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Employee Morale During Corporate Downsizing

The focus of successful business leaders is to develop and maintain a motivated, energetic workforce that is capable of delivering desired business results. Simultaneously, business leaders must keep their finger on the pulse of the organization to accurately interpret and react to an ever-changing economic environment. In today’s turbulent economic climate, this challenge relies on a leader’s ability to maintain/improve team effectiveness and team productivity even though some members of the team have been released. This week’s blog addresses the difficulties of maintaining high employee morale during a period of company layoffs.

Innovative Downsizing Strategies

Once the downsizing/employee reduction decision has been made, major corporations have used one of three (or a combination thereof) means for reducing employee operating expenses. Sometimes, companies “outsource” a portion of their organization to another company that specializes in the operation being downsized. For example, instead of maintaining a marketing department or technology support team, a company may eliminate these roles internally and enter into a contract with another company to perform them externally. The primary advantage corporations realize from this activity is elimination of employee payroll expense, healthcare, and medical benefits. The amount paid to an outsourced contract firm is far less than employee payroll expense.

Another popular company strategy is to “offshore” a portion of the organization to a business entity in another country. This entity may be an affiliate of the corporation or a separate entity altogether. The advantage to the corporation is a significant reduction in employee operating expense by utilizing a workforce whose salary, healthcare, and medical expenses are far less than the expense incurred by using the American workforce. There is concern over standardization of employee compensation and employee engagement practices in other countries (however, that discussion falls in the category of corporate social behavior and ethical business practices – to be discussed in a future blog).

A third strategy is to merely reduce the existing workforce. While the U.S. Department of Labor quotes the unemployment rate at approximately 10%, some companies have reported layoffs and labor reductions well in excess of that percentage. Corporations have vigorously attempted to maintain high productivity levels with fewer employees. Some companies have even tried to do more with fewer employees. In the cases where a company reports success in this endeavor, they might not necessarily share information on employee morale - which may have been severely impacted.

Employment Fluctuations – A “Natural” Behavioral Pattern

Fluctuations in employee staffing is a natural evolution. Companies grow and increase their workforce. Companies shrink and reduce their workforce. Companies aggressively manage their workforce and “prune” out those who do not consistently meet the expectations of their role. Nonetheless, employee morale is also a natural behavior. The stress and anxiety level of those chosen to stay is arguably just as high as those chosen to be released. Most corporations utilize outplacement services to help workers through the layoff process. These services can offer assistance with filing unemployment insurance claims. Outplacement services can also provide guidance and assistance in “re-tooling” employees for other job opportunities.

Employees that have not been eliminated may deal with stressful issues such as: “why was this employee selected to stay and that employee was selected to go”; “will there be another layoff”; “will I be eliminated next”; “how much more work am I expected to deliver”; or “have I been given the appropriate training to carry an additional workload”. These are all “water cooler” and hallway discussions that inevitably decrease the amount of time employees are effective and efficient in completing their tasks. Leaders must play an integral role in reducing chaos and maintaining productivity during this time.

Open and Honest Communication

In order to maintain an effective work environment, leaders must confront the issue with integrity, honesty, and vision. Every company has goals, objectives, values, and a mission. In a time of layoffs, leadership must consistently re-iterate the corporate goal; the role employees play in achieving the corporate goal; and any reassurance possible that the remaining employees are a valued part of the corporation’s future. If the company’s leadership has consistently operated with a high degree of integrity and honesty in the eyes of their subordinates, the probability of successfully maintaining morale and productivity will be higher than if leadership is perceived as dishonest, untrustworthy, and unethical. Further, the leadership behavior and attitudes displayed when executing an employee reduction strategy is not only observed by the company’s employees. Corporate vendors, suppliers, competitors, and investors are also closely monitoring these activities. It is truly a difficult scenario.

More information on employee morale and productivity can be reviewed in Corporate Leadership Selection: Impact on American Business, Employees, and Society (Authorhouse Publishing).

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