By Leah Fessler
The Coronavirus crisis is forcing many executives to make difficult decisions around employee modifications. Below, we explore the nuances of evaluating staff modifications from CEO, HR, and CFO perspectives.
Evaluating Layoffs from the CEO Perspective
Founding Chief Member Clare Hart, CEO of Williams Lea, and previously CEO of Sterling Talent Solutions, Infogroup, and Factiva, shares her perspective as a CEO.
Q. What major signals have you seen indicating that RIFs or furloughs are necessary?
Clare Hart: As the chief executive you need to be completely in partnership with your CFO. You know exactly what your budget is. You know exactly what's happening to the business as a result of any stressor — whether it’s this virus, or 9/11, or the 2008-2009 recession. You look at what's happening to your business and you say, okay, here's what we budgeted. Then you do scenario planning — for COVID-19 we planned two scenarios, a moderate scenario and a severe scenario. Then you analyze what will happen in each scenario, and plan potential RIFs and furloughs accordingly. If you think the business will recover, you should go with a furlough or pay reduction. If you think the business cannot recover, then you need to seriously consider releasing people.
Q. What key stakeholders should be involved in any staff reduction decision?
CH: It’s the trifecta of the CEO, the CFO and the Chief HR Officer or Chief People Officer. You always have to have your general counsel or head of legal involved too. If you are dealing in a global environment — which I am today, and a lot of people in Chief are — you need a general counsel that can draw upon external counsel in Asia and Europe. I'm big on inclusion as a leader, so I always bring the business leaders in as well, including regional heads.
Q. What is your advice for executives who are struggling with the pain of these decisions?
CH: You have to think about the long-term health of the overall organization versus the individual or the group of individuals that are going to be impacted. If you're a 500 person organization and you have to RIF 50 people, you're holding the business together for the other 450. It cannot be personal — especially in this economic environment.
To take care of yourself, you have to find people that you trust and with whom you can be vulnerable. It's okay as a senior executive not to have all the answers. That’s why it’s so important to talk to people in your Core group — nobody has all the answers, I don't care how much experience you have. While you should be strong and focused in front of your employees, it's okay to be anxious with your peers, mentors, and your Chief Core group. This is really hard.
Evaluating Layoffs from the HR Perspective
Next, Founding Chief Member Lorna Hagen, Chief People Officer at iHeartMedia, shares her perspective.
Q. What are the most important steps to take when you decide to move forward with a RIF?
Lorna Hagen: First, you need to inform the board, your partners, and your executives and leaders. Then you think about communicating this decision to employees. Before you can get to your employees, you have to have a very well crafted and authentic message centered around the business. We've had to make some hard choices here at iHeartMedia, and the overwhelming feedback from employees is, "Wow, this is hard. But the way that you've communicated this to me, I get it. You've articulated where the business is, what's happening to my job, and you've made me feel secure that in this furlough you want me to come back." You can't do anything haphazard.
No matter the size of your business, personalizing the message to the employee is the always the best way to go. Executives who go too fast don't realize that yes, it’s terrible for the person who is losing their job, but the people who stay with your company will know how you treated their friends on their way out — and you can't recover if you do that poorly. Lastly, you have to think about how to bring your company together after, making sure that they understand what happened, and what their part will be in moving the company forward.
Q. What are the most common mistakes HR leaders make when delivering this kind of news?
LH: Their comms are not sufficiently empathetic. I firmly believe that you should never say I'm sorry in a communication where you're laying somebody off, because you're not doing it to them personally — there's a business circumstance that necessitated the action. But in the case of COVID-19, I've changed my mind, because man, this is terrible. This sucks. And I am sorry that this is happening, because we don't know what it is. This wasn't an executive who made a misstep. This is something totally unknown. So in this case, I would err on the side of being absolutely sympathetic to the employees that you're talking to.
Evaluating Layoffs from the CFO Perspective
Finally, we speak with Chief Member Shavi Gupta, Chief Financial Officer at Inpensa.
Q. If you’re a financial leader, how should you begin to evaluate whether a layoff or furlough is necessary?
Shavi Gupta: It’s best to start this evaluation process by looking at the organization’s discretionary spend and deferring or withdrawing any unnecessary investments first. All efforts should then be made to further optimize the cost by considering alternatives to a RIF. If after careful evaluation of all underlying costs the business is still projecting negative impact due to revenue or cash shortfall, then the decision to conduct RIFs becomes clearer.
The drive to consider RIFs or furloughs is almost always underlined by the need to lower the expense base in order to align to certain revenue targets, and extend your cash runway for the future. In the world of COVID-19, small businesses may benefit from retaining their existing employees by leveraging the various relief programs and loans that are currently being offered by the Small Business Association.
Q. Beyond furloughs and RIFs, what are some less-discussed alternatives?
SG: A smaller private company may be able to consider vendor management options such as extending the payments terms with the vendors, thereby extending the cash runway. Other alternatives for optimizing cost for smaller companies include re-evaluating your office space to co-work with other smaller companies, or adding additional cash flow. Smaller private companies could also leverage reducing cash compensation and replacing it with equity compensation thereby making employees part owners of the company.
Some alternatives to layoffs for larger or public companies can be eliminating the overtime hours worked by contractors, or evaluating jobs that may not be relevant in the long-term, and re-training those employees for the new skills. This allows the company to retain employees and institutional knowledge. Another alternative is to offer an Early Retirement Plan to tenured employees, which can result in people volunteering to leave.
Originally Published April 3, 2020