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How to Manage a Workforce Reduction Strategically and Sensibly

When close colleagues are no longer there, people feel less connected to the company and its remaining co-workers. Here’s how to handle employee engagement — throughout and after a layoff.

As we head into what looks like one of the most impactful economic downturns in recent decades, many companies are faced with the difficult situation of managing their remaining people.

Whereas they have grown aggressively in the past few years, they will have slowed down or entirely stopped hiring in anticipation of the downturn, as a result of changes in client and consumer activity due to rising prices of necessities. Many companies, we’ve already seen, have had to resort to layoffs, in order to get their workforce to appropriately match the current market conditions.

For some of these companies, the slowdown is temporary.

For others, it will be permanent.

There are a number of risks in this situation, and considering them early and often will save both money and heartache for the leadership team.

So in this article, we look at three topics companies should consider and act upon once workforce reduction is underway.

How-to of a workforce reduction

With the latest round of layoffs just three weeks into 2023, it’s hard to predict how long the uncertainty will last.

Some companies will see more rounds of layoffs, while others will rehire staff. Some will bounce back and yet others will falter and default.

This is all true of both VC-funded companies and those trading stock publicly.

A question that is perhaps asked less imminently in a crisis situation is: how does this situation affect the employees?

Dramatic changes in company strategy are always a source of anxiety, and even when pivots are ultimately found to be a successful move by the leadership, periods of transition are difficult.

This is particularly true following a round of layoffs because we know that employee satisfaction depends on a lot of factors, but the ability to connect to people at work and forge meaningful relationships with them ranks very highly.

It is perhaps then obvious that, when some close colleagues are no longer there, people feel less connected to the company and its remaining co-workers.

There are obviously a number of things a company is interested in, from stopping voluntary turnover by identifying flight-risk employees, to engaging everyone still at the company in a stressful economic period of time, to finding out how to best support those who might be likely to leave or disengage.

While the aftermath of workforce downsizing is uncertain, we singled out three areas you should consider to make the workforce reduction an opportunity both for the people leaving and the ones remaining.

You only have one chance to make the last impression

Once a company’s board communicates their decision to lay off a significant part of the workforce, a transformative process begins for all the employees, as a group.

The exit interviews that team managers and HR professionals carry out next are bound to have an immense impact on the future success of the company.

The whole team watches and judges how the people leaving are treated.

If you take a step back, you actually notice that the whole world is watching, since word of mouth and social media make it easy for others to take a stance on your company’s way of handling this workforce reduction.

How to make the exit interviews count

Typically, the main goal of an exit interview is to find out why people leave and what you can do to engage your team better in the future.

However, in the case of a major layoff round, the exit interview is best used as an opportunity for the company to help and support the leavers.

You can show empathy and support to a soon-to-be former employee by coming into the exit interview prepared to listen without judgment. This is their time to make sense of the layoff in a deeply personal way and to ask any questions that help them move forward in their career. Be prepared to honor their requests, in return for all the great work they have done.

Expect the employees that had been laid off to ask questions such as:

  • What percentage of the company has been laid off?
  • How has the company decided who to keep and who to lay off?
  • What alternatives to downsizing have you considered?
  • What support will I be given to find a new job?
  • What direction will the company take, after the layoff round?

The benefits of a fruitful exit interview

Not all is lost when a company has to lay off a big chunk of its workforce.

Even though your skilled, well-trained and motivated employees leave, their insights and experiences up to this point can propel your company to new levels of success. Interviewing them even when they are on their way out, can give you direction, as you strategize the upcoming work for a much smaller team.

Moreover, carrying out exit interviews successfully enables your company to maintain its reputation.

When your company was in a healthy state and employees had your full trust, they would spread the word about the impact you were making in your industry and in their lives. Now that multiple employees are leaving, they are likely to spread the word again.

Their departure is a crucial touch point where you have the chance to act on the company culture in an authentic way.

If you truly support and pay attention to your leavers, you will be able to hire again with a relatively untarnished company brand, once the downturn cycle is over.

Maximize the power of the exit interview

Exit interviews can be difficult, emotional discussions that require your full attention and sensitivity, so it’s good to supplement your exit interview with an exit survey.

See how you can combine people analytics and employee listening to make the most out of your exit surveys and interviews.

Doing this enables you to be fully engaged during the exit interview, as well as to give your employees the space to share additional insights anonymously.

This way, you can later learn about the skill gap or experience loss created by your employees’ departure, their expectations about their direct managers, and their well-being.

Moreover, this structured approach enables you to track the overall e-NPS (employee net promoter score), which is a critical insight to consider when you are in a position to hire again.

As difficult as it is to process even one person’s feedback before they leave, you will eventually have to incorporate the feedback of all the people you are parting ways with, at this point in time.

One way to identify patterns and commonalities in this feedback is to perform an open-text analysis, or a language-processing analysis. Machine learning algorithms can do this intricate work for you and essentially read between the lines of what your employees say. In the end, you gain access to ideas, themes and even potential solutions that you might have otherwise missed.

Want to have a genuine discussion with employees and give space for anonymous feedback? Run employee exit surveys →

How to tread the waters of workforce reduction with your current team

Be aware of how your employees see your company

Stepping into any interaction at work following the workforce reduction, you can expect anything but ‘business as usual’.

Since the current and the former employees have bonded and trusted each other, the trust that your current employees used to have in your organization is at high risk, if not already broken. Typically, after a layoff, the remaining employees become less loyal, and their job performance declines by 20%.

Not only does your employees’ engagement take a hit, but their feeling of job security do, too.

Your company has given signs that its success is further away than initially predicted or accounted for, so people become insecure about relying on the same company for their own career success. After all, over half of the employees around the world find job security a critical factor in their jobs.

But there’s another issue that easily creeps up after a round of layoffs.

Enter turnover contagion, aka chained turnover — the instances of people leaving your company soon after their managers or peers have left, either voluntarily or as a result of workforce reduction.

See how you can track and check for turnover indicators early on with Orgnostic

Once a peer or manager leaves, particularly if affected by a layoff, other team members are likely to be alarmed and use this opportunity to re-evaluate their views of the organization.

When this is coupled with the loss of a sense of job security that comes with a layoff, the ripples of people leaving can turn into an avalanche quickly and lead to an even greater number of critical hires leaving the company.

That’s why it’s essential to be alert and look for signs of turnover contagion for a while after the initial workforce downsizing has taken place.

These include:

  • Whether a manager, a peer, or both have left the company
  • Time between salary increases, and the amount of salary increase
  • Whether the employee’s work is recognised publicly, regularly
  • Whether there is a clear career path, designed and communicated to the employee.

Each company is unique, but data frequently shows that it is the co-occurrence of these events — aka, both the manager and peer leaving – that have the most impact.

You might want to be particularly alert about job satisfaction of teammates who find themselves in a position having lost both their direct leader and some peers in a layoff.

Want to check for signs of additional turnover after a layoff?
Try Turnover Insight →

Earn your employees’ trust all over again

The key to engaging your employees again is leadership and the first step is internal communication. Give employees reasons to stay, explain how this decision was necessary for the company’s health, and elaborate on future plans and targets.

The promises you are making now can go a long way and will be remembered. Encourage your employees to not only be part of your company’s future success, but to also participate in building it.

Next, allow some time for people to mourn their loss: their colleagues, their job stability, the way their teams used to interact. Expect that different people process the news in different ways, at different paces.

Lastly, explain the specifics of how the company will invest in those who remain.

Your future plan may include more accurate future predictions in terms of financial profitability, market expansion and social impact, but dare to go beyond this.

Will your company have a hard look at improving ways of working, compensation, or working conditions?

Double down on your commitment to take care of employees and build a long-term plan that includes them. To do this, you can distribute specific employee surveys as soon as the dust of the layoff round settles and take practical steps to act on people’s needs and suggestions.

Your company’s opportunity to shape the future is your employees’ opportunity to shape theirs.

As grim as your employees’ morale is now, there is hope for the road ahead.

After all, the layoffs likely happened so that your company can become leaner and healthier in the current economic climate.

Your remaining employees will not only have to step up to the plate to account for the lost people capacity, but they will also have to regroup and craft a new strategy for moving forward.

Through this shift, there is great potential for your company to succeed with its existing resources, as well as for people to grow within the company and in their careers. Make sure to give employees clarity on the growth opportunities that arise.

Personal career growth is one of people’s main drivers in choosing their employer, so helping them redefine their career path is an opportunity to regain their trust.

The first step to redistribute the workforce after it has been reduced is to define the mission-critical roles for the updated business plan.

Then, identify the employees that are either highly skilled to fill these roles or show great potential to be trained for them.

Essentially, redistributing the workforce post-layoff is a process of reskilling. Check in with your HR business partners or the wider HR department, to paint a clear picture of your team’s capabilities, as well as your capacity for training and development.

Analyzing previous employee surveys is a great way to start, especially if both qualitative and quantitative data have been collected regularly and reliably across departments.

It is important to note that, to keep employees engaged and committed to these role changes, the company’s redistribution of tasks and responsibilities will have to be reflected in an updated set of compensation and benefits.

In other words, people will perceive the company’s changes as fair if their efforts are acknowledged and rewarded in a tangible way.

With the help of your people analytics team, or via plug-and-play platforms such as Orgnostic, you can compare your employees’ compensation packages, to make sure they differ per seniority and expertise adequately, and that they don’t differ per gender, tenure, or ethnicity unfairly.

How Orgnostic can help

There are no definitive shortcuts in navigating the aftermath of your company’s workforce reduction.

However, there are ways to make this transition smoother for everyone involved.

As you continue to make great strides in developing your team’s capacity and capability, you should also look to automate the predictable work that keeps your company running — including HR & people analytics processes.

If your company size is well in the thousands, then you will rely heavily on a specialized people data analytics team to not only manage data capabilities, but also proactively bring people insights to the table, as your team heals from the layoff round and prepares for the future.

And, if you expect this difficult period to be transitory and your current team’s focus lies elsewhere, or you simply don’t yet have the in-house expertise in people analytics, then Orgnostic can help.

By combining people analytics and employee listening, Orgnostic people analytics platform lets you get workforce related insights before they turn into risks, track and measure the success of your people initiatives, and set up a single source of truth for all your people data.

Want to handle employee engagement throughout and after a layoff strategically? Give Orgnostic people analytics platform a try →