New Thinking About Layoffs and RIFs

Thursday, August 6, 2009 by Tripp Babbitt
OK, I’ll come clean.  It really isn’t "new" thinking.  I got it from The New Economics written by W, Edwards Deming.  In the United States, the dividend is the last thing cut (typically).  We will lay off people before cutting the dividend.  In Japan, the worker is the last to take the hit and rarely do they cut positions.  Consider what Deming outlined in the steps Japanese companies take (from The New Economics):
  1. Cut the dividend.  Maybe cut it out.
  2. Reduce the salaries and bonuses of top management.
  3. Further reduction for top management.
  4. Last of all, the rank and file are asked to help out.  People that do not need to work may take a furlough.  People that can take an early retirement may do so, now.
  5. Finally, if necessary, a cut in pay for those that stay, but no one loses a job.

Wow, quite a difference than the thinking in the US.  First sign of trouble with most US companies and the heads start rolling.  Can this be good for our overall economy or the state of our nation.  All those folks that complain about the inefficiency of the government we keep forcing people to use the government for unemployment checks, food stamps, medicaid, etc.  And by the way, more houses get foreclosed on and lessen our property values.

Toyota continues to stave off layoffs.  Who will be better off when the economy comes back?  The company that laid off a bunch of people and have to rehire and train or the company that hung on to workers?  Seems like a simulation game I played while getting my MBA.

I hear conversations from executives saying that we only laid-off the "dead wood" so this gave us a chance to clean house.  So, in the words of W. Edwards Deming, "Did you hire the wrong people or just kill’em?"  Meaning what part of your system hired the wrong people or is your system so poorly put together that no one could survive it.  Regardless, maybe executives should find a better leadership strategy.  With all the waste I see in organizations maybe a better idea for business cost reduction is finding better ways to manage and design the work.

Leave me a comment. . . I can take it!  Click on comments below.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from "Understanding Your Organization as a System" and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at or LinkedIn at


Comments for New Thinking About Layoffs and RIFs

Tuesday, August 11, 2009 by J Dekker:
I run a small American Company. It is privately held by a European company. We had no dividend to cut. From there, interestingly we followed your formula. We eliminated all bonuses of management. Next we cut higher paid people’s salary by 10% and lower folks by 5%. When doing this some people insisted on a bigger cut because they could afford it. Next we cut management salaries by an additional 20%. Now, we have gone to four day work weeks with the exception of sales and service and full furlough weeks for those who have nothing to do. Those on furlough keep their insurances. We have laid off due to special circumstances versus furlough only two people. All of the above has been done with 100% transperancy to all. Our sales are down 50%. Our costs are down 50%. Our headcount is down 5%. The company is surviving to live another day. This is economic war that we intend to win. We are mentally prepared for this to continue through 2010. When sales come back, I will have a fully staffed, fully trained, experienced staff to handle the workload. With transparency and communication to all, everyone buys in to a rational plan to deal with this. Once before we had a problem about half this size. Instead of dictated pay cuts, we asked for voluntary pay cuts. Across the company, people avereaged a voluntary cut of 6% in pay. Once we were profitable for a good period of time, I gave back the money they had sacrificed. Our European parent now wants me at the next board meeting to explain how we are doing this.. They have bigger problems. The law prevents them from paycuts. They cannot do reduced work weeks very easily. The people do not trust managment. They reduced a couple of vacation days away and people think the company stole from them. They have no flexibility and limited employee loyalty. Not a good recipe to survive bad times.
Tuesday, August 11, 2009 by Shane Stone:
My company instituted a choice plan. It became mandatory for all managers, but all other employees globally got the option to take unpaid time off, start working flex schedules, schedule sabbaticals, etc. in an effort to reduce payroll collectively. It ultimately saved us from layoffs. We also froze pensions and suspended company match 401k contributions for 2009. You do what you have to in this economy.

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