How to wreck a company

There are many ways to go wrong when running an organization and very few ways of doing things right. There is however one policy guaranteed to destroy irrespective of what the company does or what culture it operates in. This is the “phased” layoff.

In the worst manifestation of this, companies declare that a certain bottom percentile of employees are to be made redundant periodically. I have personally seen or heard of this in 3 companies. None of the three survive now. This is one of those ideas that look reasonable on paper, after all a bottom performer tends to drag everyone down doesn’t he? Also, wouldn’t everyone work much harder not to be at the bottom of the pile. In practice, it is the ultimate dis-incentive.

Every employee knows that along with their actual performance, they need to manage the perception of that their manager has of them. Usually, most people strike a balance, to concentrate on their job. Under this set of rules, people become suspicious. Above all else, they don’t want to lose their jobs even if it means sacrificing a colleague. Teamwork collapses, office politics skyrockets. The manager also knows that there is no way of taking his decision fairly. Who do you fire, the guy who had a family crisis and performed badly this year but had been a consistent performer for the past five, or the guy who joined last year and has worked really hard?

The milder, but also destructive form of the phased layoff is the company which out of sympathy, tries to keep as many employees as along as possible. Here, everyone knows they are on a knife edge. The same dynamic as above starts operating every time employees feel the axe impending. The long term effects are also devastating.

I believe in the 50% rule, for every 2 people fired, one person leaves voluntarily for another job (in a normal job market). The people who leave are typically the top performers who have the easiest time finding another post outside the company.

There is no right way of doing a layoff. But some ways are worse than others.

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