Wired for Success

How to fulfill your potential

The impact of layoffs on surviving employees

Productivity and profitability decline with layoffs

Much has been written about the impact of layoffs during the recession on the workers who have lost their jobs. Yet what of the surviving workers? What has been the impact on them? Recent research has shown that there is a significant impact on employee productivity and the subsequent financial performance of those organizations that have engaged in layoffs.

According to Leadership IQ, a leadership research and training company study of over 4,000 employees in 319 companies, 74% of employees who kept their job amidst the recession report that their own productivity has declined since the layoffs and 69% of those surveyed say that the quality of their company's product or service has declined. Other key findings were: 87% said that they are less likely to recommend their company as a good place to work; 81% said that customer service has declined.

Mark Murphy, Chairman of Leadership IQ calls the phenomena "layoff survival stress," adding that "there is a myth that surviving employees will be so grateful that they still have a job that the will worker harder and be more productive. But as this study shows, the opposite is usually true."

David Sirota, Founder and Chairman of Sirota Survey Intelligence, argues in his book, The Enthusiastic Employee: How Companies Profit By Giving Workers What They Want, that it is a management fallacy that keeping people nervous about their jobs induce them to perform at high levels. To the contrary, great stress causes employees to focus on their own tenuous situations rather than on getting their jobs done and done well. Sirota says that layoffs generate a sense among surviving workers that they are disposable commodities and that in turn results in a disengagement from the company and its objectives.

Sirota, who has studied the issue of layoffs during each of the previous recessionary periods, argues that the most successful businesses in modern times are those that have a policy to not lay off their permanent workers. Further, Sirota says, an examination of downsizing during the l980′s and l990′s show that only 30% of companies that institute layoffs increased in productivity and profits over the subsequent 5 year period, and these companies underperformed on the stock market during that period. On average a 10% reduction in people resulted in only a 1.5% reduction in costs, Sirota reported.

And in a study by Geoff Williams of Memorial University, who completed a meta-analysis of research on downsizing, concluded that most downsizing completed by companies during recessionary periods resulted in significant declines in surviving employee motivation.

So it seems that during the recession when management cost saving strategy appeared to be foremost, with layoffs being the first action usually taken, the impact on surviving employees, their productivity, the reputation of the company and real costs savings has been underemphasized. And I'm sure we'll be able to see the long term effects of layoffs in the next few years.

 

 

Ray Williams is the author of Breaking Bad Habits and The Leadership Edge.

more...

Subscribe to Wired for Success

Current Issue

Let It Go!

It can take a radical reboot to get past old hurts and injustices.