Sometimes you have to fire people, but you don’t have to be a jerk

Aug 1, 2022
Posted in CULTURE
Aug 1, 2022 Marcin Nowak

According to a Crunchbase News report, more than 30,000 workers from over 60 technology companies were made redundant in the United States in July alone. June has been the infamously “record” month for this market so far, with at least 75 reports of mass layoffs.

2022 has hit the public and financial sectors hard, and this has spilled over into the private sector. Concerns about inflation, rising interest rates and the Russian aggression against Ukraine contributed to the fact that the stock market fell into a state of suspension.

The difficult situation affected even those companies which had for many years seemed invincible and stable. Microsoft recently made “less than 1%” of its 180,000 employees redundant – that’s almost 2,000 jobs. Ford plans to cut 8,000 people.

Technology startups – including those that did great in the pandemic and collected consecutive investment rounds – are also feeling the pressure. Valuations, especially in the late stages, have started to decline, with many experts saying it is now difficult to raise new funds. Many of them have not only frozen recruitment, but also opted for cuts and layoffs.

Case studies: Klarna and Bitpanda

Below are two examples of mass layoffs that were not handled well for various reasons. With a full understanding of the difficult situation dismissing companies faced – some mistakes could have been prevented, and that is why we mention them.

Case 1: Klarna

“Seems they make it up as they go,” one former Klarna employee told The Guardian, describing the entire process of Klarna’s layoffs and highlighting the chaos within the company.

From the same article, we learn that, according to employees, the company offered more than twice the salary to those dismissed from jobs in the USA than to employees from Europe. Following an internal objection, Klarna proposed the “equalization” in which the affected workers could keep their laptops and phones if they paid the relevant tax. If this is true, then the process was evidently rushed and poorly thought out. The offer with the equipment, if it were made right away and applied to everyone, could be perceived as a positive element. However, as a form of making up inequalities in the treatment of employees, it probably made things even worse.

The biggest scandal, however, was caused by the way that layoffs were announced. Employees received a pre-recorded video in which Klarna’s CEO Sebastian Siemiontkowski informed everyone about a staff reduction of 10% and added that certain people would be invited to a meeting on the topic. We don’t know how long it took from watching the clip to receiving an invitation, but we can imagine the strain on employees caused by this kind of news. Recording such an important message seems like avoiding the dialogue with employees by company management.

Executing layoffs impersonally through e.g. pre-recorded video messages is simply unacceptable. We require commitment and hard work from people. Can’t we even devote a moment to them in such a difficult situation?

The controversy was also caused by a post in which he shared — “with mixed feelings” — a Google spreadsheet prepared by one of the employees, where his colleagues (560 out of 700 laid off) could enter their data and thus signal their readiness to talk to recruiters.

Some people commented that this post was “a clear sign of how poorly managed this ‘change’ was.” It’s hard to disagree, especially since the shared material contained the private emails of employees, which is hardly a smart move.

Usually, we would avoid referring to CEO’s LinkedIn posts, but this was pretty much the company’s only “official” announcement. Although we don’t mean to focus too much on Klarna’s public communication mishaps (we’re more interested in the internal crisis communication), looking at the situation, we can clearly see chaos and poor preparation.

There is also something that Klarna’s managers have done right. They introduced remote work for the period of conducting layoff meetings, which clearly was an attempt to take care of the emotions of the team and minimize the discomfort of those who were dismissed. On the other hand, it seems like not having real, live meetings with staff just looks a bit like another way to avoid dialogue and maintain some distance.

Case 2: Bitpanda

On May 31, Bitpanda’s Chief Product Officer, Lukas Enzersdorfer-Konrad, wrote on the company’s Slack that there was no threat of mass layoffs.

“There will be no mass layoffs of any kind at Bitpanda,” wrote Enzersdorfer-Konrad. “We have not yet reached our quota and will continue hiring until all the positions we need are filled.” He also wrote that the financial results in 2022 are “below the budget”, therefore employees should focus on product and tech infrastructure improvements in preparation for the “next bull run.”

Less than a month later, it turned out that the company was laying off one-third of its employees, about 277 people.

When asked by TheBlock.co about this, Bitpanda’s spokesman replied: “Three weeks before the day of the announcement we didn’t plan to do a restructuring and we have always transparently communicated our plans to our people.”

Being open and honest with employees is one thing, but every good manager knows that you should never promise anything unless you are 100% sure that you can keep your word. We are dealing here with a situation in which either the company is not able to realistically assess its financial liquidity and plan in the perspective of a few weeks, or it manipulates the situation and provides false information. Neither scenario evokes confidence in the brand or a good opinion about the employer.

In an official release, the company also commented: “We reached a point where more people joining didn’t make us more effective, but created coordination overheads instead, particularly in this new market reality. Looking back now, we realise that our hiring speed was not sustainable. That was a mistake.”

While we support openly admitting mistakes, communicating that employees did not make the company more effective (on the contrary) does not seem to be a supportive message at such a difficult time. Moreover, it does not help in finding a new job nor improve your negotiating position with recruiters.

It is very important to convey a clear message in the external communication about what the cause of the layoffs is – savings, not the quality of work of the dismissed people.

It is worth adding that it testifies very badly to Bitpanda’s hiring strategy, which has relied on expanding teams without analyzing performance and real translation into the efficiency of company growth.

[UPDATE] Nov 13, 2022:

Case 3: Stripe

A good example of recent crisis communication is Patrick Collisons’ email to Stripe employees. On November 3, Stripe’s management decided to reduce the team by about 14%. In the official message, Stripe’s CEO put down some key messages crucial in this situation.

His message included:

  • emphasizing that this situation is not the fault of the fired employees but the responsibility of John and Patrick,
  • a detailed explanation of what the mistakes they made were (including overstaffing after the hike in 2020 and 2021),
  • a description of how and when they paid salaries, bonuses, PTO, career support, and immigration support,
  • announced that employees affected by layoffs up to 15 minutes would receive messages and be invited to a live, 1-1 conversation,
  • announced what lessons management has learned and how the company’s strategy will change.

“There’s no good way to do a layoff, but we’re going to do our best to treat everyone leaving as respectfully as possible and to do whatever we can to help.”

How to properly carry out the process of dismissing employees

Firstly, we must emphasize that it is impossible to carry out the necessary cost-cutting exemptions that anyone enjoys. Except for really specific cases, no one is happy to suddenly lose their job.

However, it can be done in such a way as to show respect and appreciation for the contributions of these people. Even if the situation is difficult and we have to make really tough decisions.

I have listed three key areas that need particular attention to ensure that the redundancy process is carried out properly and with sensitivity towards the employees that are being let go:

1. Do more than you have to

It is known that since we are planning austerity layoffs, we are in a difficult financial situation. However, this process and the related obligations should not be an area of drastic savings. It happens that companies boast that they have provided employees with all due severance pay as required by law. Honestly – keeping your commitments is not a reason to brag. After all, developing companies very often expect from their employees greater effort, full commitment, creativity, overtime work, etc. All the more so, they should do more than the minimum required by law.

This extra something does not necessarily have to be additional severance pay (although of course, this option is a good solution). There are many ways of taking care of the future of dismissed employees and preparing a good outplacement campaign. It is a good practice to prepare a special page with a list of people affected by the layoffs, their skills and references. Fortunately, this is happening more and more often. There is even a special aggregator, Layoffs.fyi, which lists all the companies that are currently downsizing their teams, along with lists of the layoffs.

It is very important to convey a clear message in the external communication about what the cause of the layoffs is – savings, not the quality of work of the dismissed people. Company social channels, including leaders’ channels, can be used to promote these people to potential new employers. It certainly will not hurt the image of those leaders – even in the case of the above-mentioned controversial post by Sebastian Siemontkowski, many people received it positively. It tells more about us, how we endure difficult situations and what we follow then, than how we celebrate success.

It is also a good idea to provide, for example, medical care for the dismissed people (or their families) after the date of termination of cooperation, which is particularly important in countries where the basic, common set of services is poorly available. It can be crucial, especially for people undergoing treatment at a given moment. Companies that have ESOP can change its rules so that the dismissed persons obtain rights in an accelerated manner, e.g. they take part of the shares in proportion to the dismissal moment. There are also organizations that have allowed employees to keep the equipment so that they have a tool to look for a new job. In this case, watch out for the mistake made by Klarna, i.e. forgetting about the fact that employees – in a rather financially stressful situation – will be taxed.

2. Plan your communication well

Communication and the form in which the dismissals are carried out must show the utmost respect for all dismissed employees. Communicating layoffs impersonally, through something like pre-recorded video messages or an official email message “from HR”, is simply unacceptable. How can we require commitment and hard work from people and not even devote a moment to them in the moment of a problem?

It is very important to be fully transparent as to the reasons for the reduction and to emphasize that this situation is not due to low employee efficiency or dissatisfaction with the results of their work. The most important message is one that will allow the dismissed employees to quickly get back on their feet, to let them know that they are great employees and they can confidently look for a job elsewhere; it was the economic situation that created this unfortunate necessity. The point is for the dismissed person to continue to believe in their abilities.

In such a situation, the sudden cutting off access, preventing farewells with colleagues or being escorted out by security staff (!) is an additional, completely unnecessary emotional shock that causes huge negative effects.

For example, it dramatically influences the process of finding a new job and the potential success in it. Also bear in mind that the negative opinion of the dismissed company may come back to hurt it one day.

Every company that reduces employment for economic reasons wants to grow back and hire again in the future. How it carried out the reduction will have a very strong impact on the possibility of new growth one day.

3. Take care of the people who will deliver the news about the layoffs

Conducting any meeting that shares this kind of news is stressful for everyone, even if the entire process is prepared and carried out with great care for the dismissed employees. And with mass layoffs, a lot of these meetings have to take place.

During these types of meetings, there is a whole spectrum of reactions and emotions – crying, screaming, threatening and even panic attacks. After all, people face not only fear for their material future, but also a sense of injustice and the loss, for many, of a very important part of their lives.

It’s hard to observe and respond to these emotions. Therefore, the organization preparing such a process must include support for those delivering the bad news – e.g. in the form of additional rest or therapeutic support.

I would like to add that if the dismissal of their colleagues is easy for someone, it does not mean that they are a good manager, HR person or specialist in the area of ​​People & Culture. It is exactly the opposite.

 


CHECKLIST
People & Culture processes you will need to conduct layoffs:
  1. Redundancy plan, including risk calculation, action schedule, communication
  2. Severance pay system or other benefits (e.g. health insurance, ESOPs, as well as outplacement – a process that makes it easier for a dismissed employee to look for a new job)
  3. The process and guidelines for deciding who stays in the company – with particular emphasis on the principles by which decisions are made, so that they are not influenced by non-substantive considerations
  4. Review, validate and implement the performance evaluation strategy
  5. Crisis communication plan inside and outside the company
  6. Work plan (projects, tasks, areas of responsibility) with a smaller team, so as to take care of the well-being of employees, burdened with the situation
  7. A plan to maintain the organizational culture after transforming into a smaller team
  8. Redundancy Support Plan incl. mental support plan for those carrying out layoffs

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