As layoffs continue to sweep the country and fears of a recession mount, organizations are wrestling with new questions around whether, how, and when to freeze hiring or make cuts. After fighting the war for talent with improved benefits and resources for employees, do those things need to be stripped away? As budgets get leaner, how should saving jobs be weighted against continuing to invest in people? How can companies navigate layoffs without undoing the progress made toward a more flexible, more humane future of work?
We reached out to Lars Schmidt, founder of the human-resources advisory firm Amplify and author of Redefining HR, to talk about best practices around layoffs and what organizations can do to preserve their agendas around the future of work. Below is a transcript of our conversation, lightly edited for clarity:
With all the layoffs that have happened in recent weeks, is there any company that sticks out in your mind as a place that’s really gotten it right? Or on the other side, somebody who's gotten it really wrong?
It’s tough. Outside of a handful of companies like Coinbase [which recently rescinded accepted job offers], a lot of the layoffs have been somewhat under the radar. But there's scenarios that are not ideal, like having mass Zoom layoffs. There have been some public cases of that, and that's certainly not the way to do things. I think it was one of the European tech companies that had layoffs where their execution was pretty terrible: Basically, the CEO did all hands and said, ‘Within 48 hours you'll hear from somebody, and they will have a message that will be either that you'll be staying or you'll be going.’ You're putting your employees in this position where it's, ‘Do I have a job or not?’ When you're making those decisions, announce them with clarity and kindness, and do it quickly. When you leave people are in limbo, obviously it's incredibly stressful for employees, and even those that stay, there's a morale hit. There's survivor's guilt: ‘Why am I staying, and, and my colleague who I've been working with is not?’
Looking back to the beginning of the pandemic, the case study in how to do a [reduction in force] was Airbnb. Obviously their business was devastated. And they had a pretty sizable layoff, but the way they did it was so thoughtful. [CEO] Brian Chesky sent an email to all employees. He took ownership for everything. He said, ‘You know, for those of you that are impacted, understandably you're going to be upset. And this is a very difficult experience to go through. But know that I made the decision.’ Just demonstrating that leadership.
They also did little things like allowing all their employees who were impacted to keep their laptops. They basically redeployed their recruiting team into an outplacement agency. Obviously they weren’t recruiting, so the whole recruiting team was focused on helping, you know, these people land in other roles. They created one of the first layoff lists, which has now become common practice in tech. If you want a blueprint for how to do that in a thoughtful way, looking back to how Airbnb executed theirs in 2020 is a great example.
Are there any other best practices that go into executing these decisions? Or into deciding who’s impacted by cuts?
Deciding who to cut, it's hard to give a clear framework for that because it's going to be so individualistic to the company. If you're not in growth mode, then growth functions probably are going to be the target. Usually dev and engineering are not, unless the market conditions are causing them to change their product roadmap. Meta, for example, invested a lot in their metaverse team and VR, and it seems like they're slowing a little bit of that. Recruiting teams are on the front line of a lot of this, because when you're having layoffs or pausing hiring in preparation for an economic downturn, you don't usually need the same amount of recruiters.
There is a risk. When you look at some of the layoffs that are happening, some are from companies that probably over-hired to begin with, and it's more of a correction than a reduction. Some CEOs are using this as a cover to say, ‘Everybody's doing this. If we're thinking about doing it, now is the time.’ But there are longer-term potential ramifications of having layoffs. It’s hard to recruit people if you cut too deep in those layoffs. Right now, companies are making adjustments to what appears to be an economic downturn, but how deep and how long, and whether it actually becomes a full blown recession, we just don't know.
If things do start rebound, and they move back into hiring mode, that is going to be difficult for them. They're going to be starting off on their back foot. It's going to be harder to hire. And depending on how they executed their RIFs, there will potentially be brand damage. Employees are talking about what's happening. They're sharing things on Glassdoor and LinkedIn and their own social networks. And so it's not hard to do some diligence, if you're considering a company, to be like, ‘Hey, I know they had a RIF. How did they execute that? Were they thoughtful? Were they doing it from an employee experience standpoint? Or was it just a cut with no kind of care or support for the people that are impacted?’
Beyond approaching layoffs thoughtfully and conscientiously, is there anything leaders can do to lessen that damage, in the moment or down the road?
Offering outplacement services, for one. Most companies do that these days, so if you don't do that, that's kind of a minus one. That’s fairly cold. Right. think people will be looking at, how did you announce? What kind of severance package did you give? Because so many employees are sharing that data publicly, it’s easy for potential future hires to go back and look at, how did you actually do this? As much as the Coinbase situation was suboptimal, I did appreciate how LJ Brock, their chief people officer, came out and wrote that post that said, ‘Here's what we're doing, here's why we're doing it.’ Just that level of kind of openness and transparency that he didn't have to do, but he did. Having the chief people, officer or CEO communicate the what, the why, the how—that is a smart practice, because again, in the absence of you sharing that information, future job candidates may assume the worst. So it's a good practice to share a public post.
Going back to that Airbnb example, it’s similar to what Brian did: ‘Here's what we did, here’s who's impacted, here's why we made the decisions. Here's how it connects to the broader short, medium, and long-term goals of the business.’ Provide transparency as you can—probably more translucency than transparency, because you're not going to share all the details, but having the why out there helps.
As companies try to balance preparing for a potential recession against continuing to invest in the things that make them a good place to work, what are some of the considerations in managing those two conflicting ideas?
There's this real whiplash around this moment that we're in, because up until four or five weeks ago, we'd been very much in a boom market for over a year. right? The market for recruiters had never been hotter. The market for HR leaders had never been hotter. Offers and hand-to-hand combat as it relates to compensation were at levels we've never seen. Right. And then in a period of five, six weeks, it's a complete flip.
As companies are thinking about how they need to handle this—they probably should have done this before, but really being thoughtful about hiring. Like: ‘Do these need to be full-time employees or can we contract part of this out? Can we bring on project resources to augment our staff to do this thing? Do we really need these people in-house and on payroll?’ When you look at the new world of work that we're building, part of that is the way that we get work done varies. Whereas in the past, our default was always headcount.
I think those conversations will definitely be ramping up now—having clarity around the strategic goals of the business over the next two to three years and making all of your decisions as they align back to that. As we’ve begun thinking about building this new world of work, it's an experiment we've never experienced en masse. We're moving away from these industrial-era constructs of work that happens in an office nine to five. Now it's flexible, it's hybrid, it's remote. We're investing in things like mental health like we never have before. We're having different conversations around diversity, equity, inclusion, and belonging, and we're investing in those resources and those leaders like we hadn't before. If we do go into a recession, it’ll be a mistake for companies to trim back on some of those investments around redesigning the workplace and the workforce and the employee experience based on the macro trends that we've been heading towards over the last couple years.
I'm sure there will be some pressure to cut back. The seasoned chief people officers will perhaps be able to push back on those CFOs or CEOs who want to cut into some of those budgets. An additional element that’s kind of a wild card here—after 2020, companies who had historically underinvested in HR were woefully exposed. They weren't able to handle the pandemic, the shift to remote, the different conversations around social justice and diversity, equity, inclusion. So a lot of companies realizing that they did not have an HR team equipped to handle these new volatile times invested in those functions. The job market was incredibly hot for HR leaders. A lot of companies hired people into that role for the first time. And maybe for some of them, that was a bit of a stretch assignment. So will they be in a position to assert themselves in these scenarios where a CFO or somebody is trying to make some of those cuts into their budget?. Will they be able to push back against that, to preserve continuity in those budgets and the direction they're heading around the new world of work?
Any advice for those HR leaders who may be wondering or struggling to figure out how to preserve those agendas?
Two of the biggest success drivers for heads of people these days—not just new heads of people, but all heads of people—one is learning agility. You look back over the last two years, from the pandemic to George Floyd's murder to the insurrection to Russia's war on Ukraine to the toxic political environment. These are all individually seismic events that have just been happening one after the other in the shift to remote and hybrid work. So the ability to learn and adapt to those scenarios is really important.
The second is network equity, which has never been more important for HR leaders— your ability to have that phone-a-friend kind of peer network that you can lean on and get advice from, and share some scenarios. Because a lot of things that you deal with as a head of people are things you can't really talk to anybody in your organization about. You can't talk to your team. You can't talk to your C-suite. It may be about your C-suite. It may be about your board. It can be a very lonely and isolated job, but without those networks, it's nearly impossible.
Especially as an early-stage head of people, there will be many things you've never encountered, like how to defend your budget in the case of recession or economic downturn. But if you have that robust peer network, you'll have people who have been through that, who you can go to for advice and be like, ‘How do I have this conversation with my CEO or my CFO about these programs?’ There's a lot of that happening right now in this space, where you see these robust HR leader peer networks, where people can lean on each other and share ideas and support each other.
When I say building your network, it's not just, ‘Hey, I know other people who do what I do.’ It’s being very intentional about identifying groups and networks, investing time in those groups, giving back, so that there's reciprocity there. There's no HR leader who has seen and done all the things that the role requires today. Your HR acumen is like table stakes. You have to have business acumen. You have to understand the financials like a CFO. You have to understand a go-to-market strategy like a chief revenue officer. You have to understand market positioning like a CMO. You have to be able to advise and coach the CEO, at times against their will, and be the voice they don't want to hear.
The broader evolution in HR is moving away from these black-box siloed approaches where everybody works in isolation. Modern HR operators are much more embracing open-source and collaboration. Building having that network equity, the value you bring to your role as an executive, it's partly based on the knowledge in your head and the experience you possess, and it's also partly based on the knowledge you have access to. Maybe your company's getting ready to go through an IPO and you've never done that, but in your network, you know of four peers who have, who will gladly spend 30 minutes with you on the phone and tell you all of the things they did in prepping for that, and the decks that they used or templates they used.
Within those networks, are there any proven strategies that might come up as ways to protect these things put in place during the pandemic—flexibility, mental health resources, caregiving resources, et cetera?
You have to be able to make a business case for the projects that you're recommending the organization invest in. So you can say, ‘Yeah, you can cut this, but if you cut this, here is the downstream impact on employee productivity, or employee morale, or retention. Here's the cost of having to now backfill people, because we're not going to be able to recruit at the same level without these programs. Here's the damage on the morale side for employees who have rallied around these programs. Now you're going to take them away, so they become more targets for recruiting. Recruiting is exponentially more expensive than retention.’
Having that data, that's typically the best way for leaders to be able to push back on some of those cuts and maybe propose alternate cuts. Looking at layoffs, for example, it's easy to say, ‘We just need to cut X headcount to save Y dollars.’ Not easy morally or ethically, but financially that's an easy decision. A seasoned people leader may be able to push back on that and say, ‘That actually is not the answer, because there will be a short-term gain and a long-term hit. An answer may be more like, how do we redeploy people on those teams in different areas or cross train them to do different things so that we can retain them?’
For larger companies that have dedicated people- analytics functions, they have the ability to actually run some of those scenarios and models to be able to say, ‘Scenario A here and scenario B here, dollar-wise, it's the same. So the easy answer may be that we just need to cut these people, but long-term, if we don't and we redeploy them, or we do X, Y, or Z, the net impact on the financials will be the same.’
In companies that don't have that function, are there other decision-making tools or frameworks that leaders and organizations can use here?
I wish there was. That'd be super helpful if there was a specific framework you could just plug things into and adjust. I haven't seen that. I think companies adjust on a case-by-case basis.
You mentioned survivor’s guilt earlier. Can you say more about what a round of layoffs does to the remaining workforce, and what companies can do to maintain or rebuild morale?
Seeing your friends get laid off when you're still there is difficult for a lot of people. Some people just move along. Other people are like, ‘No, that was my friend, and now they're not here, and they had personal circumstances that are making it really difficult for them to not be working. If I didn't have this job, I would be okay, but they're not okay.’ There’s a range of emotions that come into play.
You try to offset that by being proactively transparent and clear around the decisions. Employees want to know, ‘Here's why we made the decisions around who was impacted.’ And that you have an exit plan for them, whether it's everance or outplacement services. That's an important step, because employees are able to say, ‘I understand business, I understand you had to make these cuts, but knowing that you're doing all you can to try to help my former colleagues land as well as they can in this difficult time makes me feel better about being here.’ Those things, they’re more than gestures.
Is there such a thing as too much transparency around these decisions, either internally or externally?
You know, it's tough to say because I think that every organization has to make that call. Some companies are by default, you know, extremely transparent. Most are somewhere in the middle. You have to be true to yourself. If you're a company that historically has rarely shared things openly, and then you share everything completely transparently, that's probably going to be a little jarring for employees. Because they're used to you not saying anything, when you say everything now, they're like, ‘Oh, this must be catastrophic if they're telling us all this stuff.’ I use translucency at times as a substitute [for transparency[ because again, very few companies are truly transparent, but you have to show enough.
Too transparent would be, for example, if you have a performance management system where employees are graded at, at the lowest level, and you're like, ‘We only let go of under-performers.’ Maybe that was a factor in your decision, but if you're firing all those people and then throwing them all on the bus as they hit the market, that's too much transparency. And at some point you're going to be hiring again, and that's the kind of stuff that stays on the internet forever. So as people are checking you out, they're going to see that kind of a thing and say, ‘Oh, that's pretty tacky.’
You mentioned Coinbase earlier. Do you think scenarios like that, where a company rescinds job offers, are going to become more common as we get further down the road towards a possible recession?
Twitter did that to a lesser extent, and Redfin did as well. I think Coinbase was probably one of the larger examples. But that's not cost-cutting 101. And most recruiting is, somebody gets an offer and they're starting within a month—you don't have these long windows between when somebody accepts an offer and then, and then starts. So I definitely don't think it's going to be common practice. Companies will be much more mindful of not over-hiring to begin with, to not be put in that position, which is good.
What'll be interesting to see is the candidate reaction to that. Could we see a scenario where candidates are maybe more reluctant to give notice in a long period, knowing that an offer could be pulled in that window? It’s too early to tell the longer-term ramifications, but it'll be interesting to see if that may shift any candidate behavior with people thinking differently about their notice periods, particularly as the market begins to pick up again, whenever that is.
Acknowledging that these are not widespread, does something like a rescinding of offers impact the employees who are currently there, in terms of morale or trust?
Of course. Some of these people hired were internal referrals. You're pulling somebody out of a job that they were in, they've given notice, and now you're telling them they don't have a job. As I understand it, [Coinbase] gave a two-month severance, so they did something. But you're taking these people out of a job, putting them in this new potential recession market, where they don't have the same prospects necessarily that they would've in a boom market. That’s a really difficult position for them. And so I think that there is an internal morale hit, because you worry about the stability of your company. You worry about the ethics of doing something like that. You can say, a company did that so they don't have to do layoffs. But I saw today that Coinbase was going to be announcing layoff now, too.
In cases where employees are pushing companies to commit to no layoffs, what’s the best way for leaders to approach those situations?
I don't think you should ever commit to no layoffs. If you've done that, and then something catastrophic happens and you have to have layoffs, the damage is done. Your credibility is shot as a leader. I've seen some of those conversations in my CPO networks lately, where obviously this is on employee's minds, especially in tech. So how do we proactively say, ‘We know you've read a lot of the press and probably have friends who've been impacted by some of the layoffs. At this time, we have no imminent plans for a layoff. Here's our revenue, here's our burn rate’?
Being transparent and proactive can be a good practice because it's certainly something people are talking about. And I think part of the difficulty with these new remote and distributed setups is that you may have less of a finger on the pulse of those conversations when they're happening on Slack DMs and Teams DMs. It's smart, especially in tech, to get ahead of that. But don’t make any firm absolute commitments to not having reductions, because you just don't know. If you've done that and then you have a layoff, that trust is broken.
If it is not true [that you have no plans for layoffs at the time], then I think you probably lean more into figuring out, ‘Okay, if we do this, what is it going to look like? Who's going to be impacted?’ and do it sooner. I host a podcast called Redefining HR where I interview chief people officers, and one of the CPOs mentioned even in the early days of the pandemic they decided to do their RIF early, primarily because they knew they were going to need to do it, and they knew many companies were going to need to do it. And they wanted their employees to hit the market first, so they would have a better shot at landing in other companies before the market was saturated with all these employees who were laid off. So, there are considerations like that, that also factor into the decision making.