Brandon Hall Group™ conducted a pulse survey in March 2023 in an attempt to understand the extent of workforce reductions and their subsequent impact on employees, managers and the organization as a whole. Roughly two-thirds of respondents are from outside North America and more than half indicated their organization either has already reduced their workforce this year or estimate that a workforce reduction will take place at some point. Notably, responses were consistent across demographic groups except in a few instances, which will be noted later in this Strategy Brief.
Some survey results were expected, particularly around decision-making and impact on employee morale and the like. Several results were somewhat unexpected, in that they reflect a change or divergence from accepted norms or practices. This Strategy Brief will explore each of those in turn before making recommendations on how companies who are navigating the aftermath or planning for a workforce reduction can best position their retained workforce for continued success.
When a company faces a workforce reduction, questions that often come to mind are:
- How did you make the decision on who would be affected?
- How are those who were not separated handling the change?
- What else is the organization doing to cut costs?
The answers to those questions in this survey are largely as you might expect. Regarding the question of how decisions were made, responses show that the primary determinants were performance and tenure. These are the logical places to start as a reduction certainly offers you an opportunity to clean house of low performers and performance is often (though not always) very well-documented. Tenure is another logical starting point as companies will many times look to those most recently hired as well as those closest to typical retirement age. While these are to be expected, we will make the case that adding in potential as a more frequently used filter may be critically important.
In terms of impact to remaining employees’ morale and commitment, most companies indicated a moderate impact. Individuals who remain employed when a reduction takes place often feel demoralized. It is logical that they would question whether their own jobs are also at risk. It is no surprise to learn that companies see a 59% high impact on morale and a 47% high impact on trust and loyalty following a workforce reduction. Increased communication in both frequency and transparency is a critical response.
Part of addressing the pressure on trust and loyalty from your surviving workforce is looking at what else the company is doing to manage expenses to shore up the organization from further job losses. Once again, survey responses are in line with what you might expect to hear. Measures such as hiring freezes, removing low performers sooner and giving high performers more opportunities top that list.
One of the top unexpected strategies listed by companies to reduce costs was to rescind job offers. We categorize that as a surprising result because we would anticipate that WFM practices would keep hiring in line with core business needs and hiring freezes would be implemented long before the decision to reduce the workforce is executed, allowing processes the time to even out.
Another unexpected result is that salary reductions are not higher on the list of potential cost-saving actions (less than 10% of responses). This is surprising because reducing payroll expense is the end goal of a workforce reduction. Leveraging a minimal pay cut of 1-3% across the board can result in substantial savings for an organization. Perhaps this is due to the proximity of responses during the COVID era where salary reductions were heavily deployed by organizations seeking to avoid layoffs and maybe those companies have yet to return to pre-COVID salaries as is.
Our most unexpected result, however, is that more than one-fourth of organizations that responded indicated that their organization is taking no other cost-saving actions in the wake of a workforce reduction. In this modern era of work and the sustained volatility of the economic climate, it seems irresponsible at best and negligent at worst to fail to deploy a truly holistic and balanced approach to cost reduction strategies. Reducing your workforce should be your last line of defense, not your first.
What Do I Need to Do?
If you are in a position of leadership in an organization that is looking at cost-saving measures and the potential need to reduce your workforce as part of that strategy, consider the following approaches.
Look at Long-Term Potential
As previously stated, performance and tenure are common decision points when determining who may be affected by a reduction in workforce. In neglecting potential as a parameter in decision-making, companies are failing to consider the longer-term implications of their decisions. Concurrent to this latest wave of “right-sizing” is the conversation about the future of work, upskilling and reskilling needs in the workforce, and making sure the company is ready for what’s next. This is arguably a more critical conversation than ever before.
When evaluating employee populations, teams should ask themselves:
To be clear, we are not advocating that you overlook obvious performance deficiencies in favor of future potential. We are recommending that you include future potential as a filter to ensure you are not overlooking someone you will need to deliver success in the future.
In this same vein, if you are forced to separate teammates, consider providing upskilling/ reskilling roadmaps as part of separation packages where it might make sense. Helping individuals plan for a future state can engender loyalty and a willingness to return. Then follow through on bringing back those who meet the expectations at the earliest possible opportunity.
Revisit WFM Practices
A time of economic stress that results in workforce reductions often offers an ideal opportunity to revisit workflows, policies and procedures, and ensure they are optimized. Particularly if hiring freezes are driving your savings plans, it is worth looking at how forecasting and job approval processes are managed to minimize overextending your workforce needs. Revisit data collection plans, consider exclusionary periods before posting openings and tap into the power of internal stretch assignments to fill roles with a net-zero headcount increase in the shorter term.
Protect Remaining Staff
Many respondents indicated that they plan to give high performers more opportunities on a go-forward basis. Be careful that this doesn’t become code for “dump more work on our best people” without looking at corresponding support structures and workflows. Opportunities for growth, broader exposure, or promotion are one thing. Burying good people in even more work without proper transition, support, or fair compensation is a recipe for disaster. When the market begins to stabilize, and it will, those high performers will be the first to head for the door.
It is easy to fall back on long-standing practices when economic pressures require you to look at headcount reduction to manage costs. We now have more tools, information and knowledge at our disposal than ever before so companies must be far more intentional and planful in their decision-making.
This will minimize any negative impact to employees as much as possible. We should be thinking beyond the immediate pressure relief to factor in the return to normal in the future.