The Great Resignation Meets The Layoff Storm

We might be witnessing the convergence of the tail end of the 'Great Resignation' meeting the head of yet another economic crisis where some companies are quick to fire their employees. While the battle for great talent seems to be at an all-time high, with employers willing to bend over backward to retain and attract the best talents, companies, especially in the crypto and the tech sectors are badly affected. After years of bulking up, the tech industry seems to be bracing for recession. Tech giants like Microsoft and Google are among those who hit the breaks on new hiring while other well-established tech giants Tesla, Tik-Tok and Netflix, and many more are opting to lower their costs by cutting their headcount. A leading indicator of the grim forecast is when companies start to trim their recruiting departments, like Twitter which laid off 30% of its talent acquisition team just two months into a companywide?hiring freeze.

Maher Saba,?Meta’s head of engineering said earlier this month,?“If a direct report is coasting or is a low performer, they are not who we need; they are failing this company.”??Other companies such as?Spotify?announced that you scale back their hiring goals by 25% -35%.

The chart of layoff aggregation from?TrueUp?paints a worrying trend. In June 2022, almost 30,000 employees were laid off, up from about 21,000 in May. Meanwhile, in Asia, hundreds of workers from start-ups have been fired in South East Asia in the last few months. Share prices of tech companies such as Grab shrank. Investors are no longer happy with growth and market share. They want to see profits. Online shopping platforms Malaysian-based iPrice and Indonesian education tech company Zenius let go of hundreds of employees each. Singapore-based Shopee is set to make massive layouts soon.

But are layoffs really the best solution for companies during a crisis??Should it be the first or last resort? With more than 11 million job vacancies and a below 3% unemployment rate, unless the rain becomes a major storm and a prolonged recession, perhaps cutting jobs might not be the best first reaction.?

Reasons to hold off on firing (as much as you can):

While in conversation with the head of talent (who chose to be anonymous) of one of the Block-Chain technology unicorns with a workforce of over 1,200 employees in Europe, mentioned her fear of over-reaction with layoffs. Let me tell you why:?

?? Cost of recruiting: ‘Recruiting the right talent takes a lot of time, effort, and resources. We invest millions in recruiting. We fight fiercely for talent with the right skillsets and attitudes that would fit into the role, the team, and our company DNA.

???Cost of development: ‘Part of our employer’s brand promise is that we care about our talents and invest a large number of resources developing them. We also put a lot of resources into a comprehensive onboarding process. We learn about their specific development needs and offer them courses to upgrade their skills as well as coaching and mentoring.’

???Risk of IP leakage: ‘If we are forced to conduct layoffs, we will lose the important brain capacity of people who build our key products. What they have learned about our concepts, plans and innovations can’t be erased from their brain. We will be giving our competition access to our IP and future development map.’

?? Dent in Morale: ‘Companywide layoffs will hurt our employees’ morale and inadvertently affect how the business runs and might have a ripple effect. It is a high possibility that the talent that we want to keep will start to feel job insecurity and leaves us for the competition. Not to mention our emotions. It is a terrible feeling to let go of people you worked so hard to bring in and invest in.’

Downsizing of companies may lead to the declining organizational performance of the survivors who remain in the organization as seen by (Kinnie et al, 1998).

???Future foresight:?‘If we manage to keep most of our talent during the downturn, we will build loyalty, and it will be easier for us to recuperate when the market bounces back. Otherwise, we will end up fighting fiercely with the competition when the market recovers.’

? Can you find creative ways to weather the storm and take advantage to emerge as winners when the high tide returns?

Lessons from Joie de Vivre hotels

One of my great mentors is Chip Conley (1) who founded the Joie de Vivre hotels chain in 1987 and ran it for decades before selling it to Hyatt. JDV was the largest independent hotel company in the SF Bay Area. During the dot.com bubble burst, followed by September 11, the Bay Area experienced a 35-50% drop in revenues between 2001-2005. The JDV chain was particularly vulnerable as all of its hotels then were in the Bay Area and didn't have deep pockets.

One of the first things that Chip did was to take a "salary sabbatical" that lasted 3.5 years. Leading by example, he convinced his senior leaders to take a 10-20% pay cut for 2 years.? His team examined ways to cut costs in all kinds of ways such that they didn't have to lay off any of the line-level employees (due to economic reasons - they still could be laid off for performance reasons). "We completely changed our health insurance coverage to save 25% on that employer expense without significantly altering what we offered our line-level workers." shared Chip. Activating what Chip classifies under 'karmic capitalism.' As cutting costs was effective, JDV was able to raise their wages annually by the inflation rate.

The biggest challenge was to convince JDV's investors and owners to play the long-term game. In his book "Peak" Chips shares, "It was clear we needed our investors and owners to rethink how they define Joie de Vivre's effectiveness." Chip managed to convince most of them to change the KPI to growing market share. "We were the only Bay Area hotelier that didn't lay off employees. In return, both employee satisfaction and customer satisfaction during that time skyrocketed relative to other hoteliers. Fortunately, more than 80% of our hotels were growing market share during the downturn versus their competition."

Lessons from Southwest Airlines

During the September 11 crisis, most airlines experienced a sharp decline in revenues and had to fire thousands of employees. But resilient Southwest?Airlines refused to consider layoffs or furloughs because they had good relational reserves and the best financial reserves in the market. They could afford what their competitors could not. They did it because of their culture and it was a great business decision in the long term. As Business Week wrote then:?

It's not altruism at work. Rather, executives at no-layoff companies argue that maintaining their ranks even in terrible times breeds fierce loyalty, higher productivity, and the innovation needed to enable them to snap back once the economy recovers.

In October 2021, the Chief Executive Officer of Southwest Airlines, Gary Kelly delivered a video message (click to watch) to Southwest employees that the company planned to avoid furloughs and layoffs through 2021. Like Chip Conley, Mr. Kelly led by example and announced he would take no salary until the end of 2021. He shared that other?top Southwest leaders?would take pay cuts of up to 20 percent. The rest would have a 10% cut. In return for that, employees would run no risk of furloughs through the end of 2021.

Lessons from Marina Bay Sands

The aftermath of the Covid crisis left Las Vegas Sands in the red with a loss of $113 million USD owing to a three-month shutdown. The company's stance was to offset layoffs and continued to support its employees. The CEO, Rob Goldstein stated, “While we hope this closure is a short-term necessity, we are realistic it may be a prolonged event. Our team members and their families will rightly be concerned about their health and safety, but we do not want them worried about their jobs, income, or health care. Like we have done in the past, we are fully prepared to support our team members over an extended period should it be needed.” The late founder Sheldon Adelson’s net worth during that time dropped from $34 billion to $28 billion.

How can you delay or avoid layoffs?

As the impending economic storm intensifies, many companies will be forced to manage their cash flow wisely so they can retain their best talent and make everyone feel motivated to do more during the crisis. Taking a page from the companies who managed to keep their teams during the past crises; Here are some steps that could be taken before a decision to fire is made.

???Cut non-essential big expenses:?Like Chip who managed to find big expenditures that can be stopped and deferred, you can start cutting nonessential costs. It will be hard to convince your investors to back you up if your team is flying first class and you pay for thousands of employees a weekend in an expensive resort abroad. (But please do not cut the budget of my talks and training your leadership with me ??)

???Leadership pay cuts:?Consider?JDV and Southwest airlines stories as an inspiration. Can you lead with an example? Can you align your leaders to collectively agree to major pay cuts?

??Reduce wages or Employee expenses:?After leading with your example, communicate the situation with honesty, clarity, and transparency. Ask for their cooperation to reduce their salary until times will be good again. The honorable thing to do is to document the reduction and pay it back in good times when you are back to profitability. You can pay them with shares, which can grow and give them a big upside for their sacrifice. If you have a union, it is paramount that you create an alliance with them to support such wage reduction. The last thing that both you and the employees need is to quarrel now. You need each other to bounce forward together. Consider offering shares against the pay cuts and/or commit to paying it back when you are back to profitability.

???Protect the weak:?Your front-line workers and the ones who earn the least are the most vulnerable during a crisis while being the most important to your business.?As Chip Conley did with JDV, he and his leadership team took pay cuts while the most vulnerable low-pay workers’ wages remained untouched as they need every cent to put food on the table of their families. Taking care of those who need it most created a sense of unity and purpose among the people who could afford to reduce their salaries. This led to employee goodwill during the crisis that remained well after it ended.

???Plan furlough:?Consider plans to reduce the number of working days per employee so the savings will allow keeping more people employed. Offer early retirement options and non-paid sabbaticals to people who want to take a break and pursue personal interests.

A few months ago I heard from Kevin GIRARD, the general manager of Conrad hotel in Bali that during Covid a few of his workers volunteered to cut their working days significantly to save the jobs of those who needed it most. There are many examples of how the employees themselves created a fund to ensure that the most vulnerable will be taken care of.

???Apply for grants:?During the pandemic and economic downturns, many governments use their reserves or print more money to support employers to help local companies to keep their workforce. Are there grants you could apply for in your area?

???Get Your Investors' Support:?As Chip Conley convinced his investors to keep backing the company, by leading with personal sacrifice, being prudent with cutting every nonvital expense, and convincing them to change the measurement to market share, Chip managed to convince them to keep funding the losses and accept an alternative KPI of growing market share that will be translated into future profits instead of the unrealistic possibility of short term profits.

???Last resort:?If you exhausted all the other options and you must fire people do it wisely. Be fair without bias and transparent. Let everyone know what are the criteria and how long and deep will the exercise take place. Communicate it effectively with kindness to keep their dignity. Show compassion, do it fast and with grace. Do your best to help them find another job and write deserving recommendations to help them be accepted for jobs in another organization.

Confusion, ambiguity, and lack of empathy will diminish the trust in your company. Poor communication will make the remaining employees might feel a loss of job security which might lead to the good guys you want to retain, wanting to flee, due to their fear of being next in line to lose their job.

Not all reductions of employees are bad.?Tough times can be an opportunity to let go of underperformers and toxic people. During our three years of research for the book?'First Time Leadership'?which I co-authored with Daniel Lee, we interviewed Garry Ridge, the legendary chairman and CEO of WD-40. We asked him,?“what do you do if you find a toxic leader in your organization?”?to that he replied,?

“If I find a toxic leader in our organisation, I'll send them as fast as I can to the competition.”

(1) Chip Conley, Rebel hospitality entrepreneur and New York Times bestselling author, Chip Conley disrupted his favorite industry... three times. At age 26 he founded Joie de Vivre Hospitality (JdV), transforming an inner-city motel into the second largest boutique hotel brand in America. He sold JdV after running it as CEO for 24 years, and soon the young founders of Airbnb asked him to help transform their promising start-up into the world’s leading hospitality brand. Chip served as Airbnb’s Head of Global Hospitality and Strategy for four years and remains the company’s Strategic Advisor for Hospitality and Leadership. Chip is the founder of the Modern Elder Academy (MEA), where a new roadmap for midlife is offered at a beautiful oceanfront campus in Baja California Sur, Mexico, and forthcoming campuses in Santa Fe, NM. His five books have made him a leading authority at the intersection of psychology and business. Chip was awarded “Most Innovative CEO” by the San Francisco Business Times, is the recipient of hospitality’s highest honor, the Pioneer Award, and holds a BA and MBA from Stanford University.