As an organization, Hatch Institute believes in always putting people first. This means that on the whole, we do not support the idea that corporates should retrench people to save costs and to protect their bottom line. A healthy economy that we can all benefit from requires employed people who are earning a salary and can therefore spend money.
However, sometimes it’s not possible to save jobs. We’ve experienced this ourselves, and it’s painful. In 2019, we made the difficult decision to shut down five salons in the UK, making 40 people redundant. We first opened our Sorbet salon concept in the UK in 2015. By January 2019 we had ceased trading. The closure was the result of a multitude of factors. We had expanded the business too quickly and were thinly spread. It was a very different trading environment and work ethic to that of South Africa, and the local consumer sentiment was under pressure amid Brexit concerns. Sadly, in the end, the monthly cost of funding the business in pounds became prohibitive. It was a very sad day to pull the plug on a business that we had poured our energy, heart and soul into, and to have 40 staff members arrive to work with the doors shut.
So, we get it. We’ve been there. It’s a terrible decision to make. As a business leader, what do you do if you’ve reached the point where retrenchments are inevitable? First, look for the small miracles. Yes, some people will be losing their jobs, but the business will remain open, which means you will still be providing much-needed salaries.
Here are 5 strategies that will help you navigate retrenchment while still putting your people first.
1. Have the tough conversation
It’s important to not assume that your employees will understand what is happening and why it is happening – your first priority is looking after your people as well as your business, but their first priorities are to themselves and their families. The people you let go are not the only people impacted either.
According to the Harvard Business Review, after a layoff, survivors experience a 20% decline in job performance as well. Reduced salaries and retrenchments negatively affect trust in an organization – even if the cause is external, such as a global pandemic. Those who are still employed do not feel a sense of relief and safety – they are fearful, and they don’t completely trust their employers.
How you approach these conversations is therefore critical. For those who stay, it will shape how your workforce handles the upcoming months, the energy they put into the business, as well as their mental wellbeing. For those leaving, you can either end up with traumatized individuals, or people who understand the circumstances they are in and will continue looking for solutions.
2. Be transparent
Share the facts around what is happening as realistically and transparently as possible. Respect the fact that although this is your business, it is also the livelihood of everyone who works for you. If you keep secrets, you will lose your credibility, especially in a crisis. You may have to retrench employees, but if your business survives, you need to maintain the respect and trust of everyone who stays with you. You can recover from making mistakes — but you can’t recover from a loss of credibility.
3. Look for other solutions first
Retrenchments have far-reaching consequences. They are terrible for the people who leave the company, and they result in survivor’s guilt and fear for those who remain. All of these things can have a massive impact on the overall morale of a business in an already challenging time. Retrenchments should be your absolutely last resort, from both a personal and business perspective. In 2012, Deepak Datta at the University of Texas at Arlington found that after layoffs a majority of companies suffer a decline in profitability that persisted for three years. Similarly, a team of researchers from Auburn University, Baylor University, and the University of Tennessee determined that businesses that have layoffs are twice as likely to file for bankruptcy as companies that don’t have them. Many of these studies were based on the 2008 recession, when arguably many companies had no choice but to consider layoffs – and yet the consequences were far-reaching and did not help companies to survive.
There are ways to avoid retrenchments, but they involve your workforce’s buy-in. For example, you can propose shorter work weeks, stay virtual to save on overheads or make slight salary cuts across the board.
4. Cut once and cut deep
Retrenchments are painful at the best of times. In the middle of a global crisis where employment options are limited, they are even worse. The last thing you want to do is repeatedly go through this process. It’s painful for the leadership team and can create a large degree of uncertainty and anxiety amongst your employees. One round of retrenchments is survivable and could even result in a leaner, better performing business in the long-term. Repeated retrenchments can be extremely demoralizing and damaging for the entire organization.
If you do need to take this route, focus on roles, not people. It’s important to evaluate roles instead of people. Some roles are essential to the company’s immediate survival. These must be prioritized. This cannot be a personal decision – it must be based on the needs of the business.
This will allow you to measure twice and cut once. Be brutal and determine what the worst-case scenario is. Perhaps you don’t need to retrench based on the most extreme situation, but don’t focus on the best case either. It’s important that your remaining employees feel safe, even if the retrenchments are more extreme than you would want.
5. Retrench each employee face-to-face
Be direct, clear and supportive. Don’t minimize what they are going through or make excuses based on Covid-19 and the current conditions. Instead, acknowledge the difficulty of the situation. Maximise privacy, practice what you are going to say and stick to your script. Make sure you get your message across by speaking slowly and calmly, and share any actions you are taking to support them during this period.
Make sure your reasoning is clear and fact-based: Unambiguously explain the following:
- Some positions at the company have been eliminated (avoid using words like ‘restructuring’ that could be misinterpreted) due to the effects of the Covid-19 pandemic
- The employee’s position is one of those affected and they are being laid off
- Unpack the reasons why their position in the company is impacted, point by point (remember, this is about the role, not the person)
- Make it clear that the decision is final (in the most empathetic way, but ensuring that there is no ambiguity about the fact that the role is gone)
- Carefully and clearly unpack the transition and next steps.
Repeat or clarify where necessary and ensure that you have been understood. Most importantly, do not make promises you cannot keep and do not make this about you (for example, how hard this is, or how terrible you feel about it).
Ask if they understand everything you said and offer to repeat or clarify yourself.
The future and beyond
Retrenching employees will be one of the hardest things your organization faces. If it’s not handled well it can be devastating.