Breaking Bad

A ground-breaking research paper by University of British Columbia Professor Sima Sajjadiani found that employee exits “change the social fabric of workplaces prompting (even) more departures”. The researchers found that layoff announcements have the knock-on effect of increasing feelings of job insecurity, which in turn leads to higher voluntary departures.   Most disruptive to a company is when high performers are dismissed or leave without any clear reason. Here’s what happened at a major European based chemical company.

This company had experienced some financial headwinds and had recently gone through a major restructuring …which of course if you live in Europe is code for redundancies. Wanting to ensure the brightest and best managers were retained, the HR team came up with a strategy. They graded each manager as an A, B or C. A’s were the top third; the future leaders who should definitively be kept on at any cost. B’s were valued managers, the middle third, and if some left the company it wouldn’t be a big problem. C’s were the bottom third, the best candidates for redundancy. No effort would be made to retain them.   Here’s what happened….

Redundancy notices went out to almost all of the “C” ranked managers but there was a problem. The company had a ‘length of service policy’, meaning that if an experienced manager was made redundant (regardless of their A, B or C ranking), they had up to six months to seek another position within the company by “bumping” a less experienced manager. This policy created a game of musical chairs as long term “C” ranked managers bumped less experienced but more highly valued A and B managers.

Service policies like this one, while unsavoury, may work in unionized ranks, but for management positions the knock-on effect was devastating. The departure (with seemingly no valid reason) of visibly superior managers caused feelings of job insecurity. This led to voluntary departures of A ranked employees skyrocketing even in the midst of a very tight job market.

When it all shook out approximately 90% of all the A’s ranked managers had departed on their own volition for other opportunities. It was estimated that 65% to 75% of the B’s remained with the company however, due to the bumping policy, incredibly 90% of “C” ranked managers who had received redundancy notices remained with the company.

It’s, in effect, a triple whammy. The low “C” performers (who share responsibility for the poor performance in the first place) end up staying on to chart the future. The high performers needed to turn the company around head out the door for other opportunities. Lastly, when word gets out, the company’s brand as a great place to work takes a hit making future recruiting challenging.

What can we learn from this bungled restructuring program:

1. Merit not experience should dictate who stays and who goes: Low performers won’t turn your company around. 

2. High performers are opportunity seekers: Create opportunities for high performers otherwise they will seek them elsewhere.

3. Stories get out: Everyone knows companies have ups and downs. It’s how you handle those downs that makes you a great place to build a career or just a place to work for a while.

No one knows the twists and turns the economy will take, but we do know that it’s the quality of your team that ultimately determines the quality of your business. At some point, executing a redundancy program will be part of every leader’s life. As Professor Sajjadiani might tell us “handle with care” … the future of your company depends on it.