How to Downsize Your Labor Force Smartly

Yes, it's another post revolving around the gravitational pull of the impending economic slowdown. We here at i4cp are not necessarily doomsayers, but we feel it's important our members are as prepared as possible for whatever might be coming down the road. In a recent i4cp survey, 88% of companies are planning to take cost-cutting measures over the next 12 months, more than two-thirds of which are planning at least some type of reduction in force (RIF).

Sometimes there is no avoiding the hard choice. Costs have been cut and spending has been curbed, but often people have to be let go for the long-term health of the company. One CEO lamented past experiences where the company made a series of small cuts to try and stave off the inevitable, but it ended up being more painful in the end. Those experiences taught him that it's important to make the hard choice, and make it sooner rather than later.

If making that decision isn't hard enough, the next decision can be even more difficult – who goes? Sure, there are usually one or two choices that are practically made for you, but often a RIF has to go deeper than that, especially in a large company. As the pool of employees at risk grows, so does the danger of litigation exposure. Managers at FTI, a consulting firm that specializes in economic and litigation consulting, point out in a Compensation & Benefits Review article that companies need to pay close attention to the group of employees being affected by a RIF.

Many times when lawsuits are brought by members of protected groups, the plaintiffs are under the false impression that layoffs are random in nature and that the group of laid-off employees should have roughly the same demographic makeup as the overall company. If the affected employee group includes a disproportionate number of any one protected group, that's when the lawyers start getting calls. But, in reality, an effective, smart RIF will be precise and backed up with clear business rationale, rendering the makeup of the final group a moot point.

This means that serious performance analysis must be done – above and beyond the annual review. Also, immediate supervisors should be consulted when determining employees' value to the business. Once you have determined the at-risk pool of employees the reduction will come from, examine that group for impact on protected groups. If any group or groups seem to be affected disproportionately, double-check the rationale behind those decisions, making sure the business case is clear and well documented.

As with any of my posts dealing with this topic, I hope this is information you will never need. Unfortunately, it appears to be time to hope for the best and prepare for the worst.

For much more on this and other topics look to i4cp's Corporate Restructuring Knowledge Center, as well as several discrimination Knowledge Centers in the Compliance Pillar.
David Wentworth
David Wentworth, Senior Research Analyst
David Wentworth has been a research analyst for the Institute for Corporate Productivity since 2005. David has previously worked with digital media development and delivery, and currently researches several topics for i4cp, including workforce technology and the outsourcing of human resources. David has a bachelor’s degree from the University of Massachusetts.