Layoffs are a painful reality for many organizations, especially during economic downturns or major changes in the industry – as recently seen with tech and finance companies tightening their belt.
Traditionally, employers resort to layoffs during crisis situations to save money. Many organizations* still view reducing staff as the most efficient and straightforward way to address financial challenges, despite the significant consequences on organizational culture, productivity, and most importantly, trust.
Layoffs are a difficult and emotional process for both employers and employees.
According to a Harvard Business Review article, the long-term impact on people’s health and finances (i.e. experts advise that it takes, on average, two years to recover from the psychological trauma of losing a job), the negative impact on the organization itself (i.e. post-layoff underperformance) and the loss of trust remain undisputed. Employees may feel betrayed, uncertain, and mistrustful, which can lead to a range of negative outcomes for the company.
In this article, we'll explore the effects of layoffs on trust and provide some tips on how to maintain trust during and after the process.
Effects of layoffs on trust
Layoffs can cause the remaining employees to question their trust in their organization and its leaders. Here are some common effects that layoffs can have on trust:
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Fear and uncertainty: Layoffs create a sense of fear and uncertainty among the remaining employees, who may wonder if they will be next. The fear of losing their jobs can cause employees to feel uncertain about their future with the organization. This can lead to a breakdown in trust, as employees may feel that their organization is not looking out for their best interests.
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Mistrust of management: When employees see their colleagues being laid off, they may start to question the leadership's decision-making process. As employees may feel that their leaders are not being transparent about the reasons for the layoffs or are not handling the process in a fair and compassionate manner, this can lead to a mistrust of management.
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Lower morale: Layoffs can have a significant impact on morale, as the remaining employees may feel demoralized, devalued, and disengaged. This can lead to a decline in productivity and innovation and an increase in turnover, further eroding trust in the organization.
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Reduced loyalty: Layoffs can also reduce employee loyalty, as they may feel that their organization is not loyal to them. This can lead to a decline in commitment to the organization, which can further undermine trust.
Despite the potential negative effects of layoffs on trust, there are strategies that you can use to maintain trust during these difficult times and prove your culture.
A moment to prove your culture
Even the best workplaces aren’t immune to these economic headwinds.
“Layoffs are part of business; even great workplaces go through them eventually”, says Patrick Mollet, Co-Owner and Consultant at Great Place To Work®. “Nobody likes to have it happen, but it has to happen sometimes.”
How organizations conduct layoffs on the other hand speaks volumes about how great employers distinguish themselves from merely average ones. A great workplace finds ways to care for employees even as they transition out of the organization.
Restructuring is a tipping point for company culture. Whether it’s a merger, acquisition, divestiture or workforce reduction, how an organization handles change will impact its culture for years to come.
We highly suggest examining your options before jumping into layoff. Have you tried everything in terms of performance management and ways to increase productivity?
Did you know? 84% of employees at great workplaces are convinced, that management sees layoffs as last resort, compared to 67% in average workplaces.
Here is how great workplaces handle layoffs:
Strategies to Maintain Trust during and after Layoffs
The data reveals strategies used by the best workplace cultures to mitigate the impact of layoffs on employees and employee experience. The overall approach can be separated into three separate phases: before, during and after.
1. Before a layoff
When rumours of potential layoffs are spreading, effective communication and clarity are key. Workers must be left with no doubt that layoffs were a last resort.
Leaders must ensure that employees understand that layoffs are a last resort and that cost-cutting measures have been explored before making any decisions. If you haven’t cut costs in other areas (travel, expensive events, or even manager bonuses) chances are, your employees will resent you, even if they’re not the ones affected by the layoffs.
Be honest and clear about the situation and keep everyone updated frequently on the next steps.
Seeking input from employees on cost-cutting ideas can also help them feel some in control of the situation. However, this will only be effective in organizations that have embraced a For All™ Culture, where everyone feels empowered to innovate and bring in their ideas.
2. During a layoff
Organizations should handle the layoffs in a compassionate manner, showing empathy and understanding for those who are impacted.
The best workplaces have shown to go the extra mile to personalize messaging, improve benefits for affected employees and even help them find new opportunities.
Showing care also means thinking about how a layoff might disproportionately hit underrepresented groups and engage in careful analysis. Leaders should resist the urge to limit discussion around downsizing to a few leaders, as broadening their focus and engaging more people can help them make better decisions through the lens of diversity, equity, and inclusion.
Organizations that show care even keep communication channels open so that team members can be rehired if the market improves.
3. After a layoff
Great workplaces make sure to engage remaining employees who may be grieving or especially taking on more work due to staff reductions. Failing to meet the moment with empathy will destroy trust.
Providing opportunities for employees to express themselves and connect back to the organization’s purpose will help rebuild trust. This measure isn’t expensive or complicated, it rather requires leaders’s willingness to ask, listen and provide space.
As a leader, you should also be prepared for strong emotions while employees are processing what has happened. Allow employees to process their feelings and providing them with the support they need.
In conclusion, layoffs can be a challenging time for both employees and management, and can have a significant impact on trust within an organization. However, by communicating transparently and regularly, investing in remaining employees, and taking steps to rebuild trust with those who have been impacted, organizations can minimize the negative effects of layoffs and build a stronger, more resilient workforce. By prioritizing empathy, compassion, and open communication, organizations can create a culture of trust and support that will benefit both employees and the organization as a whole.
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