How to conduct a layoff
For me, conducting a layoff was one of the worst experiences of being a CEO. It’s also something that feels uncomfortable to talk at length about with other CEO’s. Additionally, tensions may be running high at the board level and it may feel awkward to solicit advice from board members. For that reason, I decided to write down my thoughts as a tactical guide for how to conduct a layoff. This is unfortunately something I have some experience with (along with making many mistakes).
Before getting into the tactics, the decision to reduce staff is a heavy one. The impact it has on the employees affected is not to be taken lightly. If there are two words to have on your mind as you go through this process, they are respect and dignity. Affected or not, all of your employees deserve to be treated with respect and should be allowed to leave the company with their heads held high.
There are a handful of decisions that the company should make before executing the process. Among them, you should discuss what the appropriate severance package looks like (including what you intend to do for employee stock acceleration, the exercise window on stock options, and benefits) and whether you’ve cut deep enough to ensure that you won’t need to cut again anytime soon. Every situation is unique but it is always better to add back (opening new jobs) vs cutting again. Doing back-to-back cuts will destroy morale and lead to losing talented employees who simply choose to leave before they are impacted.
After you determine which employees will be affected, reach out to your lawyer to make sure that you’ve considered all legal implications. Your lawyer may want to run an analysis of affected employees by age, gender, and other factors to make sure that the cuts are being made without bias. Additionally, they can help you understand notice periods that must be given depending on local laws and can review the separation agreement you may be asking employees to sign. Your legal and HR resources should coordinate termination packets and paychecks for all affected employees ahead of the announcement.
Step 1: Prior to the announcement, it’s likely that you’ve already discussed the decision and details with your management team. You may choose to meet with select employees who are critical to continuity on a one-on-one basis to make sure they are bought into staying with the company. Ideally this is a short list of employees that has already been vetted by the management team (so that everyone is aware of who is “in-the-know”). Once the folks who need to know are in the loop, I recommend executing the layoff as soon as possible. Ideally the time between decision making to execution is limited to a maximum of a few days. The worst thing to have happen is that someone finds out before you have a chance to address the company.
Step 2: The day of the layoff, you should hold an all-hands meeting and make everyone in the company aware that you are doing a reduction in force. The reason to do an all-hands beforehand is to control the message and allow that message to come from you vs. another source. In my past, we made the decision to have an executive meet with every single employee, regardless of whether they were impacted or not. In a small company, even the employees who are unaffected will have new responsibilities. Have these meetings held in a very tight window to reduce the anxiety. For employees who are affected, give them clear guidance on what they need to do next (return equipment/badge, transfer access of company accounts, etc). Your employees are going to feel sad and depressed to see their friends leave, give them the time to say goodbye and avoid rushing anyone out of the building.
Step 3: Towards the end of the day, hold another all-hands meeting with remaining employees. This is your re-founding moment. It’s an opportunity for you to reiterate the mission / vision of the company and to share your revised strategy in light of the day’s events. Importantly, don’t just gloss over the fact that a very critical decision was just made and things are not just ‘up and to the right’. Be as candid about the state of the company and its finances as much as you can - it will reinforce trust and inspire optimism that the company has a plan and can make it through this rough patch. After the all-hands, send an email that reiterates the go-forward plan. Repetition is your friend.
Step 4: In the days after the announcement, your goal should be to get to a new normal as quickly as possible while still being sensitive to the grieving process many current employees will be going through. Reconsider your company communications - if you held monthly all-hands prior to the layoff, consider going to twice-a-month. Share a revised org chart with the company to help people understand new reporting structures and responsibilities. If applicable / possible, re-organize your physical space so that the office doesn’t feel empty.
As much as possible, help affected employees find their next job. You can create a google sheet for employees who want to share their info with prospective employers and share that with CEO’s in your network. Some investors have talent networks and can help connect your former employees to new opportunities within their portfolio.
You will also need to prepare for press around the layoff. Whether you intend to announce it or not, it is likely that word will get out. You should determine whether it makes sense to proactively announce the reduction which might allow you to better control the content and timing of the news. Regardless, I suggest preparing talking points that you and your board can access so that your messaging is aligned.
Lastly, there are some important “do’s and don’t” to keep in mind when organizing a layoff:
Do create one consistent message for the whole company. Don’t say one thing to affected employees and another with the ones who stay.
Do communicate individually. Don’t get all affected employees together and let them know as a group - that creates the feeling of a firing squad and will not be perceived well by employees who are staying.
If jobs are on the line, make sure you cut other costs as well. Your employees carry more about job security than perks!
Don’t disregard the impact certain people have on the culture of the company in both positive and negative senses. To re-energize the company, you’ll need a team that is bought into the vision and willing to keep on fighting.
If you’re going through a potential layoff and need someone to chat through it, please drop me a line (gautam at m13.co)