during these tough economic times,” he says.

Smart Business learned more from Holden about how businesses can best navigate the process of layoffs.

How are layoffs different in this economic environment?

Oftentimes, reductions or layoffs are planned decisions made by the management team as a part of its strategic planning. What we’re finding in today’s environment is that many companies are forced to reduce their staff due to outside influences that can’t be controlled by the company itself. For example, if capital is not as available as it used to be via credit, it can affect a company’s ability to pay its accounts payables and, in turn, affect its vendors’ accounts receivables, which can further affect that company’s ability to make its payroll. It’s a cash flow issue since companies cannot rely on credit for capital at this current time.

Does this environment affect the decision of who stays and who goes?

In this particular case the kinds of things that confront the small business owner are economies of scale. You have to do an inventory of skill sets and job knowledge. Conduct a thorough assessment of how individuals perform on the team, determine where they excel and identify the persons who are cross-trained who can take on more responsibility. You’re trying to keep your highest performer while at the same time trying to keep your most multifaceted performer — the utility player. The utility player can be more valuable in this environment than an individual who is highly specialized in only one area. The utility player may already have some basic knowledge about the specialty — it may not be a lot, but enough to get by — and you can mix and match the kind of skill levels you require with the people you need to keep.

How should business owners approach these choices?

Develop a matrix and go through a position-by-position or a function-by-function needs analysis. If you decide on using a skill-based matrix and you narrow it down to two similar employees, then the next step is to take a hard look at their level of performance, skill and knowledge.

For example, can a credit manager now do the credit analyst work, or can one of the managers take over the duties of a credit manager? What is the difference in compensation? You may have multiple employees in the same position with comparable skill levels but they might not necessarily be the same type of performer. If you have a sound, accurate method in place for evaluating your employees, you’re in a better position to evaluate who truly are your best performers.

Lastly, in this day and age, depending on the size of your company, you also have to adhere to certain federal and state laws with respect to the various discriminatory issues, such as age, race, sex, etc. Be mindful of favoritism and learn how to balance all the different factors when looking at whom to let go.

How do you best manage the people remaining?

It’s never easy letting people go. Many times employees that get left behind are initially thankful and gratified that they were not let go. But there is a little bit of a guilt factor involved, as well as anger and resentment. And then there’s fear they may be chosen in the next round. After a set of layoffs, the management team needs to come together with the remaining employees to discuss the rationale behind the layoff, how the decisions were made and a plan for how the company is going to move forward. It’s a time to say: ‘Here’s where we see the company going, here’s how we’re going to affect change for the future and here’s what we need everybody to do to help us get there.’ If employees will be taking on extra work, communicate the new responsibilities, explain the possible longer work hours and be sensitive of how this may affect their personal lives. Make sure to address all questions and concerns from the remaining staff so everyone can get on the same page to move forward.

If you leave a cloud of suspicion and indecision where remaining employees are unsure of where the future leads, that could cause good people to look elsewhere or could create an unproductive work environment. Ultimately, you want to end up with your best, most knowledgeable and effective people in order to make it through the tough times.

BOB HOLDEN is the senior vice president of the Employco Group (www.employco.com), a division of The Wilson Companies (www.thewilsoncompanies.com). Reach him at (630) 286-7399 or rholden@employco.com.