The big picture: Dramatic reductions in force are happening across industries as economic uncertainty leads companies to reevaluate labor expenditures.
Why it matters: RIFs are costly to carry out and they damage morale. Handling RIFs with compassion is the right thing to do.
RIF alternatives – furloughs, job sharing and compensation changes – can save money, enable swifter recoveries and reduce hits to morale.
- Organizations should work with their security and legal teams to navigate relevant laws and obligations.
Strategic workforce planning analyzes, forecasts and plans workforce supply and demand to maintain optimal alignment.
The bottom line: Companies should plan and execute RIFs with empathy and take an approach that’s strategic and mindful of employee welfare.
2023 is proving to be a volatile year. Even as the economy continues to add jobs overall, fears of a future downturn, persistent inflation and rising interest rates have many companies reevaluating labor expenditures, as stories of layoffs have begun to appear frequently in the news. While dramatic reductions in force (RIFs) are happening in the technology sector, they’re also beginning to happen in media, retail, manufacturing and other industries.
RIFs are governed by a variety of regulations and come with several risks – and they can be difficult for all concerned. For these reasons, it’s essential to plan and execute RIFs with empathy and to take an approach that’s both strategic and mindful of employee welfare.
Workforce strategy and RIF alternatives
Leaders who are contemplating RIFs (and their alternatives) have a lot to consider, starting with identifying a workforce strategy that is neither overreactive nor excessively cautious. While RIFs are costly to implement, they also damage morale. Furloughs are a more conservative option – and they convey the intention of calling employees back to work as market conditions improve. Furloughs and other alternatives such as job sharing and cuts to pay, perks and benefits provide some savings and enable swifter recoveries than RIFs do. The appropriateness of these options depends on many factors including how much – and how rapidly – the organization needs to save on labor costs.
Organizations that react too slowly to downturns might see their workforce numbers exceed their needs, whereas overreactive organizations may wind up short-handed. Optimal alignment keeps workforce numbers in sync with labor requirements. Strategic workforce planning analyzes, forecasts and plans workforce supply and demand to maintain optimal alignment. Talent management interventions keep workforces in sync with business needs by helping ensure the right people and skills are in the right places at the right times.
RIFs, risks and compliance
RIFs engender a variety of risks ranging from security of facilities and systems to reputational damage and more. It’s common now for individuals to share experiences on social media and employer review sites. These stories will linger where they can be seen by future job candidates. Organizational leadership should include cybersecurity, IT, facilities and public relations in RIF planning to manage these and other risks.
Organizations also should work with their legal teams to navigate all relevant laws and obligations pertaining to workforce reductions for the following reasons:
- RIFs are governed by federal and state laws and could be affected by local regulations.
- Public companies may have additional compliance and reporting considerations (e.g., the U.S. Securities and Exchange Commission regulations).
- Organizations may have additional contractual obligations, or they may have set severance compensation expectations via employee handbooks or other documents.
- Businesses may have been awarded incentives for creating local jobs; RIFs could impact these arrangements.
- RIFs may have implications for incentive and equity compensation plans and entitlements.
- RIFs must be carefully planned to avoid claims of bias or discrimination by age, race, color, sex, religion, national origin or disability.
Planning and executing the RIF
Apart from pragmatic considerations, handling RIFs with compassion is the right thing to do. Caring and respect are critical to the RIF process, and communication planning should include articulating the rationale for the RIF, determining key messages and identifying all stakeholders.
The organization should share the rationale for the RIF and be transparent about the state of the business. Employees who are already aware of trouble will be less surprised if they are laid off.
It’s important to remember that the stakeholders in a RIF situation include not only the employees who are to be laid off, but also the organization’s remaining employees, customers, vendors, investors and the media. The information needs for all of these stakeholders should be considered.
The timing for communications with internal and external stakeholders must be managed carefully to mitigate rumors. Key messages will differ depending on the stakeholder group. Leaders can assume that even internal communications will be shared publicly, so these communications should convey consistently positive information about the company’s outlook.
Communication planning also calls for preparing managers, who bear the brunt of RIFs by delivering the bad news to laid-off employees and reassuring those employees who remain. One reason RIFs go badly is that people, by nature, try to get through the RIF notifications as rapidly as possible, but this can appear callous. It is crucial that leadership provide appropriate support to managers during these challenging times.
The selection of employees to lay off will depend on the potential impact of each employee’s departure on the organization. Leaders can minimize the impacts by planning new approaches to ensure continuity of operations.
Supporting laid-off workers demonstrates compassion. Providing extra pay and benefits — while not legally required — diminishes the distress of laid-off employees. Severance compensation shows appreciation for past contributions while easing transitions to new positions. Ideally, organizations will offer this support, as well as outplacement services that provide training, coaching and resources for new job searches.
A new normal: life after a RIF
The final tasks in conducting a RIF are often forgotten. First, leaders will want to follow up with laid-off employees to make sure they are OK and are using the resources provided. Second, leaders and managers must support remaining employees who will take on departed colleagues’ responsibilities. These leaders can keep communications channels open by promoting a culture of listening.
RIFs are difficult, but they protect a business’s ability to survive and evolve. In the uncertain economic climate organizations now face, it’s impossible to predict future staffing needs. This is all the more reason to approach RIFs in a careful and caring way that helps protect future relationships.
Protiviti Managing Director Rich Cohen and Director Johnny Martinez contributed to this blog post.