Bosses are using tougher performance reviews to cut workforce without layoffs because employees aren’t quitting


In the period from January to November, companies have announced plans to eliminate close to 700,000 jobs, marking a 115% increase from the same time frame last year. These layoffs, particularly affecting white-collar positions, have contributed to a tight job market, leading to a decline in employee turnover rates. Employers are conscious of the ramifications of widespread layoffs, such as loss of expertise, increased anxiety among remaining staff, and immediate financial costs. Nonetheless, some companies are leveraging performance appraisals to distinguish high-performing employees from underperforming ones, aiding in strategic resource allocation.

Thomson Reuters' chief people officer, Mary-Alice Vuicic, highlights the positive aspect of healthy attrition, stating that when employees depart, it provides an opportunity to bring in new talent with fresh skills or promote existing employees. Despite a consistent quit rate of 2.3% for several months, job openings in October decreased to 8.7 million from 9.6 million in September, indicating a reduction in available positions as employees are less inclined to quit voluntarily.

During the fourth quarter, cost-cutting measures typically impact headcount or employee benefits, according to Stephan Scholl, CEO of a benefits and human resource services provider. He notes a shift in focus from retaining talent earlier in the year to reducing costs as corporate executives face the challenge of achieving more with fewer resources.

While some companies like Spotify and Citigroup have announced significant job cuts, experts like Tom McMullen from Korn Ferry suggest that mass layoffs should be a last-resort measure for companies facing severe challenges. Instead, organizations are increasingly focusing on identifying underperforming employees through systematic performance reviews and offering them performance improvement plans, as suggested by Michael Schrage, a research fellow at the MIT Sloan School of Management's initiative on the digital economy.

However, McMullen notes that using performance reviews to trim talent may not yield quick cost reduction, as employees on performance improvement plans require time to meet expectations. This approach may lead some employees to improve while others may continue to underperform despite the company's investment in their development.

Some companies, like Block under the leadership of CEO Jack Dorsey, have opted for continuous evaluations and feedback throughout the year, eliminating annual reviews and improvement plans to enable quick identification and dismissal of employees not meeting expectations. Similarly, Google had strengthened its performance review system and identified 6% of its employees as low performers, eventually leading to the reduction of approximately 12,000 jobs.

Scholl emphasizes the current push-pull tension between employees holding onto their jobs and employers seeking efficiencies amid low unemployment and the impact of the great resignation. This situation has increased the pressure on leaders to prioritize the retention of top performers.

In summary, the current employment landscape has prompted companies to carefully evaluate performance to optimize their workforce and navigate the ongoing challenges in the job market.  

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