Keeping Your Remaining Employees After Layoffs

By , Attorney

You may think that when unemployment is high and companies are laying people off right and left, motivating your continuing employees to stick with you and work as if their hair is on fire should be a breeze. But if employees who have already seen mass layoffs or pay cuts fear that your business might fail or that more layoffs are likely, they'll be quick to jump to any job that looks more secure. If your post-layoff workplace is poorly functioning, tense, and joyless, they are likely to leave even faster.

In good times or bad, your business will suffer if you don't keep the loyalty of your best employees. Just as it takes many small business owners three to five years to really hit their stride, top-notch employees, even those who can do skilled work from their first day, become more valuable every month they work for you. Long-term workers build a valuable mental database of useful information about your products or services, customers, coworkers, and suppliers. If they move on, you lose everything they know.

To fully appreciate how valuable it is to keep good employees for as long as possible—especially during hard times when you have no time to train replacements—think about your own relationships with local businesses. If you've been dealing with the same competent person year after year, it's frustrating when that familiar face (or even familiar voice) is replaced by a less experienced one.

So how do you go about keeping productive employees working for you as long as possible, when your business is shrinking and you may even have imposed pay cuts? Start with a simple fact: If your employees feel fairly treated under the circumstances and believe you have set a course to outlast the economic downturn, they are far more likely to stick by you.

Treat—And Pay—People Fairly

"Fairness" is the best one-word prescription for keeping employees loyal to your business. Workers who believe your business can be trusted to treat them equitably are likely to be loyal; those who feel they are in untrustworthy hands are almost sure to move on. This goes double when times are tough, unemployment is high, and your business is obviously struggling. Loyalty often has less to do with the size of your employees' paychecks than it does with their belief that you will do everything possible to protect their job, not just toss them overboard on the first stormy day.

What is fairness in the workplace? Basically, that your business uses objective criteria—not whim or pique—to hand out rewards and punishments. Put another way, it means that your business establishes and follows a set of employment policies that are understandable, consistent, and evenhanded. For example, if you lay off a long-term, experienced employee but keep your lazy cousin, you risk convincing everyone in the company that despite your rhetoric about fairness, you can't be trusted. But if you adopt a merit-based system of promotion and stick to it, even though it means your cousin is asked to leave, you go far toward reassuring all employees that they will be treated fairly. True, your aunt may snub you at the next family gathering, but that's a small price to pay to run a business that your employees will respect and stick by.

When it comes to wages, most employees use three factors to judge whether or not they are being fairly treated.

How much similar jobs in your area pay. Especially for highly productive people who receive just a few dollars per hour over minimum wage, it's essential to pay slightly more than your competitors do. Especially when times are tough, you don't want to lose the best of those understandably penny-conscious employees because they can earn an extra 30 cents an hour down the street. Unfortunately, most small employers never grasp this lesson, paying the industry standard to the sales clerk who works twice as fast as the norm. Again, it's far better for employee retention, overall productivity, and workplace happiness to reward your most productive employees.

How much others with comparable skills are paid in your company. Your employees will have no trouble accepting substantial pay disparities as long as in their eyes they reflect real differences in skill, training, seniority, and job responsibilities. But dissatisfaction will quickly surface if employees conclude that one person or group receives substantially better pay or perks for no honest business reason—or worse, for a bad reason. This is not the place to tackle the details of complicated pay equity issues, such as differing pay rates for different departments, individual vs. across-the-board raises, and overtime for some job categories and not others. But it is important to grasp just how essential it is even for employers with just a handful of employees to create logical, understandable, and defensible pay policies and modify them only when objective new factors require it.

How much the boss's pay and perks are. Especially when you are asking your employees to work extra hard in an economically fraught environment, it's crucial that you not offend them by exempting yourself from your austerity program. And unless you are happily married to your bookkeeper, don't think you can pay yourself lavishly or reward yourself with secret perks and keep it secret.

Don't Lose Your Sense of Purpose

Employees of successful small businesses are almost always imbued with a strong sense of purpose. It doesn't matter if you make or sell booties, bibles, or bagpipes—the key is to imbue your company with a commitment to excellence, something that is especially important to maintain when a business is struggling financially. There are several tried-and-true methods to help your employees believe in the value of their work. But no amount of cheerleading will work unless they really see that you run a high-quality operation. For example, if you claim your café serves the freshest baked goods in town, but now that sales are down you occasionally slip a few day-old muffins in with today's batch, you'll begin to alienate your own employees.

If you do run a quality operation, helping your employees create and participate in a larger vision will go far toward cementing their loyalty. No question it can be tougher to do this when you are fighting for every dollar, but it's not impossible. We're reminded of a veterinarian who not only ran the cleanest, most efficient animal care operation in town, but even when business flagged in an earlier recession, actually carved out the hours necessary to allow employees to participate in a variety of free animal rescue and support activities. As a result, the vet attracted a terrific crew of employees, people who were so pleased to be part of a committed business that many of them stuck around for years.

Communicate Early and Often

When people have been laid off (or if employees expect them to be), many of your employees will be fearful. Will they be laid off next? Will the business be sold? Declare bankruptcy? It's no secret that if allowed to fester, these kinds of worries can have a seriously negative effect on your business. Productivity drops when people are distracted and anxious (or spend work time on online job sites), and your best employees may leave for what they perceive to be greener pastures.

To counter this, you need to honestly communicate how the business is doing, whether the news is good or bad. We hope you made a good start when you laid people off, when you explained to everyone the economic facts you faced. Now you should follow up with a weekly finance report. Don't give employees just a bunch of raw financial numbers and hope they make sense of them. Also give them the context that will let them understand exactly how your business is coping with the downturn, and tell them everything you are doing to increase sales.

Appreciate Your Employees

It's simple, really: Employees strive to do better when they know their hard work and creative contributions are noticed. This is even more important when business is grim and you are asking everyone for a little extra. In this context, those employees whose good work isn't acknowledged are likely to conclude that there is no point in busting their butts.

So whether you have five, 55, or 105 employees, develop an employee appreciation program. To make sure your program will be welcomed by your employees, it's best to create it with their input. If you don't, you risk adopting a plan that will be ignored or resented. For example, if your well-meaning plan to pay bonuses to salespeople who bring in new business is regarded as a cynical ploy to make your overworked employees put in extra hours, you're unlikely to achieve your objective.

Finally, during tough economic times when everyone is forced to pinch pennies, it's best to keep your appreciation efforts simple, sincere, and cheap. Many rewards programs are designed (or at least seem that way) to influence or even manipulate employees' future behavior, rather than to simply acknowledge their good work. Often a public thank you at a company meeting or via email, or a pizza celebration lunch for everyone, is more welcome than a more complicated system.

More on rewarding employees for good work. 1001 Ways to Reward Employees, by Bob Nelson (Workman), provides a comprehensive list of awards, rewards, and other techniques to let employees know that their contributions are important. Few of them will fit your business exactly, but reading this little book should jump-start your thinking.

Lead, Don't Dominate

Everyone associated with your enterprise will be happier and your business more productive if you are a frugal, hardworking leader, not a privileged dominator. American traditions are democratic and majoritarian, not autocratic and imperious. At all levels of our society, leaders who work hard and are in touch with ordinary people command loyalty and respect.

If your employees regard you as a decent human—and not just the big boss—they will be far more willing to share their thoughts about how to improve the business, something that can be crucial to your survival in a severe downturn. No doubt many of their "brilliant ideas" won't be. But after you put aside those that are self-serving, have already been tried and found wanting, or are just plain nonsensical, you are likely to find a few good ones. And it's very possible that an engaged employee who is genuinely concerned about the future of your business will come up with a true gem, something so valuable that it will make listening to dozens of mediocre ideas more than worthwhile.

Treat all ideas—even ones that are obviously nonstarters—with respect. Employees who see others' suggestions belittled or dismissed will be unlikely to make their own. You also need to develop a process to capture good ideas.

When implementing new ideas, be sure you include key employees in the process, instead of handing down the law like Moses. New policies and procedures carried out with the input of the people who will have to cope with them day to day are not only likely to be more successful—but they are far less prone to be sabotaged. Remember, employees who don't buy into new way of doing things can always find ways to subvert them.

No question, especially when money is tight and time short, it's easier and certainly quicker to issue an order or impose a decision than it is to listen, reason, and help build consensus. But especially when unpopular cutbacks are in the offing, it's essential to establish and respect a consensus-building management structure. Or put another way, a business that your employees view as being all about you won't be as successful as will one your employees see as also being about them.

We're not suggesting that you make your workplace a perfect democracy where all decisions are equally shared. Leaving aside the fact that it's your business and you have the biggest financial stake in its success or failure, it simply takes too long for everyone in the kitchen to discuss how much sugar to put in the brownies. Although a few cooperatively run businesses do well, we suspect their success has come despite the fact they elevated 100% democratic decision making to a first principle, not because of it. Far better to run your enterprise with a strong purposeful center at the same time you invite and respect employees' opinions and treat them with dignity.

Credit Is Cheap—Spread It Around

Hogging credit for the business's achievements is a huge and common faux pas of small business owners. Just as professors are sometimes guilty of putting only their names on research done largely by their graduate students, owners of small enterprises are far too prone to act as if they alone made the business a success. Few things are more disappointing and insulting to employees who have worked hard and creatively to help build the company.

Try to foster a culture in which leaders go out of the way to acknowledge everyone's contributions. If this means that your company meetings sometimes sound like a roll call of every employee's achievements, so much the better. People work more creatively when they know their efforts are acknowledged and appreciated—especially when, in a recession, they are asked to work harder for less pay and benefits. Here are just a few ways to foster this attitude:

  • Recognize hard and creative work throughout the company—at company meetings, through companywide emails, and at parties. If your warehouse crew ships a big order in record time, everyone should hear about their great job.
  • Share kind words from outsiders with everyone. If your business gets written up in the paper, or an employee does something newsworthy, email the story to everyone and tack up the clipping on a bulletin board people will see. If your customer service or sales people get compliments, forward them to everyone in the company.
  • If a customer admires your work, mention everyone who helped. If someone worked long hours making your product—whether it's a report, a set of drawings, or a custom cabinet—look great, acknowledge that person, preferably in front of the pleased customer or client.

It's crucially important to encourage a culture of "we," not "me." If, when the limelight goes on, you can learn to step aside and nudge someone else forward, that's a good start. But to really help people feel appreciated, you'll need to go beyond fancy words and "employee of the month" type programs to show people you really do value them. In addition to paying decently, rewarding superior work, and providing good benefits (especially health care for all employees), adopting a simple stock option or other employee ownership plan can be the best way to literally put your money where your mouth is. That way your employees really do know that your business is about them, not just you.

Don't Forget to Be Positive

When money is short and you are chewing the insides of your cheeks with worry, it's easy to transfer your grim mood to your employees. If you do, your employees are in turn likely to transfer it to your customers, never a wise move when you desperately need them to purchase more.

To avoid creating business-killing gloom, you must understand how actually encouraging workers to enjoy themselves can be a powerful motivator. Consider the mood at Southwest Airlines, one of the world's most profitable air carriers, to that at United, a company that staggers from bankruptcy to bankruptcy. In addition to charging low prices and providing reliable, if somewhat Spartan services, Southwest is surely the world's largest corporation that actually encourages its employees to enjoy themselves. Flight attendants joke around, ticket agents dress up in holiday costumes, and even pilots have been known to tell one-liners. How effective is this unique company culture? Almost alone among all the world's major airlines, which are constantly beset by strike threats from angry unions, Southwest enjoys relatively harmonious relations with its employees and consistently operates in the black.

Because workplace environments vary so much, the best advice is probably just to find simple ways to let employees enjoy themselves, and then get out of the way and let it happen. Start by loosening up a bit yourself. For example, if on St. Patrick's Day, you promote a green food potluck brunch and come dressed as a leprechaun, people will likely get the idea.

Drive a Modest Car

Your employees and those who do business with you pay attention to how you spend money, especially when the business experiencing cutbacks is footing the bill. If you wear designer clothes, drive the biggest Beemer, and have your business pay your country club dues, you'll not only find yourself short of loyal employees, but also risk offending your banker, key suppliers, and customers, who sooner or later are likely to figure out that they are paying for all those perks. The more ostentatious you are, the more harshly you are likely to be judged.

Especially if your business is facing financial difficulty and you are asking others to make sacrifices, lose your fancy ride (yes, even if you paid for it), your club membership, your upscale lunches, and whatever else sets you apart from the people you are trying to motivate to work harder.

Act Slowly to Reverse Cutbacks

Once your cash flow has stablized and some revenue has returned, you may be tempted to quickly reverse the cutbacks you made, like hiring back employees you had to layoff. But before you should think about increasing expenditures, your business not only needs to return to profitability, but also to dig itself out of its financial hole. In many instances, you'll also want to repay at least a good portion of borrowed money, catch up on deferred maintenance, and replace dodgy equipment before you give a thought to restoring benefits or hiring more employees. For example, if you have borrowed $50,000, deferred the purchase of $25,000 worth of new equipment, and failed to repaint your tatty-looking building, you've got lots to spend money on before adding to your payroll expense.

A second reason not to restore jobs and pay too quickly is to avoid the possibility of a double dip. If, after a couple of months, your business again underperforms, it will be emotionally devastating to you and your staff to have to reimpose cuts. To say your credibility as a leader will be shot is an understatement. Besides, if you did a good job with your layoffs --- cutting your least important functions and your most inefficient people -- it might not make sense to reverse these decisions, no matter how much business prospects improve.

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