Nobody ever wants to do layoffs. Laying your employees off is one of the hardest things you do as a leader. But remember, however badly you feel about it, your issues are small compared to those of the impacted employees. For them, the layoff may cause serious financial and psychological distress. It will also force them into a wrenching emotional disconnect from their friends and colleagues. You think you have it tough, but they have it far tougher. Your duty as a leader is to do everything in your power to give them as many resources as you can and offer them the most dignified exit possible. This will take careful thought and planning, and it may be the most important planning you ever do as CEO.
Since most people have no idea how to do layoffs well, nor have a resource to help them, this document now exists. I’ve unfortunately had to do layoffs, and helped others through them, so I want to share some best practices and things to think through as you do a layoff. I’m starting from the point that you’ve already done everything possible to avoid a layoff and you’ve gone through the difficult process of figuring out what roles to eliminate. (I say what roles, not who, because that’s how you should be thinking about this. It’s not a person by person decision, it’s a role by role decision.)
Also note: I am not a lawyer. I am not your HR person. And as I point out below, you absolutely must consult experienced counsel and HR professionals in this process.
Properly executing a layoff is important in a few dimensions: legally, culturally, and ethically. How you handle a layoff, how you communicate it to the people impacted, and how you manage and lead throughout the process really matters. It matters to the people who are now leaving the business, and it matters to the team that is part of the go-forward plan, and neither group will forget how people were treated.
Consider a furlough (leave of absence): Depending on your company size, cash management requirements, and benefit plan policies, you may be able to put employees on furlough for three to six to 12 months where their salary (and potentially vesting) stops, but benefits continue. This gives the company time to stabilize finances and re-open the furloughed role, and/or allow the impacted employee ample time to find a new job while dramatically reducing the costs to the employer. If you can do this, it’s a huge benefit to the impacted employee. The employee is afforded the optics of still being employed while they conduct a search for a new role (which helps in their search), and they get continued benefits coverage, which is often critical. It also emphasizes the point that this is really a cost-savings decision to save the company and not a performance-related decision.
Time it right: If coverage in your employee health benefits plan ends on the last day of the month (most, but not all, do), and you are executing your layoff in the last ⅓ of the month, consider designating the last day of employment for all impacted employees to be the first day of the next month. That gives every impacted employee 30 days to figure out COBRA or get added to a partner’s health plan. Leaving employees in the lurch at the end of the month or without any continuing benefits coverage is totally avoidable, so avoid it.
Treat your employees like adults: I’ve heard many CEOs who want to offer their employees two weeks of severance but offer three months of coverage for health benefits. This well-intentioned (albeit paternalistic) thinking is wrong. In addition to creating logistical problems, you have no idea what your employees’ actual life situations are. Maybe they can get on a spouse’s benefits plan, maybe they are young enough to rejoin their parents’, maybe they will return to a home country with alternative healthcare options. Just pay them the cash and let them decide how to manage their own affairs.
Think about severance: Be consistent in your severance policy. Often, severance amounts will be based on tenure (much preferable to basing it on seniority). A common model employers will consider is paying two to four weeks for every year of service, with a maximum of four or eight weeks in total. Many companies won’t be able to afford to part with that much cash (especially all at once), and two or four weeks may be all they can do. Offering less than two weeks severance pay is outside the norm, as is offering more than eight weeks.
Do it once: If you’ve never conducted a layoff, your first instinct is to lay off as few people as possible. But anyone who has ever done layoffs as a company-saving measure will tell you they wish they had cut deeper. If you’re going to take on the massive emotional and cultural impact of letting people go, be sure to create sufficient savings so you and the remaining team have the cash required to get through to the other side of the crisis and survive. Doing multiple rounds of layoffs demoralizes your team and erodes any trust and confidence they have in you.
Are you notifying them or are they leaving that day: For less experienced leaders managing through this, I recommend the date of notification be the last day the employee has access to most workplace resources including offices, laptop, email, and badge. That doesn’t mean they need to leave the payroll system that day (for instance, to continue benefits into the next month), but they are effectively on leave from that moment forward and no longer have to do work and can focus on finding a new job. While it can sound jarring to say “and today is your last day,” it’s generally better for people because it makes it clear that there is a new normal and it starts right now. It is reasonable to allow employees in certain roles or levels of seniority to continue to have email access for professional or business reasons. Obviously different roles come with different needs. For example, an hourly worker in a call center may not need access to anything from the point of notification forward whereas a business development executive who needs to carefully transition some key relationships to a new owner may justify continued access.
Still, there’s no perfect answer on this one — some employers use a longer notification period to let impacted employees begin their search for a new job while they are still technically employed, essentially trading severance time for notification period time. Figure out what is right for your company based on the kinds of roles being impacted, your culture, the maturity of your workforce, your level of comfort with having impacted employees continue to access systems, and legal requirements.
Dealing with company property while remote: Because of COVID-19, nearly all workers are now working from home, so you will be unable to collect their company property (laptop, badge, etc.). Be clear that this is still company property and will need to be returned at a future date — either a laptop box with a return sticker will be mailed to them or equipment can be dropped off once health-related shelter concerns are lifted. Make it clear if they are or are not allowed to use their laptop after the notification period. For many employees, this may be their only computer and would be useful in conducting their job search. Remember that with every decision you make in this process you need to err on the side of doing whatever you can to help the impacted employee. That likely means letting them still use their laptop.
Depending on your IT security policies, you may even decide to allow employees to keep their laptop as a part of their severance, but do that only after you recognize, understand, and accept the financial, security, and intellectual property risks that approach creates for your company.
Ensure all layoff decisions and processes are approved by your board of directors with counsel present. Strong corporate governance isn’t just a checkbox item — the feedback and legal protections you gain by getting your plan formally approved is critical for an executive. If done truly terribly, an executive could be opening themself up to various liabilities or even criminal actions.
Corporate counsel or external employment law is an absolute. You will need to be current and up to speed on many aspects of the law around who and how you lay people off inclusive of:
Throughout this planning process, confidentiality is an absolute must. However, toward the end of your planning process, be sure to include your Communications lead. They can help you draft and prepare all your internal messaging for all employees, as well as create a plan for any possible press inquiries.
You as the CEO need to own the messaging around this. Employees joined your company because of your vision and you. And now you’ve failed them. You now need to be the one to own the communication around layoffs and take responsibility for what is happening. And ultimately, it will be your decisions that determine if employees are treated with dignity and compassion. This is where trust and confidence is built or broken.
As soon as you begin notifications, word of layoffs will travel quickly, so try to complete every conversation as quickly as you can. To the extent possible, avoid one-to-many notifications and try to notify people as privately as possible. It does not matter how many notifications you need to do, it is possible to do them all individually. If your organization is large, you will have to leverage your leadership team to take on some of the notification responsibilities. That means the burden is on you to train and educate your leaders so they do it in a way that exudes deep empathy and consideration for the impacted employees.
As soon as notifications are complete, you will have to communicate to everyone in your company so they hear the news from you directly, and also so they know notifications are indeed complete (so they don’t have to worry about their own status). Assume whatever email you send will be read by those leaving the business and potentially the general public. This should be a previously prepared email explaining the change, the reason for the change, and deep appreciation for the outgoing employees’ contributions. Remember, at this point, you are now communicating with the go-forward team. In coordination with IT or HR you will need to have a way to quickly message everyone not impacted in the workforce reduction. In the email you should also announce an all-hands for later that day (ideally) or early the following day so they know they will have an interactive opportunity to hear from you. Waiting too long to assemble the team is a grave mistake. They need to hear from you, and quickly.
Depending on the size of your organization, you may want to communicate out ahead of the layoff action to all employees. For more on this, listen to this podcast with my colleagues Shannon Schlitz, Operating Partner for our People Practices group, and Alex Rampell, General Partner and repeat founder. For smaller organizations, this is not necessary.
Note: This advice is geared specifically at doing layoffs remotely, but it is applicable to in-person layoffs as well.
Schedule with common sense: The communication with the impacted employee should include at least two company representatives, ideally one of whom is a trained HR professional, to avoid he-said/she-said scenarios and to maximize legal protections. For more experienced managers, this isn’t strictly necessary.
Be cognizant that sending a calendar invite to an employee for a 20-minute discussion with a manager and HR representative is not very subtle, so don’t do that. You can always create a second invitation for the HR person so they aren’t on the original 1:1 invite. If you are doing these in an office, make sure events are configured to be “private” so the room calendar for the event doesn’t show all the meetings being scheduled in it.
Don’t reuse your Zoom or WebEx “personal meeting room” in back-to-back meetings. Create a new meeting for each conversation.
Be prepared: It’s very smart to have a script prepared in front of you. You can piece it together from what I outline below. It’s not uncommon to get flustered or nervous delivering this news. Rehearse with a colleague if you need to. And trust me, you need to rehearse this. And do not stray far from your script. Do not let a thoughtful and compassionate plan be ruined with bad delivery.
Logistically, have your camera turned on, make sure recording is turned off, and make sure you are in a quiet place without distractions. Do not be driving, etc. Have your electronic document package with all layoff and severance related information ready to go so you can send it while on the call or right after the call.
Less is more: Since these will be video calls, try to avoid the small talk with whomever is joining the call. You just get to the point, “I have some news to share with you. The leadership team and I have had to make some difficult decisions in order to try and save our business, and as a part of that, we are eliminating your role at the company and you are being laid off.” I’ve always found you literally need to deliver the news twice (in this case, saying “eliminating your role” and “you are being laid off”) because many recipients quickly enter a state of shock or dismay.
And then you just wait. The person needs a moment to process. It might be an awkward silence. That’s okay. They may be upset. They may be embarrassed. They may be angry. It may be all of those things at once. But let them process. Then, they will ask you a question. “What does this mean for me?” “When do I stop being paid?” “How many other people are being affected?” “What if I work harder?” “Can I take a pay cut? I need this job.”
Here’s how to handle different kinds of questions and reactions:
What can you do? What can you say?
How do you get an F?
There’s no way around this: If you have to do a layoff, it’s going to be one of the worst days of your career. But not as bad as it will be for your impacted employees. You hired someone who worked hard and due to no fault of their own is now losing their job, at a time when losing a job is terrible. However, if you conduct your layoffs with both compassion and clarity, you will ease the burden on your employees and help them begin the process of transitioning to their next role while building trust and confidence with the team that remains.
One last thing based on some comments from draft readers (HR pros, CEOs, etc.): What about pay cuts instead of, or as a part of, layoffs? This sounds good in theory and often helps the team in the short-term feel better about sharing the pain collectively, but it has side effects. First, your financial analysis will tell you it does very little to reduce your cash burn unless your company has hundreds of people (then it is worth considering, as it may save some roles from being impacted). If you only do 10% or 20% pay cuts, it doesn’t materially impact the overall weighted cost of a full-time employee. Second, it risks hurting morale significantly. Within two or three pay periods, when people start to see their reduced paycheck, they will often start to look elsewhere for work (assuming they can, otherwise they’ll just be annoyed). That said, for founders, executives, the broader leadership team, and people making over a certain amount of money, pay cuts can be an important symbolic gesture. In those cases, I’m supportive of pay cuts — but the gesture is generally symbolic — it’s not really saving meaningful amounts of money. For individual contributors, or people paid less than a certain amount, it’s not worth doing pay cuts and I would absolutely exclude those individuals if you plan on enacting any pay reductions.
Thank you to Shannon Schiltz for significant feedback and guidance in writing this, and an additional thank you to HR pros Megan Bazan, Anuradha Mayer, and Zoe Smith for reviewing and commenting.