Process can involve weeks of debate as employee performance, skill sets are reviewed
By Chip Cutter, Wall Street Journal Soon after a company decides to cut its head count, the debate begins: Who should go? In the current economic environment, a final decision can take weeks, according to executives and corporate advisers. Workers remain in short supply, raising the stakes of determining who is expendable and who is worth keeping. With layoffs that target corporate staff, department heads often take the lead and human resources troubleshoots their lists, which can lead to intense debate and multiple rewrites. “There is no good way to do this,” said Gregory DeLapp, a human-resources executive who spent much of his career at the steel and materials manufacturer Carpenter Technology Corp. CRS 0.83%increase; green up pointing triangle in Pennsylvania, where he helped conduct layoffs. “Ultimately, someone’s unfairly treated in the end.” The process is playing out across the corporate sphere. In recent weeks, companies as varied as Salesforce Inc., CRM -0.12%decrease; red down pointing triangle Hasbro Inc., HAS 0.80%increase; green up pointing triangle Dow Inc. DOW 1.04%increase; green up pointing triangle and others have announced job cuts. Inc. AMZN -0.89%decrease; red down pointing triangle last Monday said it was eliminating 9,000 more jobs, following previously announced layoffs. Seniority once guided layoffs at many U.S. businesses, with companies eliminating junior employees first. Today it is more common for companies to conduct layoffs based on skills rather than tenure, according to human-resources executives. An employee’s recent performance will likely factor heavily into any decision. Employees with high salaries also might face greater attention, though advisers said those workers might be among a company’s top performers. At many companies, top leaders, including the chief executive officer and chief financial officer, often set high-level criteria for a layoff, mandating that a company
cut a certain percentage of its workforce, for example, or reach a specified cost savings. Some confine layoffs to specific areas. Boeing Co. BA 1.19%increase; green up pointing triangle earlier this year said it planned to cut 2,000 jobs primarily in finance and human resources, while hiring in engineering. Amazon said its latest cuts would mostly be concentrated in its cloud-computing, advertising and Twitch streaming businesses. The task of deciding who should be eliminated often falls to divisional leaders and department heads, according to executives. The business-software company Okta Inc. in February said it would cut 300 employees, or 5% of staff, after the company said it overhired during the pandemic. Many departments across the company were given specific financial cost-cutting targets to meet, said CEO Todd McKinnon, and did so in different ways. Innovation and product-development teams gave priority to keeping people who were working on projects and goals that seemed achievable in a three-year timeline versus a five-year one, he said. Okta eliminated some salespeople focused on small and medium-size businesses in North America. Executives asked: “Where is the business? Where do we need investments?” Mr. McKinnon said, adding that the layoffs coincided with Okta’s annual planning process, which helped in determining which initiatives deserved attention and which could be jettisoned. “It was a difficult thing to go through, and difficult decisions.” Many think it is the job of human-resources staffers to select the individual employees to terminate, though it is often far more likely that the business leaders in each area of a company suggest names of employees to target, said Kathy Zwickert, a former chief people officer at NetSuite and most recently a director at the cloud-based software provider Avalara. “HR is not in control over who’s coming and going,” said Ms. Zwickert. She said she has seen situations in which department leaders are told to come up with a proposed list of individuals to lay off based on a set criteria. That could include anyone who got a low rating in a recent performance review, or who joined the company in the past six months. Managers will then compile a list of employees to let go, often giving the layoff document a code name such as “Project Falcon,” so the file’s purpose is unclear if it is accidentally discovered by another employee, she said. In addition to reviewing an employee’s performance history, many companies consider workers’ potential to adapt and take on new jobs in the future. “It’s really
down to a one-on-one assessment of performance in determining who you’re going to keep,” said Paul J. Sarvadi, CEO of Insperity Inc., a human-resources services and outsourcing company. Once individual employees are identified, human-resources staffers then work to scrub the list, looking to see if a company is, for example, disproportionately laying off people over the age of 40, or unfairly targeting minorities, veterans or other groups, Ms. Zwickert said. Any such discrimination could open an employer to a lawsuit. Companies at times also rely on outside help in that process, buying tools or engaging lawyers to sift through a layoff list to identify possible red flags. Sarah Rodehorst, CEO of Onwards HR, whose software performs a statistical analysis during terminations to see if certain groups are adversely affected, said such reviews can uncover other problems. On a list of layoff candidates, a company might find it is about to fire inadvertently an employee who previously opened a complaint against a manager—a move that could be seen as retaliation, she said. “It’s so important to get this right,” she added. Some companies develop a draft of a layoff list in as short as a week, though many take a month to eight weeks to identify employees and develop a comprehensive plan for letting them go, said George Penn, managing vice president in the HR practice of Gartner Inc., where he has advised companies on layoffs and other issues. Debates are frequent. Some managers might attempt to jockey for certain employees to remain, and disputes can emerge between leaders about the philosophy of a layoff—say, whether to cut a layer of middle management, or to fire more executives over front-line employees, Mr. Penn said. Even when companies decide to shut down entire business units, executives might make decisions to keep some high-achieving employees and move them elsewhere, said Anna A. Tavis, a former global director of talent at the insurer American International Group Inc., who now teaches and researches human-capital management issues at New York University’s School of Professional Studies. “There’s a lot of subjectivity involved, even with all the rules in place,” she said.