How Big Companies Choose Who Is Laid Off Process can involve weeks of debate as employee performance, skill sets are reviewed

 When a company decides to reduce its workforce, the difficult decision of who to let go begins. In the current economic climate, this process can take weeks as workers are in short supply, making it crucial to determine who is expendable and who is worth keeping. During layoffs that target corporate staff, department heads often lead the process, while human resources troubleshoot their lists. This can lead to intense debate and numerous changes. Unfortunately, there is no good way to conduct layoffs, and someone may always feel unfairly treated in the end. This process is currently taking place across many companies, with recent announcements of job cuts from Salesforce, Hasbro, Dow, and Amazon, among others. Amazon, for example, has revealed it is eliminating 9,000 more jobs, in addition to previous layoffs.

In the past, layoffs in the United States were typically based on seniority, where junior employees would be let go first. However, in modern times, companies tend to conduct layoffs based on an individual's skills and recent performance. High-salary earners may also receive more attention during layoffs, though they may also be among the company's top performers. Top leaders such as the CEO and CFO often set criteria for layoff decisions, such as cutting a certain percentage of the workforce or achieving specified cost savings. Companies may also confine layoffs to specific departments or areas. For example, Boeing recently announced plans to cut 2,000 jobs in finance and human resources while continuing to hire in engineering. Amazon's most recent layoffs targeted areas such as cloud computing, advertising, and Twitch streaming.

According to executives, the responsibility of selecting employees for layoffs usually falls on divisional leaders and department heads. Recently, Okta Inc. announced that it would reduce its workforce by 5% or 300 employees due to overhiring during the pandemic. CEO Todd McKinnon revealed that the company asked all departments to achieve specific financial cost-cutting targets and let go of employees through their own means. For instance, the innovation and product-development teams prioritized retaining individuals who were involved in projects or goals that could be achieved within the next three years, rather than five. Okta terminated salespeople operating in small and medium-sized businesses in North America as part of the cost-cutting exercise. Executives evaluated where the company required investment to identify which initiatives to pursue during the downsizing.

Contrary to popular belief, selecting which employees to terminate is not solely the responsibility of human resources professionals. Former chief people officer at NetSuite Kathy Zwickert said that department heads usually suggest employees lay off based on specific criteria, such as those with low-performance ratings or those who joined the company in the last six months. Managers create a layoff list, keeping its purpose hidden by providing it with a codename like "Project Falcon." Many factors are considered in this process, including an employee's performance history, adaptability, and potential to take on new roles in the future. According to CEO Paul J. Sarvadi of Insperity Inc., the final decision of whom to retain ultimately depends on one-on-one performance assessments.

Human resources staffers identify individual employees for a layoff, after which they thoroughly review the list to ensure that the layoff is fair and non-discriminatory. Discrimination against any particular group of individuals can open the employer to a lawsuit. Employers often rely on external assistance, such as legal counsel or specialized software, to ensure that the selection process is impartial. As part of the review process, employers may also discover other potential issues that need to be addressed. Companies can take anywhere from a week to eight weeks to finalize a plan for letting go of employees. Disputes may arise during the process, such as disagreements over whether to cut middle management or executives. Even when laying off entire business units, executives may decide to retain high-performing employees and relocate them to other positions. Despite having rules and procedures in place, there is still a subjective element to this process.

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