22 May 2023
Businesses are transforming for the future, and this demands attention to risks
At the end of 2022, more than half (57%) of executives said they planned to let people go in 2023, according to Mercer’s Executive Outlook survey. Most of these businesses are conducting reductions in force (RIFs) to strengthen their organisation’s resilience, accelerate transformation and bolster growth. In fact, nearly two-thirds (59%) of CEOs and CFOs predicted heightened demand in 2023. At the same time, many were primed to reshape their workforce for what’s next, with half planning to increase their hiring budget.
Clearly, the affordability of talent is feeding into decision-making; of the executives who intended to increase recruitment, a third expected to take a more targeted approach this year, in part to counteract talent inflation. Rightsizing also rebalances the accelerated hiring of the COVID-19 pandemic, where some businesses overshot future demand. On top of this, there is no doubt that the advent of widespread AI use, especially generative AI, is feeding into some of the workforce modelling.
Despite this fresh thinking about future ways of working, too few businesses are applying a skills lens to the talent they are losing when conducting divestitures, retrenchments and restructures (only 38% of HR leaders said they felt “ready” to do this in our 2023 Global Talent Trends study). And many are lagging in using agile ways of talent sharing to meet future demand; only 35% of businesses use an internal marketplace to facilitate company-wide talent moves.
Responsible employers will consider alternative measures such as furlough or redeployment before implementing layoffs, but transformation often necessitates restructuring and RIFs in multiple parts of the company. No matter the business reason for layoffs, well-established corporations that were once deemed recession-proof are making decisions that have repercussions for their people and, if managed poorly, their reputation. Balancing empathy with economics is a juggling act worth getting right.
Centre on empathy and transparency since poor communication can lead to public fallout
In a tight labour market and against a harsh economic backdrop, brand reputation is a fragile thing. Businesses that have missed the mark have been called out publicly and won’t be easily forgiven.
So, who is getting it wrong? Some employers closed their offices, opting to announce layoffs entirely remotely, suppressing the news from the rest of the workforce. Those with a hybrid working model laid off some individuals face-to-face and others virtually, creating a fractured experience. Other communications were emotionally detached, as layoff notifications came via personal email or a generic message — both of which missed the mark. In some cases, people learnt of the job cuts when they were unable to log in to their corporate accounts or access their office. Others were reassured that there would be no layoffs after an initial cost-cutting exercise — only for swathes of people to lose their jobs shortly after.
The examples above smack of poor strategic workforce planning and ill-advised communication. In scenarios like this, the good work of nurturing an open relationship with employees can be undone in days. The resulting fallout escalates quickly (and publicly) on social media and company review sites. As digital natives, 60% of Gen Zers in the UK and US use social media as a news source, according to Oliver Wyman’s A-Gen-Z report. The bad practices witnessed in some acts of downsizing fuel viral content, each story a match that lights the next. The online inferno comes back to burn the businesses in question, hitting public perception and shrinking the potential pipeline of talent who might be interested in joining the firm in the future.
So, who is getting it right? One company created alumni email addresses for their leavers, so people could connect, ask questions, or simply share words of support. Others invested in digital outplacement services for every employee. A few set up “job shops” in-house so that they could have real conversations about their future. One CEO took a 98% pay cut after laying off workers in an act of accountability. Another posted a directory of the employees who were leaving and reiterated their contributions and talent to encourage other companies to snap them up. These leaders prioritised employee dignity in their layoffs, with many seeing the resultant stories go viral in a positive light.
While there’s no set formula when it comes to layoffs, it is vital to adopt a socially responsible mindset and communicate decisions in a people-centric way.
Communication-wise, these three things can help:
- Give employees forewarning (including following any legal obligations) so the decision doesn’t completely pull the rug out from under them. Balance this by ensuring information isn’t shared so far in advance that employees feel anxious without a clear idea of timelines.
- Clearly outline the rationale behind the decision and think about your employees’ futures — and what role you as a leader can play in setting them up to manage the change.
- Aim for one wave of redundancies underpinned by solid workforce planning. Ensure that there is a strategy for communicating with the people who have not been directly impacted by the layoffs.
Create psychological safety because failing the employee experience has lasting implications
Brand resonance and authenticity have never been more critical. Many companies are making public commitments to safeguarding well-being and maintaining people’s employability (the Good Work Initiative is one example). While there is a significant upside to making public commitments that follow the principles of Good Work and DEI, if actions at the end of the employee life cycle fail to uphold those commitments, companies expose themselves to criticism.
Some employers opted to cut internal communication channels to avoid too much discussion after announcing layoffs. This drives conversation underground when emotions are high and people’s sense of self is shaken. The knock-on effect is that the impact is magnified, creating a bigger digital footprint as employees turn to public forums as an outlet. There are nuances here to be mindful of when it comes to employee well-being. For some individuals, receiving the news that their job is no more over a video call may exacerbate feelings of isolation; for others, being at home may feel more comfortable. Training managers on how to deal with layoffs can make a significant difference.
When the dust has settled from this current wave of disruption, there are lasting repercussions for businesses as they heal and rebuild. Layoffs can be destabilising and erode the trust a leader has carefully established with their people. Damaged trust has broader implications for company culture, salary perceptions and employee engagement. In today’s climate of responsible employment and employee activism, ‘layoff survivor guilt’ is essentially a break in the psychological contract for those left behind. It’s not just guilt — people will be overwhelmed, grateful, relieved, angry, disengaged and ashamed. When these feelings go unrecognised, research shows the workforce is less productive.
In this era of burnout and energy depletion, those who remain with the business can be left with higher workloads if intentional work design isn’t implemented as part of the RIFs. This inevitably leaves people feeling undervalued, making them more likely to walk out the door themselves. Research from Trevor and Nyberg found a 31% increase in people voluntarily leaving their jobs a year after a workforce was downsized by 1%. Ensuring business goals are realigned with work allocation is critical.
Proactively addressing the ripple effects of layoffs, both for individuals and your business, will better protect the energy and trust of the remaining workforce while minimising risk factors — both to business continuity and brand. For many companies, rightsizing is critical for future sustainability. Actioning this with a skills-focused outlook and an empathic approach will stand you in good stead.
10 steps to improve the employee experience during layoffs
Steps for executives:
Minimise riskConsider the unintended consequences of layoffs. These may include loss of knowledge and skills; greater risk of employee burnout post-layoffs; supply chain disruption, unintentional bias and legal ramifications. Which ones are the most likely for your business? Develop strategies and plan ways to mitigate these risks before actions are taken, or internal communications are shared.
Ensure the new reality aligns with your commitments and valuesEvaluate the impact of restructuring on any public commitment or human capital disclosures you have made, and ensure it’s consistent with your brand values. Be aware of how changes might impact areas such as DEI progress, reskilling ambitions and flex options.
Drive business continuityDevelop a business continuity plan that encompasses the impact of potential layoffs on core business functions and the critical talent that remains. Ensure work redesign and goal expectations are adjusted, given resource cuts.
Lead with empathy and resilienceAim to reduce uncertainty by opening a two-way dialogue with employees so they can offer feedback and ask questions regarding the next steps. Clarify the support the business will offer, such as digital outplacement services, in-house job shops and/or options for contingent work. Keep in mind your leavers could be future customers or future talent references.
Strengthen your bond with remaining employeesBe clear on the rationale surrounding the company’s refocus and what this means for remaining workers. Connect with them regarding the future resilience of the business, acknowledge and address any concerns surrounding job stability following the layoffs, and help them look to the future.
Steps for HR and Operational teams:
Determine layoff supportPrioritise services that offer one-on-one career coaching for impacted employees and insights into live job markets — inside or outside the firm. Consider digital providers that offer affordable coverage beyond executive cohorts.
Prepare a fair severance packageCreate a package that enables each person to land on their feet after a layoff. Our research shows that many relatable organisations offer additional support to futureproof their people’s employability and learning.
Develop an empathic and clear communication planReduce the risk of ambiguity or crossed wires during layoff conversations to come by taking the time to train managers on how best to handle these conversations. Consider bringing an expert in to support and ensure that a representative of the target persona group is involved in creating talking points and preparing advice for managers.
Provide employee aftercareEmployee aftercare may include checking in with leavers in the months following the layoffs and extending social and/or health protection (including mental healthcare) beyond their termination date.
Reduce the need for layoffsEnsure the company has a robust strategic workforce planning process to better align future needs with current supply. Map the skills in your organisation so that you can look at skills gaps rather than job cuts. Consider upskilling to support employees as they adapt to changing roles, work redesign, flexible talent resources, internal talent marketplaces and agile teams. This will allow HR to think more flexibly about how current talent can meet future demand.
Mercer Senior Partner and Global Advisory Solutions and Insight Leader
US Change and Communication Solutions Leader