The Hidden Costs of Layoffs, Pt. 1: When Companies Lose Good Employees
In a perfect world, companies would never have to worry about losing their very best employees. Unfortunately, there are certain factors over which HR managers have little-to-no control, which affect even the best and highest performing employees.
There are three common reasons that a company might lose its best employees to reorganization:
Revenue Loss and Payroll Deductions
One of the more common reasons employers may be forced to let valuable workers go is a loss in revenue. When a company experiences a drop in revenue that’s significant enough to force cost cutting, reducing payroll expenses is typically an efficient way to do so.
Often, a company’s best employee and its most “expensive” employee are one in the same. The best workers are generally compensated at a rate that reflects the skills and level of expertise they bring to the business. As a result, these employees have the potential to make a larger impact on payroll expenses. In many cases, the “best” employee may not be the most critical to a project, and therefore when a company is trying to run as lean as possible to stay afloat, reducing that expense can be an effective route to take—so long as displacing the employee does not also affect the company’s ability to make up the revenue losses.
Change in Management (M&As)
Whenever a company undergoes a merger or acquisition, there’s a possibility that this new entity will suddenly find itself with multiple people sharing the same role or title. For example, both companies likely had one or more employees working as an HR manager, and when the two come together there’s now several HR managers, which is inefficient and unnecessary.
Depending on the nature of the M&A, a company may be forced to release good people if another person already fulfills their role. Although it’s preferable to keep valuable employees , perhaps by transitioning or redeploying them into other positions or departments, such an arrangement isn’t always possible.
Another outcome of a merger or acquisition is the reallocation of the budget by the new parent company. This can mean that the company can no longer “afford” some of its best employees and has to part ways with them.
Emergence of Automation
While the emergence of new technology that’s capable of helping businesses streamline operations and run more efficiently can be cause for celebration, we must also consider the negative impact is has on employees whose tasks can be performed more quickly and more cheaply with automated technology.
One question many people have regarding the rise of automation surrounds the ethical nature of using advanced technologies to streamline business operations at the cost of human capital, and whether or not companies should consider their (real) employees when deciding the best (and sometimes most cost efficient) course for the company overall. In other words, what’s good for the company isn’t always good for the employee.
The good news is that automation has the potential to create an abundance of new jobs, but the bad news is many of these jobs require skills that current employees lack. Although automation isn’t likely to replace all employees, the threat to more high-touch positions should be top of mind.
What can employers do?
These and other circumstances that cause employers to let good employees go are unfortunate and often unavoidable. And the cost of losing great employees can go beyond the actual cost of doing business—if not handled correctly, a layoff can leave those high performers with low opinions of your organization, which can go on to impact your brand and cost you in terms of future talent acquisition, customer and partner relations, and even legal backlash.
Fortunately, there’s a way companies can help make the transition experience easier for its valued employees: by providing them with a benefits package that includes outplacement services.
A company that invests in an outplacement service that prepares displaced employees for the next step in their career comes offers major advantages: it allows your company to live up to its commitment to taking care of its employees, thereby also protecting the employer brand, reducing legal risk, and potentially cutting unemployment tax charges.