Layoff Criteria: How to Decide Who to Let Go with 3 Examples
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One of the hardest choices is deciding which employees to let go. This delicate process involves weighing various factors, including performance, finances, and strategy. In this article, we'll explore the key considerations companies use to make these tough calls and evaluate tradeoffs.
Performance-Based Decisions
One of the most common factors in layoff decisions is employee performance. Companies often start by identifying:
Underperformers: Employees who consistently fail to meet expectations or have a history of disciplinary issues are often the first to be considered for layoffs.
Low Performers: Even those who perform adequately but don't stand out may be vulnerable, especially if their roles can be easily filled or outsourced.
Stack Ranking: Some organizations use forced ranking systems to compare employees within a role. Those at the bottom of these rankings face a higher risk of being let go.
It's worth noting that past performance evaluations play a crucial role here. This underscores the importance of maintaining accurate and up-to-date performance records.
Cost-Based Considerations
In many cases, financial factors heavily influence layoff decisions:
High Earners: Surprisingly, even top performers might be at risk if their salaries are significantly higher than average. Companies looking to quickly reduce payroll costs might target these employees.
Last In, First Out (LIFO): This method, often used in unionized environments, prioritizes laying off the most recently hired employees first.
Role Elimination: Entire departments or job functions may be cut due to changes in business strategy, outsourcing, or cost-cutting measures.
Other Influencing Factors
Several other elements can come into play:
Location: With the rise of remote work, employees far from main offices or in expensive locations might be more vulnerable.
Seniority: While not always the primary factor, length of service can play a role, especially in more traditional companies.
Skill Set: Employees with skills critical to future business needs are more likely to be retained.
Attitude and Cultural Fit: Those perceived as difficult to work with or not aligning with company culture may be at higher risk.
The Decision-Making Process
The actual process of deciding who to lay off often involves multiple steps:
Executive Alignment: Leadership agrees on overall reduction targets and strategy.
Departmental Input: Managers typically provide recommendations based on guidelines from executives and HR.
HR and Legal Review: This step ensures compliance with laws and company policies, mitigating discrimination risks.
Final Approval: Executives review and approve the final list.
Some companies use a "lifeboat" process where managers identify key employees they want to retain, leaving those not on any list at higher risk.
Ethical Considerations
It's crucial for companies to approach layoffs ethically:
Transparency: Organizations should strive to be clear about their criteria and processes.
Fairness: Decisions should be based on objective criteria to avoid discrimination.
Support: Companies should provide resources and support for laid-off employees.
Layoff Criteria Examples for Three Fictitious Companies
Example 1: Healthcare
One of our clients is a health care company, which we’ll call HealthFirst Solutions. They are a mid-sized healthcare provider struggling with reduced patient volumes and increased operational costs.
Layoff Criteria
Patient Impact Score: Employees are ranked based on their direct impact on patient care quality. Those with lower scores are considered first for layoffs.
Cross-training Level: Staff members who can perform multiple roles are prioritized for retention.
Compliance Record: Employees with a history of compliance issues or medical errors are at higher risk.
Cost per Employee: High-cost employees in non-critical roles may be targeted.
Technology Adoption: Staff who have been resistant to adopting new healthcare technologies are more vulnerable.
Process
Department heads submit initial lists based on the above criteria.
A committee including medical directors reviews the lists to ensure patient care isn't compromised.
HR conducts a final review to ensure compliance with healthcare regulations and labor laws.
Example 2: Tech
Another client is a tech company which we’ll call InnoTech. They are a fast-growing tech startup facing a sudden funding crunch and needing to extend its runway.
Layoff Criteria
Project Criticality: Employees working on non-core projects are at higher risk.
Skill Set Relevance: Staff with skills aligned to future product roadmaps are prioritized for retention.
Performance Metrics: A combination of peer reviews and objective performance data is used to rank employees.
Adaptability Score: Employees are rated on their ability to learn new technologies quickly.
Remote Work Effectiveness: Those who have struggled with remote work productivity may be at higher risk.
Process
An AI-driven analysis tool provides initial recommendations based on performance data and skill set relevance.
Team leads review and adjust these recommendations.
The C-suite makes final decisions, focusing on maintaining key product development capabilities.
Example 3: Industrial Products
The last client is an industrial products company that we’ll call GlobalGear. They are a large, traditional manufacturer facing increased competition and the need to modernize operations.
Layoff Criteria
Seniority-Performance Matrix: A weighted score combining years of service and recent performance reviews.
Automation Readiness: Roles that can be automated in the near future are prioritized for cuts.
Safety Record: Employees with poor safety records are at higher risk.
Multi-plant Experience: Those who have worked across multiple facilities are valued for their versatility.
Union Considerations: Layoffs must comply with collective bargaining agreements, often resulting in a "last in, first out" approach for unionized roles.
Process
HR provides initial layoff targets based on financial projections.
Plant managers use the criteria to create proposed lists.
Union representatives are consulted for relevant positions.
A corporate review board makes final decisions, balancing immediate cost savings with long-term operational needs.
Conclusion
While layoffs are never easy, understanding the factors that influence these decisions can help both employees and employers navigate this challenging process. Remember, the specific approach can vary greatly between companies, industries, and situations. By prioritizing fairness, transparency, and support, organizations can manage necessary downsizing while minimizing negative impacts on their workforce and culture.
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