Although layoffs seem like an instant savings - since salaries are terminated - there are many upfront and hidden costs. Here are some to consider:
Aftershock and Low Productivity
Staff uncertainty, increasing rumors, and sinking morale make it hard for people to concentrate on their work, let alone face a heavier workload, greater scrutiny and the fear that they'll be next.
The result: a low productivity environment. Change of any sort can be difficult for anyone to adjust to, but the negative change and subsequent uncertainty of a layoff can have severely negative, long-term effects on your business.
Severance packages, continued health care and/or benefit payments and an increase in unemployment taxes are all real financial costs that immediately follow a layoff. Other considerations: outplacement services - such as job search training and career counseling for those laid off - as well as the cost of future re-hiring when the company bounces back.
Your Company's Rep
The metric of potential candidates not trusting your business as a stable employer is difficult to measure and it's even harder to shake. It can take months, or even years, to get your reputation back as a good place to work.
Some companies are looking at both sides of the balance sheet and taking a different approach. Here are three examples:
Southwest Airlines faced the aftermath of September 11th without one layoff before or since - the only airline in the country who pulled this off. How did they do it? Working from the premise that their people are their most important asset, they concluded, "Why would we get rid of our most important asset?" Apparently, "LUV" isn't just their New York Stock Exchange ticker symbol.
What kind of entry-level employees does Southwest hire? They look for team players and those with enthusiasm and learning ability. Today, Southwest operates more than 3,200 flights a day and has nearly 35,000 employees system wide. Their net income for fourth quarter 2009 was $116 million.
Wegmans Food Markets
Wegmans Food Markets operates stores in New York, Pennsylvania, New Jersey, Virginia and Maryland and employs nearly 40,000 people, and is another example of a company culture that puts employees first.
Ranked at or near the top of Fortune's Top 100 Companies for more than a decade, Fortune's public comments - made mostly by current and former employees - cite a feeling that Wegmans wants you to succeed. This, along with quality products and consistently low prices, trickles down to happy customers.
In their 94 years of being in business, they've yet to lay off one employee. Employees stay self-motivated, engage customers, and create an atmosphere of fun and excitement. Wegmans' customers don't want to leave and they want to keep coming back. Offering not just jobs - but careers, a Continuous Improvement Team and job titles like "Culinary Innovator," it's easy to see why people love working there. Bottom line: 2009 sales were $5.15 billion.
Hypertherm, Inc., a designer/manufacturer of plasma cutting systems headquartered in Hanover, NH, has a "no layoff" policy and the CEO claims it's not for philanthropic purposes, but rather it's "just good business." Their philosophy: employees are an important investment and hiring the right ones is serious business. In addition, they develop their staff to become flexible and highly responsive by training them for a variety of jobs within the company.
If your business model no longer works, a layoff - coupled with other changes - might be inevitable. But rather than using a layoff as a cosmetic fix or to appear financially attractive, try focusing on the core values that drive your business. These successful companies invest in their employees' happiness, which spreads to customers, and then to profits.