How Companies Decide Which Employees Will Be Laid Off
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Here's your money briefing for Wednesday, March 29th. I'm J.R. Whelan for The Wall Street Journal. Before we get into today's topic, we wanted to let you know that we're starting a new special series on home buying this Friday, just in time for spring. So make sure you're following the show so you don't miss the first episode. And maybe tell a friend. Workers may still be in short supply, but many companies still face the difficult task of having to lay off employees.
Well, at many companies, it's the top leaders, the CEO, the chief financial officer, who set a high-level criteria for a layoff, mandating that a company cut a certain percentage of its workforce or reach a specified cost savings.
But how do companies decide which employees will be let go? We'll talk to WSJ workplace reporter Chip Cutter after the break.
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When a company announces plans for layoffs, everyone dreads the list. But how do companies decide which employees to cut?
What is the episode about and who is the guest introducing layoffs?
WSJ Workplace reporter Chip Cutter joins me with more. Hey, Chip, thanks so much for being here. Thanks for having me. So, Chip, it sounds like this isn't an enjoyable process for anyone, but what are some of the basic factors that go into instituting a series of layoffs?
Well, at many companies, it's the top leaders, the CEO, the chief financial officer, who set a high-level criteria for a layoff, mandating that a company cut a certain percentage of its workforce or reach a specified cost savings. And from there, the task of deciding who should be eliminated often falls to divisional leaders and department heads, according to many of the executives that we spoke with.
All right. So take us through the typical process here, starting with a company who is recognizing the financial need to cut back workers and then up until the actual layoffs.
So department leaders are told to come up with a proposed list of individuals to lay off based on a set criteria. So that could include anyone who got a low rating in a recent performance review or who joined the company in the past six months. Managers will then compile this list of employees to let go. And oftentimes, it's interesting, companies will give these layoff documents code names like Project Falcon. So the file's purpose is unclear if it is accidentally discovered. In addition to reviewing an employee's performance history, many companies also consider workers' potential to adapt and take on new jobs in the future. One CEO told me it's really down to a one-on-one assessment of performance in determining who you're going to keep.
Now, you mentioned that it could be employees that have been with a company for only about six months that could wind up on the layoff list. So how much does seniority or length of service at a company factor into this?
Well, today it's much more common for companies to conduct layoffs based on skills rather than tenure. So an employee's recent performance will factor into this a lot more than someone's length of time at a company.
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