Employee guide to predict and avoid layoffs

Employees form one of the five stakeholder groups in The Holistic Company Model^TM. As part of an employment contract, we expect employees to bring and deploy their skills enthusiastically. We pay employees fixed and variable compensation. However, a related aspect of this contractual relationship is the length of the contract. An employee’s ability to predict the length of their employer relationship is as important as the money disbursed to them periodically.

Whether it is The Productivity Crisis or Generative AI-related job insecurity, the ability to keep their jobs is top of mind for anyone not independently wealthy. People choose neighborhoods and buy homes or rent, estimating cash flow from their jobs. Whether the kids attend private or public schools often depends on both parents staying employed. I was laid off while on a work visa early in my career. I understand how harsh an unexpected job loss can be for employees who go through it.

Layoffs are like a trainwreck; passengers can't change the outcome. They can predict the risk and get off at an earlier station. Well-managed companies with effective hiring practices and performance management that include objective performance-based terminations do not cause mass layoffs or defer employment decisions to subjective personal relationships. Conversely, internalizing the predictability and repeatability of the six stages we will cover allows employees to predict the danger and take action to limit adverse impacts.

On a recent Monday morning, I sat beside a gentleman at a coffee shop as his company sacked him. The fact that he was immaculately dressed and ready to start his workday at a coffee shop indicates that he wasn't expecting the news. I spoke to him for an hour afterward. He moved his family to Chicago from Kansas City only six months ago and bought a new home. When asked, he said he had yet to tell his wife. Moving to Chicago was his career choice. He stayed at that coffee shop for hours afterward. Everything about this is just sad.

Traumatic experiences do not just happen when we go to war or experience a personal loss. Any occasion can be traumatic if it is a significant shock to our being. We spend most of our days at work. A company can cause trauma for employees, it can even cause trauma for a shareholder, and it can cause trauma for a loyal and committed customer. In this fourth part of this series on The Productivity Crisis, we will explore how mass separations manifest from the vantage point of a worker.

My search for meaningful answers to how businesses should function started with a single traumatic experience — an early career layoff. I quickly moved on, or I thought so. But even after a few glorious years, I didn't talk about my unpleasant experiences and observations in my business school application essays. I felt that talking about such experiences reflected on me and not on those dysfunctional situations.

Most of us have been part of layoffs, whether we experienced it ourselves, felt it through a parent or a significant other, or managed activities to let other employees go. So, we must pause to think through these jarring events as we work through The Productivity Crisis, where many companies will have to improve their investment effectiveness and address the domino of human capital misinvestments of the last decade.

What is a layoff?

The Bureau of Labor Statistics categorizes employee turnover into three: 1) Voluntary Separations, which include employees quitting happily or forced to quit under pressure; 2) Involuntary Separations, which include layoffs or business insolvencies, separation for cause, or elimination due to personal biases or work politics; and 3) Other Separations, which primarily include retirements.

Historically, approximately one-third of all BLS-reported job separations are involuntary terminations, which include layoffs and termination for cause. Most of the remaining are voluntary separations. But these figures are highly confounding based on my experience at over four dozen companies. From a worker's perspective, we must look at the underlying reasons for separations rather than published categorizations.

Poor performance or broken professional relationships are more likely to show up under the voluntary quitting category because workers are made uncomfortable enough and given enough time to jump ship to a different company. Even for a workforce reduction, most employees can sense the impending reality and don't hang around for the severance check and jump ship before the job cuts, which shows up under "quits."

We only categorize publicized, large-scale involuntary terminations, where many employees are terminated simultaneously, as "layoffs." But most involuntary employee attrition isn't backed by objective and a well-communicated performance management process. Additionally, company-level crises are often slow-moving, where involuntary terminations without cause are masked as reorganizations, restructuring, or role eliminations.

So, regardless of formal classification, terminations without objectively documented and previously communicated performance gaps usually have the same real-life experience for employees. They were hired, had a suboptimal experience, and were let go without a well-communicated and substantiated cause beyond organizational decision-making and execution mistakes. Any such situation constitutes a layoff.

Layoffs are highly predictable.

Every employee can look for telltale signs to avoid involvement in working environments headed for mass layoffs. A competitor could upend the market dynamics, or highly unusual macroeconomic factors can hurt a company. But these are rare events.

Reasonable interest rate increases after 15 years of easy monetary policy and fiscal spending are not macroeconomic factors. Investors and executives must manage companies predictably through such obvious policy changes without causing adverse outcomes for employees.  

There are many similarities between dating and professional relationships. As I explain in The Spiral Stairway, hiring is a one-to-many relationship for the collective entity, the company, and a one-to-one relationship for an individual, an employee. A job for a worker is akin to a monogamous relationship with a company that practices polyamory.

An employee will go through six predictable stages in a suboptimal employment experience. The longer an affected worker stays in an ecosystem through the six stages, the more personally impactful their overall experience will be.

Stage 1: Engaging A Flirt.

In our dating analogy, workers are almost always in a relationship with a company. Starting a new relationship implies ending the present one. Despite the state of our current relationship, exploring a new one suggests we will likely focus on the lapses in our current one.

From a company perspective, human capital investment decision effectiveness, organizational design maturity, and hiring rigor lie on a broad spectrum. The minority of well-run companies meticulously hire necessary employees with skills and motivations aligned with well-designed operations.

Sadly, the majority skew towards the other end of hiring reactively and overzealously to fill quickly budgeted seats without a cohesive corporate strategy or a strategic plan. The second hiring group resembles flirts at a bar. Hiring becomes an act of delivering practiced lines with a short-term mindset without considering the ramifications of strategic and operational misalignment, skill-to-role gaps, or overhiring.

Hiring managers and recruiting staff without deep experience or feeling organizational pressure to fill seats tend to make prospective employees feel wanted. Future workers who are likely employed at other companies feel that the devil they don't know is better than the devil they do because of flattering inbound attention. Engaging seriously with a flirtatious prospective employer on a hiring spree is the first stage of a layoff cycle.

Reflecting on my early career layoff experience, I was happily employed as a Six Sigma Black Belt at the largest company in the world at the time. As an immigrant who studied engineering in America, I was proud of my first job out of college. I was leading critical parts of a company-level project, and, for an inexperienced resource, I had the full support of senior executives. But I was not too fond of my work location.

I hired several external consultants for that big project and one of them influenced my career trajectory. He was good at what he did, and I found his career path of traveling to serve different clients intriguing. He was on a mission to recruit me into his firm. For months, he made a case for why I should leave my employer and work for his firm. My minor dislike of work location grew into questioning my overall job satisfaction. His persistence flattered me, and I had fallen into Stage 1 unintentionally.

When looking at a prospective employer, every worker must first consider the following:

Are the referrer, hiring manager, and recruiting team motivated by short-term, mass hiring incentives and plans?

We are all genuinely intrigued and interested in better life prospects and must explore them. But the first line of defense against a layoff is to avoid getting emotionally invested in a job prospect that reflects a flirt at a bar. When we talk to an inbound employment inquiry, questioning our current work situation and favoring a recruitment effort with a shallow motivation sets off a layoff cycle.

Stage 2: Rushing To Commit.

Most layoffs are preceded by hiring sprees. Hiring managers and talent acquisition personnel focus more on finding bodies to fill seats than on strong alignment between prospects' skills and experience with carefully defined roles. Rudimentary hiring processes, lack of skill filters, excessive staffing based on personal references or associations with brands, and vague post-hiring plans are Stage 2 symptoms.

This stage of decision-making is clutch for a worker. Courting an employer is a strategic and irreversible decision for a worker and a tactical choice for an employer. An applicant looking in from the outside must read the tea leaves to delineate the sales pitch from the realistic prospects of a potential employer.

In my early-career layoff experience, after worrying about being unfaithful to my employer, I accepted that consultant's offer to make a referral. Then I had two brief interviews that barely explored my skills. I thought, "They are so impressed that they aren't even asking hard questions." I had an offer waiting when I got home, and they expected a quick response. Some interview performance, right?

I took the offer. I still remember the betrayed look on my manager's face when I resigned. One of the executives who took me under his wing called to ask, "What can I do to keep you?" But I was determined not to negotiate. That was my second mistake—rushing into a choice without asking hard questions about the future employer.

One question we should ask ourselves to avoid sliding into Stage 3:

Are the hiring process, interviews, and interviewers robust enough to ensure that a lower-skilled version of you could not have slipped through?

Choosing a new employer must always be slow and meticulous from a worker's perspective. If we make a mistake, the rest of these stages become significantly more likely to play out with devastating personal consequences.

Stage 3: Spotting The Imbalance.

It is day one at our new employer. We have said our goodbyes to the people we used to work with. We are excited but also apprehensive. It's called buyer's remorse. Accurate or not, we are worried whether we made a mistake. At this stage, we are calibrating our expectations to reality and asking:

Are there significant gaps between pre-hire expectations and reality inside the company walls?

I hope you answer 'yes'. But The Productivity Crisis we are in implies that the answer to this question is 'No' far more often than it should be. If our response to this diagnostic question is negative, we are in for disappointment.

Practical examples of such an imbalance include:

• Many strong sales representatives are prematurely hired and set unrealistic targets to sell an unproven offering.
• Customer management resources are brought in to manage customer accounts that are oversold and perpetually unsatisfied, with a high risk of churn.
• Professional services staff are hired to deliver client value based on unrealized expected sales.
• Major organizational projects with fast-tracked approvals based on spurious business cases are staffed up too quickly and questioned at every turn after that.
• Hiring decisions are motivated by executives building their internal empires and a tactical mindset where adding people is the answer to all problems, which leads to redundant and conflicting roles.

In our relationship analogy, this is when we may find out that the other party says the same sweet nothings to many people, and the exciting date stories were embellishments. Overstating the maturity of an organization or the appetite to improve its maturity almost always leads to an expectation-to-reality gap that eventually leads to poor outcomes for large groups of employees.

At this stage in my early career layoff experience, I had moved to a new city for that job I quickly accepted. But my first two weeks at that firm shocked me when I realized I was sitting in a room with eighty other people hired on the same day to do the same thing. It didn't take a predictive model to recognize that the picture didn't add up.

I also tried to reach the consultant who referred me since I accepted the job offer with little luck. A few weeks in, he was recognized as the highest referral bonus taker during the recent hiring spree. Imagine my shock in realizing the incentive problem that led to receiving those flattering comments during recruitment.

Employees can do little in Stage 3 apart from being circumspect and analyzing as much data as possible. Suppose there is an imbalance between our pre-hire expectation and post-hire reality. In that case, we want to know whether we are lucky enough for our situation to be isolated. We can hold some hope that the systemic strengths of the broader organization will eventually remedy the imbalance we stepped into if the imbalance we experience is isolated.

However, such gaps are likely more systemic than isolated because organizations with mature systems prevent suboptimal isolated incidents from occurring. Realizing that the organization has systemic maturity gaps that result in employees feeling expectation gaps is the moment Mike Tyson described: "Everyone has a plan until they get punched in the face."

Stage 4: Living With Optimism.

We are in Stage 4 because we felt that punch. The question is how we recover. Unlike boxing, the correct answer is to get out of the ring as soon as possible. Employees damage their mental health and long-term career prospects by staying in ecosystems that overstate the company's prospects.

Hiring sprees result in a brutal environment, especially for skilled and experienced workers. Just like animals can sense an existential threat, humans know when they are in trouble. Hiring sprees lead to a crowded ecosystem where everyone is trying to survive, which leads to politics and toxicity.

A Last-In-First-Out mentality quickly kicks in. Newer workers become in-laws in a family with inner circles. In line with the adage of outrunning the slowest person when chased by a bear, the slowest people are usually the newest in an over-staffed work setting. Folks with longer tenure form a defensive wall to alienate more recent folks.

Behaviors will start skewing towards meeting short-term outcomes to live to fight another day, making the following day even worse. Selling will become undisciplined, leading to increasingly poor value delivery. Declining value delivery leads to further customer churn, creating a need to find even more sales to keep up with targets. If we observe these patterns, we are in stage 4.

To augment our gut feeling in Stage 3, we can assess the work environment for this question:

Do internal behaviors reflect desperate attempts to keep up with unrealistic targets, internal turf wars, and unfair use of measurements disconnected from skill and will?

I soldiered on in stage 4 of my layoff experience because I moved to a new city for that job. I had not received any support from my superiors to find projects. Even though I quickly became good at the work, the firm was woefully short of billable client projects. The few available ones went to tenured folks regardless of skill because of personal relationships.

As an example of skewed measurements, I was placed on a project full-time and only allowed to bill a small portion of my time while the rest was "free" to the client. Utilization, the firm's only yardstick, is a standard professional services industry metric that equates to the share of time billed to a client. This practice unfairly benefits the folks allowed to bill 100% of their time compared to those asked to do the same work without billing the client. My cohort of new hires was set up to fail from the get-go.

Although leaving a suboptimal ecosystem is ideal, humans refrain from quitting as our ecosystem judges individual workers more harshly than the collective entity they work for. So, employees tend to stay and try harder.

Stage 5: Accepting The Reality.

When a struggling sports club makes a point to announce that "we are 100% behind our coach," they ironically sack that coach within a few weeks. The same predictable sequence happens in companies.

Stage 5 begins when the CEO or senior executives internalize that employee morale and fear are worsening and feel the need to make a public statement to reverse it. It's often uplifting and promises greener pastures ahead. But almost always, the message is, "Our plan is great, and our sales pipeline is stacked. We have great people. Before you know it, we will be celebrating." It doesn't work for two reasons.

First, this entire show of reassurance is reactive to employee anxiety or self-preservation, not the real problem of why the company is in its state. Hence, reassurance and motivational speaking will not offer any impactful solutions. Executives expended energy on cosmetically managing internal expectations rather than building a real plan that improves the situation.

Second, the workers who have already been worried and panicking are even more concerned because the people in charge got on the stage and shared nothing helpful. Water cooler talks become more prolonged, and people start looking for jobs. Decreased focus on value-creating activities worsens the company's plight.

The damage is done. The optimal path where a strategic rethink and a cohesive plan to course correct the company with minimal forced employee attrition is likely 6-12 months too late. There are only three doors left at this point.

Door #1 is the most common pathway where the executives who decided to go on a hiring spree or didn't come up with a timely plan to address issues are allowed to continue. They decide that cost-cutting is the answer, and a last-in-first-out protocol gets initiated. Door #1 is the least optimal path because the institution didn't learn from the situation and will continue to make such mistakes.

Door #2 involves a company in too much financial distress to make rational, long-term decisions. Newer executives who are not owners will get fired along with the newer workers. This ecosystem is not in a position to deploy skill assessments and objective measurements of each employee's tangible value.

Door #3 is the ideal answer for a company in Stage 5 if there is enough financial wiggle room to maneuver to learn from the mistakes and set up for a better future. This door implies replacing the executives and supervisors who made poor decisions with a team with more profound experience and skills.

The only hopeful outcome for a worker caught in stage 5 is Door #3, where the company replaces executive roles with skilled and experienced leaders and gives them time to retain employees with deeper skills and experience. Unfortunately, only companies with an objective C-suite or that have gone through these mistakes several times take this door.

In any of these scenarios, the company will eliminate some portion of the workforce to stem the productivity decline and financial distress. As a newer worker, the only reason to stick around at this stage is the hope that such termination will start at the top to change the strategic and operational direction - i.e., Door #3. But it is a rarely chosen path.

The predictive question we can ask ourselves at this stage is:

How financially healthy and system-focused is the company to choose a sustainable path that starts with executive-level changes followed by skill- and will-based employee retention?

Five months into my layoff experience, I was in a large town hall meeting. More experienced peers asked whether additional projects were coming and what the risk to our jobs was. The senior executive confidently answered, "We have a huge pipeline of projects. Soon, you will be busier than you can imagine." That confidence still echoes in my head every time I hear big announcements.

By that stage, we had already worked hard to find projects and improve our metrics with little effect. There were too many systemic gaps that were out of our influence. Despite the bold, unwavering statement by the senior executive, most of us knew the writing was on the wall. I started looking for a new job.

A basic pattern is evident across companies on this trajectory. Employees are often extremely busy with mundane activities that aren't improving internal operations or overarching outcomes.

Working long hours or getting emotionally taxed to save the day without the power to change collective behaviors and incentives will leave a sense of being wronged and unappreciated. An ecosystem reaches stage 5 due to several leadership, decision-making, and execution failures across the organization. The only positions that can start the healing are the board seats and the CEO. Employees hoping that bottom-up efforts will bear fruit are avoiding the reality that stage 6 will happen.

Stage 6: Processing The Letdown.

If we stay on an ill-fated train, involuntary separation is probable. Introspective executives accept this choice as a layoff and intend to do better. Others frame it as a role elimination or use unfair performance measurements to mask the underlying reasons for cutting jobs.

Any one person might be spared in the short-term or get the boot. More importantly, layoffs are not a one-and-done scenario. Choosing the cost-cutting path at the lowest levels further enables decision-makers who caused this cycle to repeat their mistakes. Improving business fundamentals is the only path to avoid repeating the same errors.

As a worker, it is essential to internalize the objective reason for the termination. A vast difference exists between an actual performance gap and an ecosystem that went through these six stages. A well-managed and communicated will or skill gap allows workers to embrace growth. Living through the six stages we covered is an experience to avoid.

Some consider a termination part of their game plan in the growth at any cost era. Some hold more than one full-time job; I have met someone who proudly had three! Some are voluntarily waiting for a severance check to take an extended vacation. This group is an aberration.

Every layoff includes a second group. This group is skilled and motivated, and they made a poor choice in Stage 2 and yet soldiered on to make the best of the situation. Their commitment and hard work through the operational challenges, behavioral skews, and workplace politics culminating in the disappointing separation will feel like a massive letdown. This group will face self-doubt and an emotional blow.

Stage 6 of my layoff experience came only four weeks after that executive's bold announcements. I was laid off as part of a companywide change. There were no performance discussions, risk awareness creation, or notable efforts to fix the business fundamentals. Thankfully, with my four-week head start, I had a new employer lined up.

A layoff is not an event. It’s an experience that takes time to manifest. Suppose we have gone through all or part of this cycle. The best we can do is consider the following question to delineate between growth opportunities to embrace and externalities to move past:

What is our objective self-evaluation comparing our role-specific skills and motivation with the company's decision-making, operational, and performance management effectiveness?

Our eagerness to expand businesses, show large market sizes, and set expansive growth targets is excellent. But none of that happens if we build unproductive and overstaffed ecosystems. We must consider what happens to everyone in the ecosystem if our assumptions are too optimistic and our desire to grow our little empires is overzealous. The six stages we went through symbolize the experiences of many workers in struggling companies.