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Layoffs: Don’t Throw Out The Baby With The Bath Water

Don’t Throw Out The Baby
With The Bath Water

By: Gary Perman

published in EE Times Magazine

There is a new danger in the market place today. One we haven’t experienced during any other economic slowdown of the past. In a company’s attempt to cut costs and reel in expenses by cutting the fat and some meat to run a leaner organization, executives and managers are overlooking a very real threat to their bottom line.

Many companies are experiencing staff cuts of 10 – 20%, using this tried and true attempt to slim down and stay competitive. Although not a new concept to business, there is a new dilemma occurring; that you can expect to lose 10-15% of those employees you didn’t lay off – your current and critical top talent. Managers who ignore the human toll of layoffs – for those who survive the cuts as well as those who are hit, will likely find themselves with angry and anxious staff at a time when they need teamwork more than ever.

I had a seasoned executive ask me ” I’ve been through downsizing before, why is this any different?” The difference is that in the economic slowdowns of the past – talent was readily available, waiting in the wings. If you lost another 15% of your surviving talent – you could easily dip into a well stocked pool of talent. Today, companies only have a puddle to draw from. “But look at all the layoffs announced on the front page of every paper – there must be talent out there I can draw from…” – NOT TRUE, What you don’t read on the front page of the papers is that the unemployment rate is only 4%. All the layoffs we’ve seen in the economy since January only totaled 150,000 people. Conversely, 268,000 new hires were reported in that same time frame. Meaning, more people were hired that laid off. The “talent pools” are still merely puddles, and you’re still less likely to find top talented people in those puddles.

The hidden danger that should shock any executive is the amount of money their company loses when surviving talent exits the company. The numbers are staggering.

A recent client of mine had 300 employees. To make the math simple, let’s say every employee earned $50,000 per year. Executives decided to reduce their workforce by 30% (100 people). Their savings would be equivalent to $5 Million. Pretty good savings. What they didn’t expect was to lose an additional 10% (30 indispensable people).

The cost to replace an employee, using a conservative figure is 1 – times a persons’ salary (according to Princeton, N.J. consulting firm Sibson & Co). Many positions, such as executives and sales people can cost up to 4 times a person’s salary to replace them. But I’ll use a conservative figure to make my point. The client has to replace that critical talent of 10% they lost: 30 people x $75,000 ($50k x 1.5) = $2,225,000. OUCH! This is an amount that should scare the pants off any executive, making them sit up and take immediate action to find solutions in retaining the indispensable talent of a company. Imagine the large companies that are cutting 5,000 jobs. Ad the survivor exits that need replacing and that’s an estimated loss of $ 1.5 Billion !!!

Looking at these figures, Retention now becomes a critical issue for every executive and manager. No longer is it a problem for “HR” to solve. It’s a P&L issue that can’t be ignored any longer.

© 2001 Gary W. Perman

Gary Perman is the President of Perman Willits Langone, a national search and management consulting firm specializing in Telecom and Emerging Technologies with offices in Oregon and Washington. Mr. Perman speaks nationally to telecom companies and at conferences on the subjects of employee attraction and retention, as well as consults companies on key retention issues. He can be contacted at 360-835-2205 or by email below:

Gary Perman is President of Perman Technical Search Group, a national search firm that specializes in recruiting Executives to Engineers in the technology industry since 1996.
If you have questions about this article, feel free to contact him at [email protected]

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Gary Perman is a certified recruiting professional and owns PermanTech, which specializes in recruiting technology executives, managers and engineers. He hosts an employment-technology blog.

See our Blog for Technology discussions,Interviewing advice, comments relating to IT, Software, Technology issues.