legal developments have made filing for age discrimination easier.
In addition, as one Wall Street Journal article postulates, it's also possible that as layoffs grow, more companies are acting illegally in choosing older, higher-paid staffers to let go.
The EEOC speculates that the surge in filings in 2008 was partly due to economic conditions, as well as other factors, including employees' increased awareness of the law and demographic shifts in the work force. More information on EEOC-enforced laws is available at its Web site, www.eeoc.gov. In addition to paying heed to discrimination laws, distributors are also finding themselves paying closer attention to another law they may not have had to in the past: the federal Worker Adjustment and Retraining Notification Act, or WARN. The law governs how employers handle laying off large groups of employees or the closure of facilities.
It requires notice of at least 60 days in advance to employees and related groups, such as labor unions, the state's dislocated worker unit, and an appropriate unit of local government. Though the federal law may not apply to many of the smallest distributors, some states have "mini" versions of the WARN Act, which cover smaller employers and smaller layoff groups.
Helping Employees Out
Compared with the past, Combs says she is detecting much more careful deliberation by distributors over the layoff process: "Management is very concerned for the well-being of the employees." To that end, distributors are doing what they can to help employees out; but Combs says she has seen the level of severance pay drop from the norm. Many distributors are providing two to four weeks of pay.
Lee Hecht Harrison, a talent management company, found in a recent survey that in comparison with 2001 – the last downturn – employees and employers have become "more sophisticated about separation best practices." More employers are diversifying their severance offerings to include outplacement services. Combs says that smaller distributors struggle more with providing outplacement services, but can still offer some form of assistance.
Preparing for the Upswing
In addition to juggling laws, ensuring workers that remain (and who leave) are well taken care of, and in general dealing with falling sales, distributors are also cautious about not cutting too deeply so that their trained work force will be prepared for when demand strengthens.
The industrial distributor says he also views the situation as an opportunity to realign the company's resources to the company's future plans. He thinks that he will add positions to sales and marketing after addressing the distributor's most immediate needs.
Salveson says that unfortunately many companies cut staff so severely that when the recovery begins, they do not have the talent they need to react. He recommends evaluating business processes when downsizing to identify whether your now-reduced staff can handle an upswing when it happens. "Alternatively, create a talent acquisition plan that is immediately ready to execute when business conditions improve in order to bring on the talent required to support future growth."
Distributors across many sectors face a decision many never faced before: whether to implement layoffs. This article offers insight from two distributors on deciding who, when and how, as well as expert opinion on best practices in this difficult time.
Business is off about 40 percent from a year ago for one industrial distributor in the Midwest. As a result, for the first time in 22 years, the owner has had to lay off roughly a fifth of his small staff. It was one of the worst days of my life, he says.
The fear in employees' eyes as they walked to the conference room the day the layoffs were announced was palpable, he says. The process has taken an emotional toll on him and the remaining workers. For many distributors, a dramatic drop in demand in the past four months has forced them to make the difficult decision to lay-off employees who, in distributorships, are like family. For many companies, it is the first time they've had to take such a step. "It's a painful experience for management," says Nancye Combs, a human resources consultant to the industry.
Distributors of course aren't alone. Since December 2007, the U.S. has lost 5.1 million jobs, with two-thirds of that in the past five months. Wholesale trade saw a decline of 31,000 in March, with nearly all the decline in durable goods. The unemployment rate is at 8.5 percent. The list of announced work force reductions seems to be unending recently. Some sectors have been harder hit than others – building materials distributors have announced thousands of layoffs in the past two years. Builders FirstSource for example cut headcount by 39.3 percent in 2008. Huttig Building Products reduced its work force 45.5 percent from the second quarter 2006 to the end of 2008.
Manufacturers also continue to face a crunch. Just this month 3M announced it was offering buyouts to 11 percent of its U.S. work force, or 3,600 employees. A broad-based and unexpected drop in sales in November for many has meant compensating for the drop by doing an in-depth analysis of the business – finding ways to save money but also positioning for when business turns around.
In a way, many companies are benefiting from the current state of the economy. "The employees are not surprised," says John Salveson of Salveson Stetson Group, an executive search firm. Salveson has consulted with companies on downsizing issues. "I think there is a strong case already made (for downsizing)." Employees know the amount of product going out the door has fallen substantially.
Of course, that doesn't make the decision to downsize an easy one. Most distributors have implemented salary cuts and other cost reductions, as well as considered shortened workweeks or other measures in hopes they could avoid what turned out to be unavoidable.
After deciding to move forward on downsizing, distributors approach perhaps the most difficult part: determining who will go. The industrial distributor made the decision on whom to lay-off based on performance; the company had always kept accurate employee files with regular performance reviews.
Another distributor, based in the South, says he looked at the cost of individual employees versus the return they provided the company. In many cases, if an employee was not versatile – a valuable trait in a small company – the distributor had to put them on the short list. The distributor, whose business is closely tied to new-home sales, had to let four employees of his 21 go.
Maintaining Service Levels
The first round of layoffs for the industrial distributor was based on performance reviews, but if the owner faces another round, he says he will conduct a deeper analysis of work flow and the impact layoffs would have on customer-facing employee groups.
He says he wants to avoid slashing the same percentage from each department, because
there may well be a negative effect on customer service levels: You don't want to shoot yourself in the foot." Salveson says if distributors have a choice of taking expense out of back-office functions versus the parts department where the employees spend their days talking with customers, they should lean toward the former.
"Most companies are saying we just want to be around when the recovery begins," Salveson says. To that end, it's important to cater to existing customers by keeping it easy to do business with you. Know what your customer considers important about the service you give them, and what they don't consider important. You need to know why people choose you over someone else."
Traditionally many distributors have chosen to lay-off based on seniority. Workload is also considered. Which areas of the business are less busy, and so need fewer workers? Performance is another key indicator used.
Salveson says that this works when a company has a robust performance management system. "If you don't, there is no way to determine who your underperforming people are," he says. "There are opinions on who they are, but that doesn't make them the underperforming people. "You want to keep the highest performers that you can." He quoted Warren Buffet: When the tide goes out, you find out who has been swimming naked. "That's especially true with talent," Salveson says.
A strategic approach to the process is to look at where the business is going. This may take a deep review of the business and the creation or revision of a strategic plan. "You've got to match up where the business is going with the people who have the right skills sets going forward," Salveson says.
In other words, get the right people on the bus, as "Good to Great" author Jim Collins would say. The distributor in the South took a hard look at his work force when he made the decision where to make cuts. He is also re-evaluating the company's strategic plan. As a result, he has a much better handle on where to devote resources when the upswing begins.
It's key to have a plan and, as much as possible, to stick to it, Salveson says. "Don't cut 20 people in March, then six people in June, and 12 people in July," he says. "You're better cutting more and cutting earlier. It can be harmful when people are waiting for the other shoe to drop."
Downsizing is painful, but if business conditions call for more significant cuts, he recommends doing it all at once. In the same vein, Combs says not to set false expectations for workers who are laid off. Managers sometimes have a tough time telling those workers that the company is eliminating those jobs altogether. "Don't say it will just be for a month or two," Combs says. If it's true, "say there is potential you might call those employees back, but not count on it."
The industrial distributor says that half the employees he had to lay off were in a protected class. "There's always a risk," he says. Taking heed of that risk is important. A rule of thumb from Combs: If a layoff appears discriminatory, if challenged, it will probably be difficult to fight in court "even if there was no intention of doing wrong." If a protected class – over 40-years-old, race, gender, etc. – is disproportionately affected by a layoff, claims are possible.
A quick look at the Equal Employment Opportunity Commission's online news release page is enough to see how frequently discrimination cases are brought against companies of all sizes. In March, the EEOC reported that workplace discrimination filings with the federal agency were at a record high in Fiscal 2008 – 15 percent higher than the previous year. Perhaps even more interestingly, filings based on age and retaliation saw the largest annual increases. Recent