Perspective - Summer 2009

Engaging Employees Through Periods of Layoffs

Seven lessons of keeping high performers motivated

By Richard Luss and Awie Foong

ECONOMIC volatility is taking its toll on many organizations. Recent Watson Wyatt research shows that 36 percent of a sample of companies in Asia-Pacific consider downsizing as a key contingency plan during this economic downturn.

Hong Kong was very quick to respond to the first financial distress signals, with downsizing beginning in the last quarter of 2008 and intensifying in early 2009. A Hong Kong paytrend survey conducted by Watson Wyatt in February of 2009 reported that 43% of 209 surveyed companies had already laid off staff in 2008, with around 3,000 employees made redundant. Waves of layoffs continued after the Chinese New Year of 2009, as firms struggled to manage their workforce costs in the face of shrinking revenues. While perhaps necessary from a wider business perspective, cutting the workforce reduces the total value of a firm's human capital and increases the human capital risks.

Successfully navigating this period requires engaging – or re-engaging – your employees. Engaged employees are highly committed to the company and understand how they can make a positive contribution. They tend to be more productive, less likely to leave the organization and more resilient in the face of major organizational change.

Findings of the 2008/2009 Watson Wyatt WorkAsia Study suggest seven lessons for managing the human side of the downsizing process.

Lesson 1: Keeping employee engagement level high is difficult, but not impossible

Downsizing is an "engageable moment" — when employees are compelled to substantially revise their attitudes about the organization. Compared to employees who have experienced growth or expansion, employees at firms that downsize are 50 percent more likely to have low engagement. However, if they believe the changes are handled well, they are 4.5 times as likely to be highly engaged.

Watson Wyatt research found that, compared with other employees, highly engaged employees:

• Are 1.5 times as likely to be top-performing workers (receiving a performance rating that exceeds or far exceeds their supervisor's expectations)
• Are nine times as likely to believe passionately in what their organization stands for in the marketplace and four times as likely to believe what they do is critical to delivering on the brand promise
• Miss 26 percent fewer days for unscheduled absences

Lesson 2: Downsizing affects top-performing employees more than other workers

Organizations usually focus on eliminating poor performers and retaining top performers. These top performers are critical to the new organization's future success. And yet we find that, when comparing the top performers from companies that have grown or expanded, top-performing employees at downsizing firms are:

• 42 percent less likely to be highly engaged
• Almost three times as likely to have low engagement
• Almost twice as likely to be among the employees most at risk for voluntary turnover

Lesson 3: Engaging employees during a downsizing requires strong leadership

Employees become engaged when a company promotes confidence – specifically, confidence in the direction senior management is taking to compete effectively and grow the business. Promoting confidence in the company's ability to control costs has much less impact on the level of employee engagement, perhaps because cost cutting inevitably involves reducing the workforce. Compared to employees who have experienced growth or expansion, employees in downsizing firms reported lower confidence in the long-term business success of their company (by 13 percentage points) and responded less favorably on their trust and confidence in senior management (by 15 percentage points).

Grumbling over company policies, practices or performance can and should be discouraged through better communication and management. Nevertheless, encouraging the open expression of ideas and brainstorming can improve the entire organization. Unfortunately, employees at downsizing organizations are significantly less likely than other employees to speak up or offer differing opinions and ideas — possibly because they are afraid to stand out or feel they have insufficient information about the direction the company is taking.

When compared with employees who experienced growth and expansion, employees who went through downsizing were less willing to share their ideas and opinions when their opinions were different from others' (by ten percentage points). However, among those who have experienced downsizing, the highly engaged employees are more than eleven times as likely as their low-engagement peers to share opinions more openly.

Lesson 5: Keeping focus on customer satisfaction helps ensure success

During a downsizing, senior managers tend to focus inward on the team or firm. After the first announcement, employees wait for the other shoe to drop, in the form of layoffs or other budget cuts. This can have a paralyzing effect on the business. Focusing everyone on one objective — satisfying the customer — provides a common organizational vision and improves value to the customer. Highly engaged employees at downsizing organizations are more likely to say their organization:

• Ranks customer satisfaction as a top priority (by 53 percentage points)
• Makes decisions based on what's best for the customer (by 87 percentage points)
• Offers high-quality products or services (by 43 percentage points)

Lesson 6: Continuing to invest on people and processes communicates stability

Investing in people and work processes conveys the message that the company still has a long-term direction worth investing in. Compared to employees who have experienced expansion and growth, employees who have gone through downsizing reported lower satisfaction on their training and development opportunities in both the short-term (by 15 percentage points) and long-term (by 4 percentage points).

Nevertheless, compared with non-engaged employees, highly engaged employees at downsizing organizations are:

• More likely to say their company invests in continuously improving their work processes
  (by 57 percentage points)
• More satisfied with their short-term (by 85 percentage points) as well as long-term
  (by 92 percentage points) training and development opportunities
• Almost twice as likely to have received at least one week of training (employees with
  low engagement are nine times as likely to have received no training during the past year)

Lesson 7: Engaging top performers

All employees, regardless of the level of engagement, respond to actions the downsizing organization takes that are intended to engage workers. But three additional factors are critical to engaging high-performing employees:

• Seeking out and acting on employee suggestions, which can generate valuable ideas
  for organizational improvement
• Considering employee well-being, which promotes employee buy-in during the
  implementation phase
• Paying top performers well

Watson Wyatt's 2008/2009 Strategic Rewards Survey found that low-performing firms pay top performers more than they pay other employees. But their top-performing employees earn only half of the incentive payout (relative to target) of the top performers at high-performing companies, as the organization's poor financial performance limits incentive program funding.

Compared to those who have gone through growth or expansion, employees in downsizing firms responded less favorably (by 10 percentage points) when asked if their companies reward high-performing employees well for their performance.

Even as they downsize, organizations must continue to deliver competitive reward packages for top-performing employees or face the possibility of losing them. When compared with top performers who have experienced growth or expansion, the top-performing employees at downsizing organizations who are satisfied with their pay are three times less likely to be a high voluntary turnover risk.

*This particular result is calculated using the overall Asia Pacific data due to insufficient data points at the country level.

Positioning for success

Layoffs can affect an organization's long-term prospects and can have a negative impact on the remaining employees. The downsizing organization needs to retain and motivate its best people to ensure that a smaller workforce continues to deliver high-quality products and services to customers.

Organizations that fail to engage their employees during downsizing risk the loss of their best workers—as well as declining productivity and reduced customer service from those who remain. They can also forfeit market share. On the other hand, organizations that handle the human capital loss well improve their chances of re-engaging their remaining employees, retaining their top performers, minimizing the short-term damage and maximizing prospects for long-term growth as the economy recovers.