Layoffs – you’re doing it wrong

Business by on October 19, 2008 at 8:53 pm

The layoffs in Silicon Valley have started and will likely continue for some time.

Friday on Techcrunch, Arrington asserted that some of the layoffs weren’t being done because of the economic conditions, but because the companies were utilizing the changing public sentiment to trim underperforming staff.

This is the wrong approach to reducing staff. The two forms of staff reductions are significantly different and confusing them provides a mixed message to employees that destroys morale.

Reductions In Force (RIFs) are layoffs that abolish positions. They are not performance-related and typically result from a company that downsizes or restructures. Many states have legal guidelines that govern RIFs, but in general they offer more protection to employers than performance-related firings. Nearly all layoffs you read about are technically RIFs.

Performance-related firings require much greater documentation on behalf of the employer. Lazy managers may not counsel or document poor employee performance properly. This leaves companies vulnerable to lawsuits. So, some companies choose to fire poor-performers en-masse and describe the action as a RIF.

I think we went through 3 layoff cycles on our way to stabilizing Quova. The first cycle was truly a layoff - we had built the company far faster than our customer base. We lost some very good people, but our burn rate was way too high and startup economics were different in 2002 than they were in 2000. In general, morale survived intact.

However, we began to mix layoffs and performance-related reductions in the next two cycles. After each layoff, the message would typically be that the company was stable now and people didn’t need to fear for their jobs. This was a true statement and it remained largely true throughout, but it felt hollower after each successive layoff. Morale plummeted and took at least two years and nearly full turnover for it to recover.

If you are disguising a mass-firing as a RIF, you cannot provide open and honest communications to your employees. This breeds mistrust and all of the bad things that accompany it.

The bottom line is fire your underperformers for underperformaing. If you are firing several of them at the same time you’ve already fucked up. You need to be asking why you didn’t fire them individually earlier. Don’t be lazy and don’t allow your managers to be lazy.

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