Geoff Howard’s recent column in the Business in Vancouver newspaper regarding the costs of layoffs highlights some critical points companies need to consider when deciding whether to layoff staff to deal with difficult economic times.
According to Ian Cook, director of research with BC HRMA, companies that cut costs through pay freezes or cuts, and benefit reductions often outperform competitors who use layoffs to reduce their costs.
Why?
Companies often underestimate the employee turnover that results after layoffs occur. Management often assumes that productivity amongst the remaining staff will increase after the layoffs – research indicates this can be a false assumption. Often, the top performers are those who voluntarily leave after the layoffs, because they have other employment options. This then results in recruitment costs, training time for the replacement staff, and reduced productivity.
As well, it is not uncommon that positions that were eliminated are then refilled down the road with new employees. Not only were there severance costs, but also lost productivity and recruitment and training costs to hire the replacements.
In comparison, studies indicate that productivity and turnover is often unaffected when companies use cost-cutting measures rather than layoffs. Of course, cost-cutting measures need employee buy-in and agreement, or else there is a risk of claims of constructive dismissal, which can result in severance costs.
Needless to say, when considering the cost of layoffs, it is important to seek advice from human resources experts and employment lawyers in advance to minimize your liabilities.
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