Earlier this year, an old story about former Nintendo CEO Satoru Iwata went viral, praising him after his death for agreeing to take a 50 percent pay cut rather than lay off employees.
But why is a story from 2013 suddenly making headlines? Perhaps because it offers a stark contrast to current trends in North America, where layoffs have reached levels not seen since the dot-com bust of the early 2000s.
The tech sector is being hit particularly hard. According to NPR, 2023 was “a bloodbath for the tech industry, with more than 260,000 jobs gone.”
The cuts have been blamed on a post-pandemic hiring spree and rising inflation, which have dampened consumer demand. However, the layoff trend is set to continue into 2024. According to NPR, tech companies collectively laid off nearly 25,000 employees in the first four weeks of this year.
While some layoffs are inevitable due to the basic economic cycles of recession and growth, they increasingly look like a way for CEOs to please shareholders by providing small, short-term boosts to the company’s bottom line.
I believe this is a shortsighted approach that reduces workers to data points and budget items while ignoring the value of retaining employees over the long term, even when economic times are tough.
As Iwata said shortly after announcing his own salary cut: “If we cut staff in order to achieve better financial results in the short term, employee morale will decline. I highly doubt that employees who fear being laid off will be able to develop software titles that will impress people around the world.”
The reflexive instinct among many CEOs today seems to harken back to Jack Welch’s management style in the 1980s. Welch, CEO of General Electric from 1981 to 2001, was known for his dogged pursuit of profits and his favorite method for doing so: firing people. According to a profile in The New Yorker , “No corporate executive in history has fired as many people as Jack Welch.”
He pioneered the “rank and grab” method, setting a scale for ranking employees and firing the bottom 10 percent each year. His ruthless approach was respected and appreciated at the time. But his legacy is mixed, with much of his success attributed to financial fraud.
Although his management style eventually fell out of favor in the 2000s and 2010s, the desire of CEOs to reduce workforces to provide short-term relief appears to be gaining new momentum.
But does this improve the company’s long-term results? Even small cuts can quickly change a company’s culture, sending employees into self-preservation mode and stifling creativity and innovation.
I know all too well how costly it can be to lose loyal employees over the long term due to extreme circumstances. Like countless other businesses and nonprofits, my charity had no choice but to lay off employees in response to the COVID-19 pandemic. This was one of the hardest decisions I have ever made because I know the value that employees at all levels can bring to an organization and the impact it can have on their lives.
This decision rarely pays off in the long run. According to a report in Time magazine, laying off employees can often hurt a company’s financial performance over time. It doesn’t consistently boost profits and can lead to lower employee engagement and customer service quality.
Conversely, although it doesn’t always show up on the balance sheet, there are many benefits to fostering an environment where employees feel safe, valued and want to stay with the company for the long term.
Most of my team members have been with our organization for more than a decade, with many in the 15- to 20-year range, and I see the benefits of this dynamic every day. Employees who feel emotionally secure in their jobs do a challenging, decision-making job and are loyal to their organization, which can only be earned through mutual trust.
Employees who are empowered work harder because they are invested in long-term results. They know they will be on the job long enough to see their contributions pay off, and they don’t stop working for a year or two before looking for another job.
They also feel comfortable taking risks and leading innovation. Too often, companies achieve a level of success and then become complacent and risk averse, which ultimately leads to failure. That’s why loyal, committed employees are so important. They have the security to challenge leadership to continue innovating, drive impact, or speak up when they see their leaders making potentially bad decisions.
A stable workforce also fosters better relationships with customers and suppliers, creating continuity and consumer confidence. A company that is constantly cutting and adding jobs cannot effectively maintain these relationships or conduct effective, long-term business planning.
Maintaining an engaged workforce is critical in the age of “quiet resignation,” where disengaged employees are doing the bare minimum to keep their jobs. This trend is not surprising given that many employees fear being laid off at any moment. This sense of insecurity can also fuel employees’ tendency to take on side work that will provide them with a softer landing if they are laid off.
Instead of continually downsizing your workforce to create short-term relief, business owners—large and small—should consider the benefits of investing in employees and nurturing a secure and stable workforce. Finding other ways to trim budgets and maintain your workforce is a decision you will never regret.