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Corporate leaders should be more honest with workers when job cuts are about performance, rather than the economy, a Harvard professor says

Business Insider logo Business Insider 3/23/2023 (Josée Rose,Tim Paradis)
Employers shouldn't use layoffs as a way to cut low-performing workers, a labor expert told Insider. simplehappyart/Getty Images © Provided by Business Insider Employers shouldn't use layoffs as a way to cut low-performing workers, a labor expert told Insider. simplehappyart/Getty Images
  • Companies in industries including tech and finance have recently laid off workers.
  • Layoffs shouldn't be used as a way to cut low-performing workers, Harvard's Sandra Sucher said.
  • It's important that performance-management systems are fair, Sucher told Insider.

It can be a lot better to tell someone you were laid off than saying you were fired. 

That's because layoffs are often the result of a slumping economy or missteps by management. But getting fired can mean you somehow didn't cut it. 

The distinction might seem self-evident. But sometimes, leaders who are eager to sweep away lackluster workers can be tempted to clean house under the guise of layoffs. That's a bad idea, according to Sandra Sucher, a professor of management practice at Harvard Business School who's studied layoffs.

She told Insider that cutting underperforming employees while blaming something like soft economic conditions wasn't wise because it risks having workers lose faith in how their employers evaluate them. 

"You want people trusting that the performance-management system is fair and being managed well," Sucher said. "If you see it being used for mass layoffs — as well as individual performance — that makes workers question, 'What are people thinking when they're actually assessing my performance? Am I being put on some list to be laid off?'"

When demand for a company's goods or services dries up, layoffs often become part of the conversation in C-suites. In recent months, employers in tech, finance, retail, and manufacturing have shed workers. Some companies, like Amazon and Meta, the parent company of Facebook, Instagram, and WhatsApp, have made cuts more than once

Layoffs are, of course, often aimed at trimming expenses and achieving efficiency — as well as appeasing shareholders.  Yet letting go of staff this way also risks damaging morale and limiting worker productivity.

Even broad job cuts that purport to target only the lowest-ranked workers can harm a company, Sucher said. That's because of how much anxiety the practice, sometimes called stack ranking, creates among employees.

This approach was something General Electric, the onetime industrial juggernaut, years ago famously used to cull its lowest-ranked workers. The breadth of such cuts can make them feel a lot like layoffs, though the reductions are tied to employee performance, rather than to help a company push through economic headwinds. 

Sucher said the "rank-and-yank" approach wasn't an effective way to manage an organization.

"It creates these waves of anxiety," she said. "All work stops, as people are waiting for the performance-management cycle to close and figure out who gets to keep their jobs."

It's reasonable to want cut low performers — but it's hard to get it right

The decision to do layoffs is perhaps never easy, and the choice of whom to put on the cut list can be even more difficult. One fair way to do it is to prioritize seniority because it enables managers to "treat everyone the same based on how long they've been there," Sucher said, adding that the approach was rarely a popular one. 

Sucher said that if a company had to conduct layoffs for economic reasons, it's logical to want to focus on those who contributed the least. But deciding who that is can be tougher than it seems.

"The sausage making here is really hard," she said. 

One of the most important questions to consider, Sucher said, is: "Is there work that someone's doing that's less important than other people's work?" 

Setting up a tracking system that flags those workers who might get pushed out in a layoff can help identify whether certain groups are facing a disproportionate share of the planned cuts.

"Look for why it is that in this organization only women are being let go, only older people, only people on maternity leave," she said. "If there's nobody kind of scouting that out, then you actually are putting yourself at risk."

It might sound obvious not to target any particular group, yet Sucher said it could happen if management wasn't deliberate about deploying safeguards.

"The research suggests that it's much less rational and performance-based than you think," she said. "And that's why it requires some oversight."


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