Blog Post: Economic Slowdowns: Best Practices for Staff Reductions

If you have managers less than 45 years old, there’s a strong likelihood that they’ve not managed during a serious downturn; therefore, they may need some help dealing with today's crisis in the economy, especially when it comes to talent management and employee relations.

Difficult economic times often result in strategies such as hiring freezes and downsizings. If all of the pundits are correct, the U.S. unemployment rate will rise to double digits in the near future which will most assuredly result in even less spending on the part of consumers and businesses.  This ongoing (almost frenetic) cyclical “tightening of the belt” will force many more employers to trim their overhead costs by making further staff reductions.

Slowdowns can provide the impetus companies need to get creative with their talent resources they have, and to look at talent management from a fresh perspective.  If you and your leaders need a rallying call for these trying economic times, consider this recession as an unparalleled opportunity to focus attention on talent management rather than as a problem.

However, for small employers, those with inexperienced managers and virtually no formal HR function the task might appear herculean.  Due to the limited resources and a lack of time to conduct a formal search, small employers tend to hire people by “word of mouth” in an effort to save both time and money.  Thus, each person is brought into the organization based on a pre-existing relationship they have with someone already working for the company (whether it be a former colleague, neighbor, relative or significant other).  

For the vast majority of small employers, the employee is hired and the job is modified (or the employee is accommodated) so that the job fits the person rather than the employer taking the time necessary to draft an accurate position spec and then source candidates that meet the specific criteria they need in the position.

While organic hiring can help the organization achieve short term “fixes” to help them get up and running, the bigger problem with this form of hiring is that you end up with a staff that has personal relationships, outside of work. 

Thus, when it comes to issues such as confidentiality, morale, gossip, rumors and general dysfunction the employer will experience significantly greater difficulty in addressing (and resolving) these types of problems than if they had hired staff members that didn’t have pre-existing relationships.  

Even more problematic, however, is how to terminate those poor performers that presumably have an Aunt, Niece, Neighbor or friend that also works for the organization.  Not only does this pull other employees into the equation, thus, creating more potential for a loss in productivity and lower morale; however, you also run the very strong probability of disciplining (or not disciplining) employees based on the pre-existing relationship rather than objective and uniform criteria. 

In addition to creating a level of dysfunction within the organization, it also creates the very real possibility of claims (or even legal actions) for unfair labor practices, preferential treatment, nepotism and harassment in the workplace.  Therefore, the challenge becomes one of trying to determine how the organization will go about reducing the size of their staff based upon objective quantifiable criteria as opposed to personal relationships or tenure with the company.  This effort is made even more difficult if (like many small employers) there’s been sloppy record keeping and, generally, poor maintenance of the personnel files.

One effective (albeit somewhat controversial) method that’s been established as a core HR Best Practice for company’s looking to reduce the size of their staffs is referred to as “Top Grading” or “Forced Ranking.”  While conducting a forced ranking exercise is a quick, efficient and objective manner by which to identify who your poor performers are, it’s become some controversial for organizations such as Ford Motor Company due to the fact that the results of their forced ranking initiative revealed that “most” of the employees with low productivity scores were older workers, or those with less technical savvy than their younger colleagues.  As a result, FMC found itself defending an age discrimination lawsuit that forced them into a confidential settlement.

However, while the technical skills and competencies of younger workers, as a rule, are going to be higher than their older colleagues, that’s not the case in all positions or the majority of industries; instead, a comprehensive list of variables should be looked at to ensure that your forced ranking exercise does not unfairly target a specific (or rather “protected”) class of worker.

So, what is forced ranking and how does it work?  Having written and spoken about this topic on many occasions, this Author developed the “talk points” outline below which, presumably, will enable the reader to digest the information in a condensed and organized manner.

What is “forced ranking?”

Ø      In essence, you evaluate your entire team on the old fashioned “bell curve” and determine who are your top performers (20%), your "B" players (i.e. steady eddies, 60%) and who are your "C's" (the bottom 20% in terms of performance and potential).

Why would a company want to conduct a forced ranking exercise?

Ø      Most companies implement a forced ranking to further foster their efforts towards creating and sustaining a “high performance” culture where top talent is rewarded for their contribution and low (or poor) performers no longer receive a mixed message.

Ø      It’s also a highly effective exercise to take on whenever a company is contemplating layoffs.

     How do you conduct a forced ranking?

Ø      You would start by having your first tier of management (usually Sups) evaluate each of their direct reports.  Then, on a scale of one to ten (assuming ten direct reports and only one number can be assigned to each direct report) the Sup ranks and labels each direct report as either a 1, 2, 3, etc.,

Ø      The Sup’s Manager then does the same exercise with their entire organization; thus, it’s feasible that a Manager with three Supervisors could theoretically have the top 20% of their organization reporting to one Supervisor, or the same situation with the bottom 20%.

Ø      Eventually, everything is rolled up to the President who then conducts the same exercise on a companywide level.

     Why would you want to do this?

Ø      To begin with, each person in a management role thinks that all of their people are either “A” or “B’s” when the truth is that they probably let “C’ player’s slide; thus, they frankly don’t expect much out of those people (which, in turn, could make themselves a “C” player) so they view their own performance and that of their low performers job performance as adequate.

Ø      Additionally, it’s highly doubtful that everyone on the management team shares the same opinion (or paradigm) with regards to who your top (and bottom) performers are.  By building consensus within the management ranks on who the organization’s A, B and C player’s are, the employee obtains much more consistent feedback.  Additionally, the management team (collectively) can provide informal mentoring and recognition to those A player’s that have the most potential when it comes to increasing productivity and enhancing a high performance culture.

Ø      The main objective(s) of this exercise is to increase productivity, hold everyone in the organization accountable and to reinforce a compensation philosophy that rewards pay for performance. 

Ø      Has everyone read “From Good to Great?”

      What would we do with the results?

Ø      That’s a decision by your respective management team.  Many Fortune 500 companies regularly conduct this exercise on an annual basis.  In the case of General Electric, Jack Welch would fire all of his “C” players on an annual basis.

Ø      Other companies use the results to ensure that their “B” players are coached (and even formally mentored) to make them “A’s”; and they might also develop some sort of recognition and rewards program that recognized their “A” players in a way that’s above and apart from the rest of the organization). 

      What about the “C’s”?

Ø      If the goal of the exercise is to lay off ONLY their “C” player’s then they can and should do so.

Ø      If staff reductions are not imminent, then the leadership team should consider additional actions to make certain that no mixed messages are sent to anyone with a “C” rating; they can include the following:

o       A.) putting them on a Performance Improvement  

o       B.) “C” player’s should never be eligible for merit increases or bonus awards, and, any money budgeted for such purposes should be used to set your top performers apart with higher merit increases and bonus awards sending them the message that their contribution is recognized and highly valued; and that they will no longer be asked (or required) to pick up the slack for their poor performing colleagues.  It goes without saying that you will instill greater employee loyalty; although, for companies that have done this, they’ve seen their top performers actually increase their performance further.