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Earlier this year, an old story about former Nintendo CEO Satoru Iwata made headlines, in which he was posthumously praised for taking a 50% pay cut rather than lay off employees.
Why is a story from 2013 suddenly making headlines? Probably because it contrasts so sharply with current trends in North America, where layoffs have not reached such high levels since the dot-com crash in the early 2000s.
The technology sector is hit particularly hard. According to NPR, 2023 was “a bloodbath for the technology industry, with more than 260,000 jobs lost.”
The cuts were attributed to a post-pandemic hiring boom and high inflation that dampened consumer demand. Still, the layoff trend is set to continue into 2024. Tech companies laid off a total of about 25,000 employees in the first four weeks of this year, according to NPR.
While some layoffs are inevitable given the basic economic cycles of recession and growth, they increasingly appear to be a way for company bosses to satisfy shareholders by increasing company profits through small, short-term improvements.
In my opinion, this is a short-sighted approach that reduces employees to data points and budget items while ignoring the value of long-term employee retention – even in difficult economic times.
Shortly after Iwata announced his personal salary cut, he said, “If we reduce the number of our employees to achieve better short-term financial results, morale will drop. I seriously doubt that employees who are afraid of being fired will be able to develop software titles that could impress people around the world.”
The knee-jerk instinct of many of today's CEOs seems to be a throwback to the kind of management practiced by Jack Welch in the 1980s. Welch, CEO of General Electric from 1981 to 2001, was known for his relentless pursuit of profit and his preferred method of achieving it: firing employees. According to a profile in The New Yorker, “no single corporate executive in history has fired as many people as Jack Welch.”
Related: This job hack to avoid layoffs is gaining popularity – but it's controversial: “It changed my brain chemistry”
He was the first to develop the “ranking and yanking” method, in which he developed a rating scale for employees and fired the bottom 10 percent each year. His ruthless style was revered at the time, but his legacy is ambiguous, as much of his success is attributed to financial fraud.
Although his management style gradually lost popularity in the 2000s and 2010s, CEOs' desire to downsize their workforce for short-term relief appears to be gaining new momentum.
But does this also improve the company's results in the long term? Even small cuts can quickly change the company culture, put employees into self-preservation mode and inhibit innovation and creativity.
I know all too well how costly it can be to lose long-standing, loyal employees due to extreme circumstances. Like countless other businesses and nonprofits, my charity had no choice but to lay off staff in response to the COVID-19 pandemic. It was one of the hardest decisions I've ever made because I know the value employees at all levels can bring to an organization and the impact it would have on those employees' lives.
And it's a decision that rarely pays off in the long run. According to a report in Time, layoffs can often hurt a company's financial performance in the long run. They don't consistently increase profits and can lead to lower employee engagement and poorer quality of customer service.
While this may not always be reflected in the bottom line, there are still many benefits to creating an environment where employees feel safe and valued and want to stay with the company long-term.
The majority of my team has been with our company for over ten years, many for 15 to 20 years, and I see the benefits of this dynamic every day. Employees who feel emotionally safe in their jobs perform a challenging function that is critical to decision-making and are loyal to their company, which can only be achieved through mutual trust.
Related: I turned my layoff into a lesson and became my own CEO – here are the lessons I learned along the way
Empowered employees work harder because they are interested in long-term results. They know they will be with the company long enough to see their contributions bear fruit, and won't just take a break for a year or two before looking for a new job.
They also like to take risks and drive innovation. All too often, companies reach a certain level of success and then become complacent and risk-averse, ultimately setting them on a path to failure. That's why loyal and engaged employees are so important. They have the confidence to challenge leadership, continue to be innovative and impactful, or speak up when they see their leaders potentially making poor decisions.
A stable workforce also fosters better relationships with customers and suppliers, providing continuity and consumer confidence. A company that is constantly cutting jobs and hiring new ones cannot effectively maintain those relationships or conduct effective, long-term business planning.
Maintaining an engaged workforce is especially important when employees often “quit quietly,” doing only the bare minimum to keep their job. This trend is not surprising, as so many employees fear they could be fired at any time. This uncertainty may also lead employees to be inclined to take on a second job that offers them a smoother path if they are fired.
Related topics: TikTok layoffs: ‘Large percentage’ of employees laid off
But don't just take my word for it. Data shows that employee retention leads to higher productivity, lower turnover and training costs, improved employee morale and fewer absenteeism, all of which positively impact a company's bottom line.
Instead of continually cutting staff to make short-term improvements, business owners – big and small – should consider the benefits of investing in employees and maintaining a secure, stable workforce. Finding other ways to tighten budgets and keep your workforce intact is a decision you'll never regret.
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