Layoff Warning Signs: I

If you're concerned that layoffs might be occurring in the near or intermediate future in your organization, it's wise to consider exiting before they actually happen. Although no severance package accompanies an early voluntary exit, leaving before the layoffs begin can provide advantages that exceed by far the after-tax value of any layoff severance packages. In a post to come, I'll examine the advantages of early voluntary exits. But those advantages are out of reach unless you can determine with some confidence that layoffs are coming soon. So let me begin with a survey of indicators that layoffs are in the near future.

There are two sets of indicators that layoffs are or might be on the way. Neither set includes any formal announcements from the organization, because formal announcements usually come too late for employees to benefit from early voluntary exits. The first set includes indicators of elevated risk of layoffs. The employer hasn't yet taken steps that require a public announcement or a warning to employees that layoffs are being planned. The second set of indicators include actions the employer might take to control costs, but which are short of widespread downsizing. These actions might include some terminations, but only those that can be explained as "normal cost control actions."

Following are descriptions of elements of the first set — indicators of elevated risk of layoffs. The examples provided are constructed for a company with publicly traded securities, but there are analogous forms for privately held firms and for government organizations. Next time I'll survey indicators that reductions have actually begun, but are still under cover and unannounced.

Indicators of elevated risk of layoffs

The company's market position is weak

Perhaps a competitor has announced an offering that the Company cannot respond to. Or there are patent issues. Or the Company's market share, over all markets, is declining. Or the Company has had a run of disappointing quarterly sales. If a weak position has developed, and no clear fix is in sight, cost cutting in the form of layoffs is likely in the near future.

Follow what securities analysts are saying about your employer. Set relevant Google alerts to stay current.

The company has announced they are developing a "performance action plan"

This is a significant development not merely because it indicates that Management is considering layoffs. Of more import is the likelihood that Management believes that investors expect immediate action. The announcement is probably aimed at addressing the concerns of securities analysts and investors. It's intended to buy time by igniting interest in the firm's securities because of the expected short-term positive effect, from the investor perspective, of the anticipated actions on the firm's securities.

In some of these announcements, companies refer to "rightsizing." The idea is that some business units might face reductions while others grow. Managements are careful to exclude from reductions certain portions of their businesses — those that offer a promise of superior results. If you work in an excluded business unit, announcements about rightsizing are actually good news for you, because rightsizing will make available some additional resources to be applied to the work you do.

No raises or bonuses this year

Another indicator of trouble ahead: the normal time of year for raises and bonuses has come and gone, and the amounts of these changes in compensation are lower than expected, or are actually zero.

This is a clear indication of trouble in two ways. First, it might mean that the financial resources required for typical increases in compensation are unavailable. But it can also be a way for Management to encourage people to exit voluntarily, which can be less expensive for the Company. Unfortunately for the Company, the people who exit voluntarily are often the most capable — those who can easily find alternative employment.

Bad news or a convenient scapegoat arrives or becomes evident

Any announcement of layoffs has negative consequences for the Company, and especially for Management. For this reason management teams prefer to include in such announcements explanations that place blame for the trouble on anything and anyone other than Management — the scapegoat factor. The scapegoat factor can be general economic conditions, layoffs in other companies, political turmoil, or death of a CEO — almost anything. Closely related is the strategy of timing an announcement of layoffs so as to coincide with even more significant bad news. Timing the announcement in this way distracts the attention of the financial press. Management can also use these events as convenient excuses that protect Management from accountability.

These phenomena make layoff announcements more likely when bad news or a new scapegoat factor suddenly becomes available.

Reliable information from your personal network

Because your personal network has information sources that bypass the formal communications channels, it can provide early warning. But to protect your network refrain from repeating or acting on information until you have received it from multiple sources.

Executive departures

Because executives have a more global view of the organization's health than most other employees, career decisions of executives can sometimes be more significant than the career decisions of other employees. Moves to other companies, early retirements, and other changes can indicate — but might not indicate — trouble ahead for the Company.

Sometimes companies try to suppress speculation about impending trouble by using executive departures as opportunities for reorganizations. Use your network to distinguish actual reorganizations from attempts to obfuscate the implications of executive departures.

New executives with finance focus, not product focus

In some cases the background, experience, and strengths of a newly arrived executive emphasize the financial or organizational, as opposed to emphasizing the products or services of the organization. When this happens, a reasonable conclusion is that Management prefers to address the Company's troubles by taking steps that emphasize making financial adjustments rather than product, service, marketing, or delivery innovations.

That's fine if you are — or if you work for — the CFO, for example. But if your work is closer to product, service, marketing, or delivery, expect a wild ride.

Rumors of layoffs are intensifying

The presence of rumors is a fact of organizational life. But when rumors of layoffs become especially persistent, intense, or vividly horrific, they might be the result of an organizational strategy designed to encourage people to exit voluntarily. Encouraging voluntary termination can reduce the cost of layoff efforts.

Consider the content and frequency of rumors carefully. If the incidents they describe are implausibly cruel, there's a good chance that those incidents never happened and that the rumor is a plant.

Last words

Because the risk of layoffs never vanishes, the task is one of gathering and synthesizing information from disparate sources to help in estimating changes in the risk of layoffs. Until layoffs begin, the picture will always be hazy and uncertain, but it can nevertheless be helpful in making a decision to exit before layoffs actually occur. Next time I'll examine some indicators that give clearer signals of coming layoffs.   Next issue in this series   Top    Next Issue

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