Are Mass Redundancies Needed To Stay Afloat?

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Are Mass Redundancies Needed To Stay Afloat?

Key Contact: Claire Knowles

Author: Laura Spence

With the cost of living crisis not showing any sign of leaving us, it is not surprising that organisations are having to make difficult decisions regarding their workforce. This article considers the pros and cons of the approach some big names have decided to take.

In the financial sector, Morgan Stanley have recently made 1,800 redundancies (slightly more than 2% of their staff) with little build-up or warning. Taking a slower approach, but keeping numbers high, Goldman decided to cut 3,200 jobs (6.5% of their headcount). Their process started with team leaders being instructed to draw up lists of employees who could be let go. However, the slow and steady plan reached turmoil when the news was accidentally leaked amongst staff. Wall Street banks Goldman and Morgan Stanley have taken very different approaches and it is up for debate which was the most sensible. Management experts warn that companies embarking on mass lay-offs should not let the process drag on as concerned and panicked staff are unproductive. On the other hand, snappy offboarding runs the risk of impacting morale in a workplace. Moreover, employers in the UK should always ensure the process they adopt is fair and reasonable.

In the retail sector, Amazon recently commenced a process that resulted in 18,000 job losses (the most in the company’s history). The axing started with a hiring freeze, followed by job cuts across various teams, including the team behind the popular Alexa voice assistant. Perhaps focusing on particular teams is more effective? Sportswear retailer Columbia has publicly expressed their belief that this is the case stating “when the whole team is gone there is nothing personal about it.”

Facebook’s Mark Zuckerberg directed his directors to draw lists of 15% of their teams to be put on performance review. Less than 2 months later, a whopping 11,000 people were laid off (13% of the workforce). Facebook explained that the cuts were largely performance-based but affected all departments however, particular departments seemed to be harder hit, recruitment being one of them. Facebook is now said to be “flattening internally”, meaning they are taking a proactive approach to get rid of low-performing and low-priority projects. They believe this will remove some layers in the middle management which will have significant benefits such as allowing decisions to be made faster.

Why are organisations struggling so much?

In addition to the crippling cost of living and inflation, some companies’ financial issues may be an attribute of decisions that were made years ago, during a steadier financial time. For example, companies that grew too quickly pre-pandemic when times were good are now unable to cope, forcing them to adjust to today’s economy.

The Bank of England has predicted that unemployment will rise from 3.5% to 6% by 2025. To mitigate this, organisations should be considering what else they can do to save money, other than offboarding their workforce.

Alternative options to redundancy include:

  • Lay off/short-time working: if the employment contract permits, you can consider laying off employees by reducing the working week or laying them off completely. If there is a temporary downturn in work then this is a good option for the business, but might not go down well with staff so it would be best to seek volunteers in the first instance.
  • Flexible working: with the Government announcing its intention to make flexible working the new default position, employers may expect to see an increase in flexible work requests. Allowing employees to reduce their working week or work from home (for reduced remuneration packages), could also save on the cost of running a workplace. This also tackles work-life balance concerns, therefore, encouraging loyalty. All in all, this is a good option.
  • Sabbaticals: another way to promote work-life balance whilst reducing costs is by inviting requests for sabbaticals. This would save on wage costs whilst protecting job security- win-win!
  • Freezing recruitment for a temporary period: freezing external recruitment and considering moving staff around internally. This may be useful if there are core vacancies that need filling yet a reduction in work in other departments. Retraining existing staff is likely to be cheaper than starting from scratch with external applicants.
  • Voluntary redundancy: people’s circumstances change daily, and you may well find people who need a way out but are too scared to ask.
  • Use of annual leave: consider asking employees to use their annual leave during quieter periods.
  • Reduction in pay: this is only an option if the employee agrees, otherwise this would be a breach of contract but nonetheless, an effective change to consider.
    Consider some other small (and novel!) changes that can be done inside the workplace to cut costs:
  • Hold fewer meetings: problems can occur when meetings are scheduled to run without regard to their impact on both group and solo work time. Often groups end up sacrificing collective or individual needs. Amazon has adopted this change, claiming that if it would take more than 2 pizzas to feed everyone in the room, there are too many people.
  • Move away from traditional marketing: new forms of digital marketing are low-cost and can prove very effective. For example, effective social media marketing can be done in just 6 hours a week. Also, do not underestimate the impact word-of-mouth marketing can have.
  • Remote working: this may allow you to occupy a smaller and cheaper office space.
  • Buy supplies in bulk!
  • Training: this is an investment and if effective, should increase performance and productivity.
  • Use technology: for example, programmable thermostats and smart light bulbs. Small cost savings on utilities can help to save money in the long term and has the benefit of making your business more eco-friendly.
  • Consider some perks for employees: as opposed to pay rises, consider offering free snacks and breakfast or a music subscription. The minimal cost will make employees feel appreciated.
  • Use freelancers: it can be difficult to find consistent work to justify hiring someone so take advantage of casual workers and freelancers.
  • Improve company culture: this can be a great investment of time and money- a happy employee is a productive employee.

For any queries, please contact a member of the Employment team.

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