How Big Companies Choose Who Is Laid Off

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As soon as a company decides to cut its head count, the debate begins: Who should be let go?

The current economic climate makes it difficult to make a final decision, according to executives and corporate advisers. Workers remain scarce, raising the stakes of figuring out who should be retained and who should be expendable. It can be intense debate and multiple rewrites when department heads take the lead during layoffs that target corporate staff, and human resources troubleshoots their lists.SourceMoneyGuru-

Gregory DeLapp, a human-resources executive at Carpenter Technology Corp. In Pennsylvania, he helped conduct layoffs. "Ultimately, someone is unfairly treated."SourceMoneyGuru-

Many companies have announced job cuts in recent weeks, including Salesforce Inc., Hasbro Inc., Dow Inc. and others. Inc. announced last Monday that it would eliminate 9,000 jobs more.SourceMoneyGuru-

Traditionally, layoffs at U.S. businesses were guided by seniority, with companies eliminating junior employees first. A company's layoff decision is more likely to be based on skills than tenure, according to human resources executives. An employee's recent performance is likely to play a large role in any decision. High-paying employees might also receive more attention, although advisers say they may also be top performers.SourceMoneyGuru-

At many businesses, bosses at the uppermost level - including CEOs and CFOs - frequently delineate broad conditions for a reduction in personnel, such as mandating that a corporation trim a particular percentage of its workforce or meeting specific savings goals. Others limit layoffs to certain divisions. For instance, Boeing Co. declared earlier this year it intended to reduce 2,000 positions mainly in finance and human resources, with engineering receiving higher numbers of recruitment. Meanwhile, Amazon reported that their most recent cutbacks would be primarily focused on its cloud-computing, advertising and Twitch streaming sectors.SourceMoneyGuru-

According to executives, divisional leaders and department heads are often responsible for determining who should be eliminated. Okta Inc. announced in February that it would cut 300 people, or 5% of its staff, after it said it overhired during the pandemic. CEO Todd McKinnon said many departments were given specific financial cost-cutting targets to meet and did so differently.SourceMoneyGuru-

Keeping people who were working on projects and goals that could be achieved within a three-year timeline rather than a five-year timeline was a priority for the innovation and product development teams. In North America, Okta eliminated some salespeople focused on small and medium-sized businesses.SourceMoneyGuru-

Asked by executives, “Where is the business? Where do we need to invest?” Mr. McKinnon responded by pointing out that the layoffs coincided with Okta's annual planning process, which helped determine which initiatives deserved attention and which could be dropped. I found it difficult to go through it and make difficult decisions.SourceMoneyGuru-

Human resources staffers often believe it is their job to determine which employees to terminate, but it is much more likely that business leaders in each area of a company suggest employees to terminate, said Kathy Zwickert, a former NetSuite chief people officer and recently a director at Avalara, a cloud-based software provider.SourceMoneyGuru-

"HR doesn't control who comes and goes," said Ms. Zwickert.SourceMoneyGuru-

She mentioned that departmental leaders are often asked to generate a list of those to be laid off, with the criteria including anyone who had a bad score in the current performance appraisal or newly joined employees within the last six months inclusive. She also informed that managers will generally prepare a list of employees to remove and dub the layoff paper 'Project Falcon' so its purpose remains unclear if another personnel unexpectedly finds it.SourceMoneyGuru-

In addition to reviewing an employee's performance history, many companies consider workers' ability to adapt and take on new jobs in the future. A one-on-one evaluation of performance is key when deciding who you will keep, says Paul J. Sarvadi, CEO of Insperity Inc.SourceMoneyGuru-

Upon identifying individual employees, human-resources personnel scrub the list, looking to see if the company, for example, is disproportionately laying off people over 40, or unfairly targeting minorities, veterans or other groups, Ms. Zwickert said. Employers could be sued if discrimination occurs. It is common for companies to rely on outside assistance in this process, such as purchasing tools or hiring lawyers to sift through a layoff list for red flags.SourceMoneyGuru-

Such reviews, said Sarah Rodehorst, CEO of Onwards HR, can reveal other problems during terminations by analyzing statistical data to see if certain groups are adversely affected. A company might find it is about to fire an employee who has previously filed a complaint against a manager on a list of layoff candidates inadvertently—a move that may be seen as retaliation. "It's crucial to get this right," she said.SourceMoneyGuru-

Although some companies create a layoff list in a week, many companies take a month to eight weeks to identify employees and develop a comprehensive plan for letting them go, said George Penn, managing vice president of Gartner Inc.'s HR practice, who has advised companies on layoffs and other matters.SourceMoneyGuru-

It is not uncommon for managers to jockey for employees to remain, and disputes can develop between leaders about the philosophy of layoffs—such as whether or not to cut middle management or fire more executives than front-line employees, said Mr. Penn.SourceMoneyGuru-

Executives may choose to keep some high-achieving employees even when an entire business unit is shut down, said Anna A. Tavis, a former global director of talent at the insurer American International Group Inc., now teaches and researchs human-capital management issues at New York University.SourceMoneyGuru- SourceMoneyGuru-




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