The Ultimate Leadership Challenge: Handling Layoffs with Thoughtful and Transparent Engagement (Part 2)

Layoffs are one of the most difficult and painful decisions that any organization can face. They affect not only the employees who lose their jobs, but also the ones who stay behind, the customers who rely on the products and services, and society at large. How can leaders handle layoffs in a way that minimizes the negative consequences and maximizes the positive outcomes? How can they balance their business goals with their social responsibility? How can they be thoughtful and transparent in their communication and actions?

In part one of this article, I initially took a look at both sides of the argument: first, in how thoughtful and transparent Microsoft was during the layoffs, and at times not so much. I shared some of the reported benefits offered to impacted employees, along with an initial look at the cons, focused on employee experiences. Here, I look at and explore some of the hidden costs of layoffs – personal and economic – and provide a few suggestions based on growth mindset and Microsoft's espoused “Model, Coach, Care” principles.

Hidden costs

When we think about the costs of layoffs, we often focus on the direct expenses, such as severance pay and restructuring charges. But there are also indirect and hidden costs that can be even more damaging in the long run. These costs include losing valuable assets, hurting local economies, and undermining trust and morale. Of the people who responded to my survey request: none of them had found a new role at Microsoft: around 1 in 5 had found a new role at another company, and the overwhelming majority (~80%) were still looking for job.

Laying off workers may seem like a quick fix, but it can backfire in the long run. Companies lose valuable skills, experience, and employee loyalty that are hard to replace… particularly when customers are demanding so much more from their suppliers and partners today. (Customer loyalty may be impacted as well, particularly when they don’t receive the same attention and engagement they had previously.) The hidden costs of losing workers can outweigh the apparent savings of cutting payroll.

Loss of trust

Layoffs are not just numbers on a spreadsheet: they are people with lives and dreams and families, sources of innovation and creativity that can help companies thrive in a changing world. When we lay off people, companies stand to lose more than they gain. Loss of trust and morale among remaining employees, who may feel betrayed or fearful for their own jobs. Lost loyalty and goodwill among customers and partners, who may question if values and vision are more than a slogan. And companies lose opportunities to learn from their mistakes and rethink strategies for the future.

Layoffs are not inevitable. We all have had to make choices based on our assumptions and beliefs about what works best for our organizations. But sometimes those assumptions and beliefs are wrong, and sometimes we need to think again about whether layoffs are necessary or effective. And when they happen, companies should endeavour (if not first strive to find alternative solutions that can benefit both the bottom line and the people impacted) to ensure they uphold the values they espouse. When this isn’t done, the impacts can be catastrophic, as I’ve heard firsthand:

• One program manager had been at the company for several years, with a history of success and recognition, working on various projects and products. Laid off in the latest wave along with many of their colleagues, they applied for several jobs at the company prior to going “off network” and didn’t receive a single response. In contrast, for each of the roles they’d applied to outside the company, they received confirmations and, in most cases, exploratory emails and calls. “After all the promises of support, I felt betrayed and humiliated when I was rejected, without any feedback or reason.”
• One impacted marketing manager led a team of creative and talented professionals and worked closely with customers and partners, evangelizing the company’s cloud services and applications on the Teams platform. Despite having excellent performance reviews and results (along with accolades) they were laid off. Attempting to stay in touch with former coworkers, hoping to get some support and referrals, they were...

“... disappointed and hurt when none of them replied to my emails and messages, only to find that my communications were ending up in spam folders. People told me that they were instructed to let the company resources assist people like me, and that they should feel fortunate they hadn’t been fired, too. I felt isolated and abandoned by the team and leaders I thought were my friends.”

(This was interesting phrasing – “being fired” – in the context of a lay off. While working on this article, I penned a succinct outline of why the difference matters (and more than you might think.) TL;DR: Being fired has a stigma all its own, and it amazed me to hear that some leaders use the terms synonymously.)

• Another was from a successful team leader who had developed and launched critical, innovative, successful services. Even though they had received praise and recognition from leaders, customers, and partners, they were laid off in a strategic shift. Before formally going off network (losing access to internal company resources such as email and posted jobs) they were contacted by a recruiter from the company for one of the jobs they were more than qualified, and invited to interview for the role in a different group. Hopeful and excited at the chance to stay with the company and continue their work, they were frustrated and angry when after several successful discussions they were ghosted: no follow up and no idea of the outcome:

“The job market is flooded with people just like me, (with) 100s of applicants for each role, and cold-applying gets me almost nothing. In more than 80 applications since February, I've been outright rejected for maybe 6, and I’ve had only one recruiter screening. And these are absolutely roles I am fully qualified. After I interviewed at Microsoft several weeks ago, I’ve heard nothing despite asking for a follow up from the hiring manager and recruiter!”

Employee impact

When a company announces layoffs, we often focus on the impact on those who lose their jobs. There’s a real toll on their health and well-being, as well as on those who stay behind. How do they cope with the aftermath of losing their coworkers and friends, and facing an uncertain future? What’s the immediate and long-term impact of the stress and uncertainly from lay-offs?

There are no simple answer to these questions, because different people react differently to layoffs. Some may see it as an opportunity to learn new skills or take on new challenges. Others may feel overwhelmed by the increased workload or the pressure to perform. Some may feel grateful for keeping their jobs, while others may feel guilty or resentful. Some may trust that the company is making the right decisions, while others may lose faith in the leadership. And keep in mind: the work and responsibilities don’t necessarily vanish. Remaining staff often have to take over some of the work left by departing employees, especially those with similar skills and roles. This can lead to an increased workload and stress levels, which ultimately affects performance and morale.

The way we respond to layoffs depends not only on our personality and circumstances, but also on how companies handle the process. They can reduce the negative effects of layoffs on the remaining employees in several ways and through best practices, mitigating the impact on productivity and performance.

In discussions with remaining employees, I’ve heard of how their own productivity declined, and they felt that the overall engagement quality of their products and services deteriorated. This is supported in How to Support Your Remaining Employees After a Layoff by Susan Peppercorn, PCC : three quarters of employees who kept their job in a wave of layoffs said their productivity declined, and nearly two-thirds said that their product quality declined. (You know this phenomenon as Layoff Survivor Stress or Survivor’s Guilt.) In one survey last fall, two-thirds of employees said that they felt overworked. (Layoff Aftermath Survey 2022)

Then there’s the real impact on employee health and well-being, both for those laid off and for those who remain (as well as their family and friends). Professor? Jeffrey Pfeffer at the Stanford Graduate School of Business considered recent tech layoffs and highlighted that in his research and from others that layoffs create stress and have a serious impact on the overall health of employees, resulting in increased mortality and morbidity...

“Layoffs kill people, literally. They kill people in a number of ways. Layoffs increase the odds of suicide by two and a half times... increase mortality by 15-20% over the following 20 years, (and have) health and attitudinal consequences?for managers who are laying people off?as well as for the?employees who remain.”

There are ways to address this: companies can demonstrate care, communicating transparently, and listening to those who remain as they process their survivor guilt. (Also see Supporting Employees Who Remain After Layoffs by Paul Bergeron.)

Economic impact

Microsoft’s layoffs weren’t cheap: on top of the $1.2 billion charge for severance and other restructuring expenses, the company also had to pay for consolidating office leases and exiting some of its businesses. Some of this certainly was two years of digital transformation in two months:as we worked from home and the company continued to build up the new main campus in Redmond as part of the Redmond campus modernization…

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security—we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.” – Satya Nadella, April 2020

That transformation combined with the development of the main Redmond campus seems to have contributed to the company pulling out of other Seattle-area leased offices.

But the real cost of layoffs is not just financial. It’s also human. Microsoft lost some of its best talent and human capital, which it had invested time and money to recruit, train, and retain. According to the U.S. Small Business Administration, the actual cost of an employee is between 1.25 and 1.4 times their salary – and that means that companies that lay off employees must cover these hidden costs. Sure, there are supplemental benefits that companies provide to laid off employees, such as career services and support. When you consider that some (or many, when you consider the cache Microsoft holds in the tech market) of the laid-off employees are key contributors and leaders in their fields, companies lose valuable knowledge, skills, and networks that are not easily replaced.

The layoffs also had a ripple effect on the local economies and communities where Microsoft operates. For instance, in the Puget Sound area, where nearly 3,000 employees (officially, per the Washington WARN site, so the number may be higher) have been impacted since January, layoffs reduce spending power and tax revenues. If you leverage enrico moretti ’s model and accept that every high-tech job creates five additional jobs in the service economy (The Multiplier Effect of Innovation Jobs), Microsoft’s recent layoffs could indirectly affect more than 15,000 other workers in across a wide scope of business, from retail and hospitality, to education and health care.

The study also estimated that each tech job generates a huge amount of annual economic value for the region: with Microsoft’s impact, sustained layoffs may have reduced the economic value of the Puget Sound area by hundreds of millions... and could be more than $1 billion per year if the job losses are sustained. (While Moretti’s claim was based on his own research and analysis, it’s not universally accepted by other economists or experts.) Of course, many impacted employees will find new roles: according to analysis by Revelio Labs, 72% found new jobs within three months, and most laid-off workers were able to find new jobs within a year, so much of the potential negative impact may be reduced. (This according to the Bureau of Labor Statistics in 2022, but doesn’t account for factors specific to job quality, pay, or skills mismatches.)

Model, Coach, Care

“The goal is not simply for you to cross the finish line, but to see how many people you can inspire to run with you.” – Simon Sinek ?

So, how could companies like Microsoft be truly thoughtful and transparent in their layoffs, and in employee wellbeing as a whole? In addition to the 5 takeaways from Microsoft’s strategy to improve organizational health (with a focus on physical, financial and mental wellbeing), I have a few suggestions based on the principles of growth mindset and my own thin veneer of organizational psychology in terms of the “Model, Coach, Care” principles:

Model: Be a role model and lead by example.

Show empathy and compassion for the affected employees, and acknowledge their contributions and emotions. Communicate – no, over communicate and actively engage with employees – the reasons and goals behind the layoffs clearly and frequently, and explain how they align with the company’s vision and values. Be humble and accountable for your actions, and admit when you make mistakes or need help. Help employees connect with hiring managers and recruiters to find their next role, and share that experience with your peers and managers.

Coach: Slow down on advice giving and stay curious a little bit longer.

This is an area where the many hours I’ve listened to ??Michael Bungay Stanier in how to Be Lazy, Be Curious, Be Often (Blinkist Magazine). Seek feedback and input from your current (and former) employees, and listen to their concerns and ideas. Encourage them to embrace change and uncertainty as opportunities for learning and innovation. Provide them with resources and support to help them cope and grow. Help them find meaning and purpose in their work, and celebrate their achievements and progress.

Care: Really care about your colleagues.

Provide generous severance packages and meaningful career transition services to the affected employees, and help them find new opportunities. Consider alternatives to layoffs such as reallocating staff in targeted redundancies for different and open roles, given many can be repurposed. Again, Jeffrey Pfeffer highlighted some options in his article that explained recent tech layoffs as did Sandra Sucher and Shalene Gupta in their article A Better, Fairer Approach to Layoffs. You can also use furloughs rather than layoffs, as Honeywell’s CEO David Cote wrote about when faced with challenges at his company.

Then, if you must still lay off employees, be sure to maintain contact and connection with them, offering referrals and recommendations. Support is critical for remaining employees, so be sure to check in on their well-being and morale. It takes real effort to foster a culture of trust and collaboration, and it’s more than lip service to ensure that people feel valued and respected. And find ways to continue to engage with impacted employees providing more than a subscription to a self-help app or a wellness toll-free line.

Epilogue

Layoffs are hard. They are hard for the people who lose their jobs, for the people who keep their jobs, and for the people who make the decisions. But they don’t have to be devastating. By applying a growth mindset approach, leaders can make layoffs more humane and less harmful for everyone involved. And by doing so, they can also create a more resilient and innovative organization that can thrive in a changing world.

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