How Do You Choose Which Employees to Layoff?
March 05, 2018 by Aley Brown
Layoffs are difficult for everyone in an organization. They are time consuming and emotional. Although it might not seem like it to employees, layoffs are extremely difficult for the HR professionals who have to execute them, too.
This is especially true when HR folks are laying off people that they are close with. After all, Some weeks we spend more time with our co-workers than our actual families. So it makes sense why this could be so difficult for a human resources professional to undertake.
Thinking rationally is one of the most important things you can do when preparing for a layoff. One of the best ways to remain rational is to focus on who you will be laying off and why.
Once you understand why and how people are getting laid off, the whole process will become easier. It might still be hard – I mean, you’re not an emotionless robot – but it will be easier for you to mentally grasp. Which will then make it easier to explain to the people you are laying off.
Choosing who to layoff isn’t just difficult on an individual HR level, but also on an organizational level too. There is a lot at stake when layoffs are conducted. There is legal liability to think about, overall organizational morale, productivity, and long term sustainability.
So, how do you choose who to layoff, taking into consideration all of these factors? Well, there are several methods:
How do you choose who to layoff?
Here are a few methods to help you determine who will be let go:
Each method has its own shortcomings, and what is right for each organization will vary. It is important for you to review each method with your executive team and then make a decision based on your overall goals.
Visit our layoff library for free resources, templates, and guides to assist in your upcoming event.
Let’s dive into these employee selection methods:
Reduction in Force Selection Criteria Methods
1) Seniority Based Selection
This is one of the simplest methods. Basically, the last employees to get hired become the first people to be let go. This makes sense in a logical sort of way. If they were just recently hired they probably haven’t become organizational assets yet. And you could make the argument that the organization was doing fine before they started working 4 weeks ago.
Another great benefit of this method? It can help protect you against age discrimination suits. Older workers with tenure at your organization won’t be laid off using this methodology, so it greatly eliminates your risk of impacting this group.
Although there are some great perks to using this method (simplicity, lessened risk of age discrimination), there are definitely some shortfalls we need to cover.
The first shortfall is that just because someone was only recently hired on doesn’t mean that they are not an asset to your organization. For example, if you recently just hired a seasoned industry expert as your VP of Strategy, that is a huge company asset! There are several exceptions like this example which make this method shaky.
Also, just because you are less likely to discriminate based on age, does not mean you are safe from potentially discriminating against other protected groups.
2) Employee Status Based Selection
This methodology focuses on providing more security to your full time employees. Contingent workers at your organization, such as contractors and/or part time workers, will be laid off, while your workers with full time employee status are given preference in keeping their job.
Since your organization doesn’t have the same legal obligation to contingent workers as it does to full time employees, this method is great for organizations who are looking to protect their legal liabilities.
Also, most of the general public understands the difference between letting go of a contactor versus a full time employee. While letting go of the contractor is never good for your brand, it is more easily understood than letting go of a full time employee, which makes it slightly less damaging to your employer brand.
So, while all of the above are definite perks of this method, there is one huge drawback. This method underestimates the impact that your contingent workers have on your overall business. It’s easy to say that your contingent workers are less productive than your full time employees, but you don’t necessarily know that.
You could have a contract-to-hire worker that is carrying the weight of three different positions, and a FTE who is doing less than the work of one full time employee. So, which is a bigger hit to the organization? If the whole point of downsizing is to become more efficient, exceptions like these create the opposite result.
Finally, many organizations in the last few years have become increasingly reliant on contingent workers. Outsourcing complete teams to speciality firms makes sense in some cases. If your organization is heavily reliant on these type of workers, this method definitely isn’t for you.
3) Merit Based Selection
This is one of the most popular methodologies in choosing which employees to layoff. And for good reason! It helps managers weed out poorly performing employees, so that organizations don’t lose any company assets that they could potentially lose using other methods.
But, there are several caveats that must not go overlooked. First, to be able to correctly execute this method, you have to have a strong performance evaluation system. A lot of times performance evaluations aren’t objective, and aren’t done on a regular basis. This can lead to a lot of legal liability when managers don’t have documentation to backup their layoff decisions.
When executing this method leaders also need to be aware of performance differentiation across several teams. It might not make sense to let go of 3 people on each team across the organization, because different teams might have a wide range of performance behavior.
For example, do you want to fire 3 people on you high impact, high performance, product development team, and 3 people on your poorly performing communications team? That doesn’t make sense! You would want to keep all of the product development employees and let go of more poor performers over in the communications office.
Sounds easy, right? Well this type of cross department communication and collaboration is extremely difficult to achieve. Which leads to a lot of situations like the one described above.
Also, this method at its face value doesn’t take into account which areas of a business are more high impact than others. Why would you layoff employees on the only team that is making you money? These things have to be taken into account when deciding who and how much to layoff within each department.
4) Skills-Based Selection
This methodology takes into account the issue discussed in the previous section: retaining the employees who have the skills most impactful to the success of our organization.
To apply this methodology your executive team must have a great understanding of the driving force of your business success. Is it your customer service? Your robust technology? Your product innovation? A great way to look at this is to assess what the impact would be if you got rid of an entire department. Or if you got rid of half of the department. If this impact would be so detrimental that your business would stop running, then it is a high skilled department.
On top of that, your executives need to have information fed into them from middle level managers about which teams have high skilled employees and which ones could be potentially dissimilated.
For example, if you are a media company that makes content about all things sports, you would need to look at the different verticals and content mediums to assess the business impact. If your hockey content team has the lowest amount of revenue per cost of human capital, while your basketball content team brings in all of your sponsorships and ad revenue, it would make sense to value those skills more than that of hockey analysis.
While this method seems great, it has one huge issue: it can potentially set your organization up to discriminate based on age. A lot of times when using this method, more older workers are let go due to the newer skills younger workers have.
For example, a recently college graduated engineer might know several more programming languages than that of an older engineer. This will especially be true if your company hasn’t been the best at providing personal development. You executive team should do some very honest self reflection about whether this lack of personal development with tenured staff will impact the organization negatively with a skills based layoff.
5) Multiple Criteria Ranking
This is the most difficult of all of the methodologies, but probably one of the most effective. It involves creating a list of deciding factors that are given different weights. This formula is then applied to each individual in a ranking system. Those who rank the lowest are laid off in that order until the organization meets its financial goals.
Really, this method allows you to combined all of the different methodologies above into one solid formula that is customized to your organization.
For example, you might want to give the most weight to an employee’s skills and merit, and less weight to seniority and employee status. We recommend having an HR data analyst help you make a model that will help you determine an employee’s score.
Here our tips for making this model:
- Clearly state what all of your criteria is, and give examples of what types of behavior meet certain rankings. Here is a tenure category example:
- <1 year tenure: 0 points
- 1-5 years: 1 points
- 6-10 years: 2 points
- 10+ years: 3 points
- Review if you value some behaviors exponentially as opposed to linearly. In the example above, you might value employees who have been with the company more than 10 years exponentially more so than you do those who are in the 6-10 years range because of their intrinsic knowledge. Because of this, you could assign that category 6 points while keeping the other category at 2.
- Review, review, review! Have your legal team and your analysis team go over these models exhaustively to make sure that you aren’t impacting any protected groups and thus reducing legal liability.
Let’s Look at an Example
Now that you understand all of the methodologies and the pros and cons associated with each, let’s go over an example to apply this knowledge.
Here is the situation: you are an HR executive at a small manufacturing company. Your CEO informs you that you’ll need to layoff enough people to gain back $1.5 million in human capital cost.
Let’s review how each methodology would play out in this scenario!
Seniority Based Selection: Using this method you would analyze all of your employees in order of tenure. You would start with the most recently hired employee, and then work your way backwards until you reached your $1.5 milion savings goal. Although, this method could fail at providing efficiency if you recently hired new employees to one of the only areas of your business that is producing value.
Employee Status Based Selection: To execute your layoff with this method you would need to make a list of all of your contingent workers, and then lay them off. But, using this method has a lot of holes. What if you don’t have enough contingent workers to produce the $1.5 million savings? And what if you have too many contingent workers, so you go over this goal? In both of these situations you would have to combine this methodology with another approach to realize your end savings goal.
Merit Based Selection: In this scenario, you would evaluate historical performance reviews to let go of your poorly performing employees. You would create a list of the most poorly performing employees and work your way backwards in ascending order until you met the $1.5 million cap. This method is pretty solid if you have a great performance review system. If not, it can be difficult to have managers objectively evaluate their workers under the pressure of looming layoffs. If you do ask your managers to do this, make sure the criteria is very clearly stated to them. For example:
- Employee runs manufacturing with little to no errors
- Employee has no attendance problems
- Employee has expert knowledge of manufacturing technology
Skills Based Selection: While this method is one of the hardest to execute, when done successfully it can be the most helpful to your organization. In this scenario, you would need to have a discussion with your executive team about the most impactful areas of your business.
For example, if manufacturing product A is the most impactful, then all employee stakeholders within this process should be safe from layoffs.
It would make the most sense for this manufacturing company to use this methodology if they have a process or product that is costing more money than it is bringing in. (Think of a computer hardware company still trying to sell floppy disks.)
If you only have a small group of employees who have skills you don’t want to eliminate, you may need to combine this approach with another. For example, the manufacturing company could keep everyone involved with Product A, and then use the Merit based approach with the rest of the staff to meet the $1.5 million savings goal.
Multiple Criteria Ranking: To use this methodology, the manufacturing executive would need to come up with a formula that designated various weight to different criteria. More important criteria should be given more weight, while less important criteria should be given little weight in the formula.
This formula would be applied to each employee, and then employee scores would be sorted from low to high. Employees who scored the lowest would be let go of first until the cap was met. In this example, the HR executive could create the following criteria for weights:
- Tenure at the company
- Employee status
- Value of skillset
- Potential for promotion and leadership
- Threat of competitor poaching
- Impact of work
For each of these categories, the manufacturing employees would be ranked on a scale. Those rankings would be inputted into the weighted formula, and then the HR executive could layoff employees with the worst score.
When researching different methodologies to use, always consult your legal and HR analytics team. Every state has different laws around layoffs, and to be compliant you should always work with these stakeholders.
For more information on these methodologies, make sure to visit our resource library for templates.