Fast Company: Market Rewards Layoffs, Discourages Flexible Downsizing

“Stocks Surge on Layoff Announcements” was the headline on the front page of the Washingtonpost.com this week as major U.S. companies announced 55,000 job cuts.  At the same time, The Conference Board projects that approximately two million more jobs may be lost in 2009.  I can’t help but wonder:

1. What role does the market play in encouraging organizations to move right to job cuts without first considering flexible downsizing?
2. Is the need to please the analysts what’s best for organizations, individuals and the economy in the short-term and long-term?
3. And do these analysts even know what they are talking about?

First, the direct link between layoffs and the market is irrefutable when you consider how shares of the following companies responded after job cuts were announced on Monday:

“Sprint Nextel gained 1.8 percent after announcing it would lay off 8,000 workers.  Home Depot announced plans to eliminate 7,000 positions, or 2 percent of its workforce, and close its EXPO Design Centers.  Its stock was up 5.5 percent…”

The article in The New York Times announcing 62,000 job cuts worldwide starts out, “Employers have tried to nip and tuck their labor costs by reducing overtime, shortening the workweek and freezing wages, but now, they are reaching for the saw.”  But did they really try alternative approaches?  Experts like me as well as numerous reporters have been struggling to find concrete examples of wide scale flexibility to achieve at least part of corporate labor cost saving goals.  The reality seems to be that most companies are going right to layoffs.

It’s not surprising that business leaders experiencing downturns in their business cut jobs, especially when their peers are doing it.  They get very publicly rewarded.  But as Wharton’s Peter Cappelli explained in my post last week, this “herd mentality” doesn’t make a lot of sense when you look at the real costs of downsizing.

This brings us to the next question, is cutting jobs to meet the short-term expectations of analysts really what’s best for organizations, individuals and the economy in the short-term or the long-term?

For many reasons, the answer is no.  Here’s a quick and dirty cost/benefit comparison.  What is the impact of job cuts, versus the impact of reducing schedules, sharing jobs, transferring to consulting status, or offering sabbaticals?  The comparison is based on the 5% salary/schedule reduction versus 5% layoff scenario Dr. Cappelli presented in his article HR Executive online article: (Click here for more)