HR Leaders contemplating layoffs have many resources available to them on restructuring best practices: draw on prior experience, talk to colleagues or attorneys, research best practices at professional associations like SHRM. Many articles on the topic explore one element or another.  Few articles share how to balance business and legal priorities with the humanity of the action or the impact on the remaining employees and vendors. The choices a company makes during a restructuring can impact future business, employees, and business partners.

Let’s look at two actual layoffs. Company A is a wholesale distributor of building materials. Company B is a vertically integrated distributor of office machines. Both companies are fairly large (1000+ employees)USbased divisions of large foreign owned companies. Both businesses make their own decisions and choices during a layoff.

Company A closed non-performing sales and service branches in over 30 different locations around theUS. The stated goal was to improve profitability and leadership focus at the more successful branches, reduce management layers, and expand product lines offered through distribution.

Company B restructured four regions into two, reducing every category of sales and service employees supporting the dealers that distribute their product. The stated goal was to reduce expense, streamline sales and service teams to improve focus, and improve profitability.

Company A announced at the end of October 2010, terminating the majority of employees at the end of December. Company B announced at the beginning of December 2010, terminating all impacted employees at the end of December.

Both companies believe they had the “best” layoff. The remarkable similarities in business structure, size, and timing allow us to consider differences between the layoffs in terms of selection and communication methods, the severance package offered to employees. We will look at the impact of the layoff process on remaining employees and vendors or dealers and whether the layoff accomplished the stated goals. Finally, we will look at what each company’s actions say about company culture and the impact on relationships with employees, vendors, and customers and impact on the companies’ futures.

Selection Analysis

Company A identified the poorest performing branches or positions that could be absorbed or eliminated. Financial analysis predicted that eliminating those specific locations and positions would improve profitability and streamline the business. Leaders conducted a thorough legal analysis with the company attorney to determine that the layoffs would not be controversial or potentially discriminatory.

Company A avoided filling vacancies for about three months prior to the announcement to leave positions open for impacted employees wishing to transfer. They identified open positions to offer high potential employees who would be impacted. They provided each impacted employee with a list of available positions. Consequently, most open positions were filled with internal candidates after the announcement and most high potential employees remained with the company.

Company B identified employees for termination based on how much they earned to achieve the greatest cost reduction. These were the employees with the best results, in many cases older and with the longest service. So in critical positions representing Company B to dealers distributing their product, Company B chose to terminate the most successful employees and replace them with younger, less experienced, less successful employees.

Company B had open positions at the time of the announcement. Some open positions were posted in the normal manner but impacted employees learned about most open positions by word of mouth. Only a few impacted employees were asked to fill open positions.

Communication and Benefits

On the same day in October, all impacted employees at Company A received a personal visit or personal phone call from a high level business leader trained how to handle the announcement. Each impacted employee received an explanation of the restructuring business reasons and an envelope containing all separation terms, the name of an official to contact with questions, a list of open positions, outplacement instructions, and written frequently asked questions (FAQs). Employees could begin using outplacement services immediately, even though their termination dates were often two months away.

On the same day, senior business leaders telephoned top vendors and large customers. Managers notified all remaining employees within 12 hours after impacted employee learned of the restructuring. Within 48 hours of the announcement to impacted employees, Company A notified all major business partners. Managers at all locations received scripts and were briefed prior to the announcement so they could answer employee, vendor, and customer questions.

Company B notified all employees on December 1. That morning, all employees received an email requiring attendance at a telephone conference call at 11am Eastern time. Employees were told not to share the phone number or notice with anyone else. Two conference calls took place simultaneously. At one call, the President read from a prewritten script saying that if you are on this call then you are being terminated effective December 31, 2010. He said someone from HR would contact them shortly and thanked them for their service. At the same time on another call, the President read from a prewritten script saying that if you were on this call you are not being terminated. Participants could not ask questions. No further information was provided. The calls lasted about three minutes.

Many people on both calls believed that the call they heard was pre-recorded because they heard unusual clicks prior to the message. Later, company officials admitted that one of the conference calls was pre-recorded. Managers contacted right after the call could not answer questions. They did not receive any information ahead of time.

An HR person called impacted employees with instructions to return company equipment and that all email would be turned off at the end of the week. The HR person was not able to answer other questions.

Dealers were notified a week later. It took several weeks for dealers to learn who would be their new sales representatives.

Impacted employees at Company B received a notice letter the day after the announcement outlining a specific amount of severance. They did not receive outplacement services or the separation and general release they would be asked to sign in exchange for the severance.

Employees called people all over the company for weeks to get more information, disrupting the business with their frustration. Information changed depending on who one spoke with and when one called.

A week later, a few people learned about an outplacement service that had not been available at the time of the termination. A few weeks after that, an HR person told some people, later confirmed in a written notice, that they would be billed for services if they used the outplacement service but did not sign the separation agreement. So no one used outplacement.

Impacted employees received the formal separation agreement and general release along with the ADEA statement a full three weeks after the termination announcement and days before Christmas, even though the employees had been asking for this information for weeks.

In exchange for severance, the separation agreement included non-compete language that employees had never signed while active. In exchange for the severance, the employee could not work in any capacity for any company that sold a similar product for twelve months following the severance period. For example, one employee was eligible for 10 weeks of severance for 8 years of service but would be prevented from even working as a greeter at Wal-Mart for a total of 62 weeks (10 weeks of severance plus 52 weeks of non-compete) since Wal-Mart sold a product similar to the one Company B manufactured and distributed.

Impact

At Company A, every employee signed a separation agreement and received all incentives, bonuses, and commissions due to them. No charges have been filed with the EEOC or any other agency. All employees worked through the termination period except those who obtained work prior to their termination date but left on good terms. Leaders at Company A received thank you notes from impacted employees for the way employees were treated.

Many employees made a smooth transition to new employment or began their job searches prior to their termination dates. This calmed their families and helped the impacted employees focus on shutting down the branches selected for closure.

Remaining employees, armed with a good understanding of the challenges ahead, focused immediately on preparing to achieve 2011 goals. Vendors and major customers felt included in the business restructuring and worked closely on plans for 2011. All impacted branches closed without incident. The company retained as much business through other branches as they predicted.

Company B had a different experience. Most impacted employees did not sign the separation agreement or take the severance. While this saved the company restructuring costs, it left the company exposed to legal action.  Most impacted employees retained attorneys and are exploring legal action. Three older people have already filed complaints with the EEOC. Company B remains unresponsive to calls and emails.

At the time of the announcement, impacted employees were told they would receive all commissions and bonuses owed to them. This was confirmed in writing. Two months later, Company B decided to pay December commissions based on 100% of plan, which was easier for the company. However since the impacted employees were quite successful, impacted employees did not receive all commissions and bonuses they earned.

The impacted employees spent so much time clarifying information about their separation packages that they did not begin their job searches until late January, two months after the announcement. The energy those employees did not put into their job search they put into complaining about Company B to anyone who will listen – co-workers, dealers, and potential customers of Company B’s products.

Company B leadership assured dealers that sales and service would not be impacted but dealers expressed displeasure with the elimination of highly successful contacts. Some of the largest dealers reported they have not heard from new representatives two months after the announcement. At least two large dealers have already switched to competing product lines. Many plan to take on a competitive product line by the end of 2011. Industry newsletters are spreading caustic comments about the decisions Company B made during the restructuring.

Consider the stated goals.

• Company A began 2011 with only their most profitable branches and streamlined management. The company retained most of the high potential employees who might have been impacted.  Retained employees are focused on the future. Leadership is more involved with the best performing branches instead of distracted with poor performers. The company has improved relationships with vendors and customers.
• Company B saved money on restructuring costs by paying few employees severance, paying December commissions at 100% of plan instead of what people actually earned, and announcing via conference call instead of speaking to each impacted employee personally. They streamlined sales and service teams by reducing regions from four to two and saved on future expenses by terminating high earning employees. However, they terminated their most productive sales people and disrupted their dealers, putting future sales at risk. The remaining workforce is fearful, risking future employee turnover and loss of productivity.

Conclusions

Consider restructuring choices carefully. Everyone is watching and word spreads quickly. Employees, vendors, and customers assume that they will be treated the same way. Short term savings on severance, benefits, or communication during a restructuring might actually be short sighted. Choices made during restructuring impact long term employee turnover and productivity, customer and vendor retention, and overall business profitability.

Company choices at such a difficult time are a reflection of company culture and values, as well as the leaders’ character and integrity. The Human Resource Leader has a responsibility to guide business leaders to make choices that reflect positively on the company. But senior leadership is ultimately responsible. We must assume that business leaders at Company A and Company B are satisfied with the decisions they made or they would not have made them – a reflection on business leaders.

The bottom line is this: Which company do you want to work for? Which company do you want to do business with? Which company do you want to buy products and services from? Which company has a better chance of improving or at least stabilizing employee productivity, growing revenue and profitability, or enhancing relationships with vendors and dealers?

My money is on Company A.