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Communications Are Critical in Times of Layoffs and Cutbacks

Turndowns in the economy force many businesses to make difficult financial and operational
decisions, many of which directly affect rank and file employees. According to a survey from
Watson Wyatt, today’s economic climate had taken quite a toll on human resources, compensation
and benefits programs. As of February 2009, 56% of the surveyed firms had implemented a hiring
freeze and 52% had laid off workers; 42% had instituted salary freezes and 7% had resorted to
salary reductions; 22% had raised employee contributions to health care programs and 12% had
reduced matching contributions to the 401(k) plan; and 13% had reduced the workweek, with a
slightly lower percentage (11%) instituting mandatory furloughs.

Whether it’s staff reductions, benefits cutbacks, benefits cost increases, salary freezes, or the
suspension of little workplace perks like free coffee, soda or bottled water, employee morale and
workplace productivity can suffer. Therefore, it’s important to carefully communicate news of the
layoff, cutback or other change, so as to lessen the inevitable negative impact. Among the
companies responding to the Watson Wyatt survey, 31% had increased communications to
employees about their benefits and 28% had increased communications to employees about their
pay, in today’s difficult economy.

As your company considers its strategy in communicating these types of bad news to employees,
keep the following in mind —

• While it’s undoubtedly difficult for employees to absorb that the workforce is being cut or no
bonuses will be paid this year, rumors and uncertainty can be worse. Therefore, it’s important to
communicate such news to employees in an open and timely manner. This isn’t to say you should
announce that the company “is thinking about” layoffs or increasing employees’ contributions to the
health plan as soon as such steps are being contemplated. Such a premature announcement will
likely cause water cooler discussions speculating on what will happen, and when. Rather, after a
decision has been finalized in detail, announce it, along with specifics and the timetable for
implementation.

• Continue the open communications approach by fielding employees’ questions and concerns.
This can be done in group meetings, or in a frequently asked questions section of the company
newsletter. Expect some anger and hostility, and try not to respond in kind. Management
representatives heading up group meetings of this nature need to do as much listening as talking,
and carefully monitor their reactions to employee questions and concerns, so as not to appear
brusque, insincere and unfeeling.

• While it may not be corporate policy to reveal the details of a company’s financial picture, the more
employees understand about the reasons for layoffs or cutbacks, the more likely they are to accept
the situation for what it is and forge ahead with their jobs with the best attitude possible. Therefore,
share as much as possible of the information that led to the benefits cost increase, workforce
reduction, etc. Another advantage of such disclosure is that it can sometimes lead to employeeinitiated
work process innovations or workplace improvements that remain in place long after the
financial crisis has passed.

• Although these types of bad news can seem overwhelming, there’s bound to be something good
going on at any company. Without minimizing the severity of the bad- news situation, remember to
continue to communicate positive, happy news as well. Continue to honor top- performing
employees, for example, and if finances don’t allow the usual rewards for employee achievement,
come up with still sincere — though less expensive — alternatives. If your company has a familytype
personality, where employees’ personal landmarks (birthdays, births/ adoptions, wedding)
usually are recognized, continue this tradition in whatever way the budget allows.

Employees will not be happy about layoffs, benefits cutbacks, and the like, but if they believe the
changes are necessary for the continued success of the business — and are not being made to
benefit the few at the expense of rank and file employees — they’re more likely to appreciate the
situation, and the company’s manner of handling it. Such an attitude on employees’ part can make
a huge difference in how they react to the news, and consequently on a company’s ability to
weather an economic downturn, and come out strong when conditions improve.