Despite relieving financial burdens temporarily, layoffs affect organizations negatively in many ways, some of which can be profound and lasting. Research has shown that layoffs generally don’t increase financial performance or stock price of the company beyond one to two quarters. Instead, they often result in negative outcomes such as future voluntary turnover; loss of skills, learning, productivity, and innovation; lowered employee morale; and brand reputational risks.
So, what are the alternatives to layoffs? The Conference Board suggests organizations facing financial challenges during economic downturns look to layoffs only as a last resort. Instead, companies should consider these 11 alternative strategies before downsizing:
- Conduct enterprise-wide scenario planning early. As the future is highly unpredictable, organizations should develop different scenarios to help inform both short-term and long-term workforce plans.
- Reduce all nonessential costs. Identify all possible ways to eliminate or suspend discretionary expenses, e.g., canceling nonessential travel, moving in-person training to online formats, reducing company investments, renegotiating contracts with vendors.
- Freeze nonessential hiring. It’s common for organizations to stop hiring for nonessential positions during economic downturns.
- Defer merit pay raises, promotions, and future discretionary compensation. Postponing salary increases and bonuses help alleviate financial challenges immediately.
- Reduce pay temporarily. Implement temporary base pay reduction for all employees, either through sweeping salary cuts or shortened workweeks. Executives should lead by example by lowering their compensation before reducing employee pay.
- Take advantage of paid time off (PTO) benefits. Because they are already funded, encourage employees to use PTO benefits (e.g., vacation, sick days) as a way of avoiding or at least delaying furloughs or layoffs.
- Embrace job sharing. Because they allow employers to cut work hours rather than lay off employees, short-term work-sharing programs are well targeted for temporary economic disruptions.
- Encourage voluntary leave or early retirement. Different options include allowing employees to voluntarily take unpaid temporary leave or voluntary one- to three-month sabbaticals without pay but with health benefits covered.
- Consider short furloughs with benefits. Implement short furloughs with benefits in order to be well-positioned for a quicker restart when the upswing begins, especially in sectors where it is often difficult to find employees.
- Investigate all alternative sources of worker pay. Look for grants or government bailouts and, if not available, consider loans.
- Get creative. Organizations should ask their employees what other measures could be taken to help prevent layoffs and reduce costs.
For more insights on how to deploy these strategies under adverse economic circumstances see the following article written April 9, 2020, Human Capital Management during COVID-19: Finding Innovative Alternatives to Layoffs, containing tactics and examples that are still relevant today
