This Week's Herman Trend Alert

Leadership in Normal 2.0
 

  Press Release
For Immediate Release
4/25/05
Contact: Roger Herman

Foolish Time for Layoffs

Corporate executives are hungrily looking for ways to cut costs to impress stockholders. Unfortunately, there is a serious risk involved in reducing payrolls through schemes like layoffs and early retirements. The vulnerability and cost to company morale, customer relations, intellectual capital, and operational continuity are significant.

Three erroneous assumptions motivate corporate leaders to engage in outdated practices like layoffs and early retirements: people put on the street are replaceable; replacing gray beards with young turks is always a good move and it really doesn’t cost that much to hire someone new. These assumptions are false and tend to lead employers into high-cost downward spirals that can have far- reaching negative effects.

The first assumption is that reducing payroll through layoffs or an early retirement program will be easy to achieve by reducing the number of older employees. The expectation is that the employer will be able to save a considerable amount of money by hiring people to do not cost the company so much for health benefits. This fact is not necessarily so, given that maternity benefits—important for younger workers—are not needed at all by the firm’s more senior employees.

According to employer beliefs , young people can do the same job as older workers, for less Money.. The fallacy in this reasoning is to expect "young turks" to replace the "gray-beards" interchangeably, and that younger people with less experience will be able to easily slide in and do the job without a heavy investment in training, education, and on-the-job experience. The reality is that younger workers may demand lower pay, but they don’t have the strength that comes from knowing the product or service, customers, market, procedures, or history. In addition, the younger people may encounter resentment from people who had valued relationships with the exiled experienced workers.

Amazingly, many employers believe that it is easy to recruit and hire top talent. That condition does not exist today. Finding receptive candidates in a tight labor market is not a simple matter. The competition for good people means that your cost of bringing on the replacements may be quite high. Economically, it may be a lot less expensive to retain the intellectual capital in which you already have a substantial investment.

Younger workers will be leaving companies soon, looking for greener pastures. There will be plenty of jobs available, so there will be a lot of movement…a lot of churning in the employment marketplace. Employers that can maintain a stable workforce will have a decided advantage.

Reducing payroll now is akin to shooting yourself in the foot or trying to run a race with your feet tied together. Now is the time to hold on to employees who know their jobs and the people they serve. With good leadership support, these talented human assets will perform at significantly higher levels than new employees. The smartest strategy is a good employee retention strategy.

The impetus for this press release was the report of a company in the energy field offering early retirement packages to several thousand employees in an effort to reduce staffing by 450 jobs.

Estimates are that the company will now be forced to hire approximately 1,000 skilled workers this summer, as the labor market tightens. This strategy may allegedly appeal to stockholders, but it does not seem to make any business sense.

The Herman Group is a firm of consulting futurists concentrating on workforce and workplace trends and their implications. Emphasis is placed on employee selection and retention as critical strategies. Included in the firm are researchers, professional speakers, authors, and consultants. The Herman Group is based in Greensboro, NC, with affiliates in Sao Paulo, Melbourne, Hong Kong, and Port Louis, Mauritius. Contact Joyce Gioia-Herman at 336-210-3548 or e-mail: joyce@hermangroup.com.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            


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