The hidden costs of layoffs

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Amid widespread retrenchment and continued uncertainty, O.C. Tanner provides HR leaders with new solutions to maintain morale

LOSING A JOB can have a profound impact on a person’s confidence and well-being. Less discussed is the fallout for employees who remain, as they lose colleagues, burn out from increased work – and worry they could be next. There are impacts on the company as well, with waning employee engagement hitting productivity and ultimately affecting revenue and profitability. It’s a lot for HR managers to handle.

O.C. Tanner is the global leader in software and services that improve workplace culture through a wide variety of meaningful employee experiences. Our Culture Cloud™ is a suite of apps and integrations for recognition, team initiatives, well-being, and leadership that help shape thriving cultures. We connect people to purpose, accomplishment, and one another at thousands of the world’s most respected companies. The O.C. Tanner Institute is a widely respected research and education team. Our award-winning and peer-reviewed research on corporate culture, employee recognition, leadership, and well-being empowers organizations to intentionally create healthy, productive workplace cultures by design. Visit octanner.com for more information.

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“Managing layoffs has always been a critical function of HR, but each new layoff announcement puts mounting pressure on HR managers”

Meghan Stettler, O.C. Tanner Institute

Widespread layoffs have left employees to grapple with survivors’ guilt, a loss of trust, and anxiety. This collapse in well-being has been made worse by organizations that attempt to withhold information when they should be increasing transparency and communication. “Our research is clear,” Stettler says. “Employees are adults, and they don’t want to be treated like children.” Traditional management that favors this type of top-down messaging and over-processed communication is falling flat with

the modern workforce. In attempting to assure employees, it is instead achieving the exact opposite, as workers feel more fearful and frustrated. “A sentiment from a member of one of our focus groups in 2020 still holds true today,” Stettler says. Echoing the feelings of many others, the person said, “‘I don’t feel lucky. I just want to know what … to plan for.’“ This failure of organizations to understand the needs of their employees has real repercussions. Research shows a steep drop in trust, a 66 percent decline in well-being, and a 79 percent decrease in the number of employees who say they want to be working at their organizations a year from now. This erosion of morale also has a significant impact on productivity. Further research shows that a failure to manage layoffs effectively can result in a fourfold increase in employee burnout and a doubling in the number of organizational detractors.

Understanding the consequences of layoffs has become an essential part of an HR manager’s job today. By addressing the impact on employees who remain, an HR leader can maintain an organization’s culture and prevent fallout that hurts productivity and profitability. Stettler says the research is clear that workers who feel respected and valued for their unique contributions can adapt to disruptions like widespread retrenchment. “Imagine the effect on morale if employees could express their thoughts in a change-focused meeting, and if a leader recognized that the perspectives of employees led to better outcomes.”

“Our research is clear. Employees are adults, and they don’t want to be treated like children”

Meghan Stettler, O.C. Tanner Institute

When recognition is integrated into culture – and becomes part of the everyday employee experience, with the right tools, technology, and education to make it meaningful and memorable – no less than 92 percent of employees believe change is a positive development. Dramatic changes can disrupt morale in the workplace, but this isn’t inevitable. Sensitive and transparent leadership, together with policies that put employees first and ensure they feel seen, heard, and valued, can overcome even the biggest challenges – and ensure an organization's culture is stronger than ever.

Managing morale

Published 15 May 2023

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A people-centered approach that addressed the concerns of employees resulted in a 12x increase in workers who say their experiences with change were well managed. It’s clear that retrenchment can have a deep and lasting effect on workers who remain after layoffs. To mitigate the damage and maintain morale, Stettler points to three key requirements.

“When an organization conducted a layoff or furlough, we saw a 57% increase in disengagement”

Lower morale

“So not only do layoffs leave organizations with fewer employees to maintain the same outcomes,” Stettler says, “but these remaining employees are also far more likely to be burned out and, worse, actively working against the organization’s success.” While research illustrates the severe fallout from the badly managed departure of employees, the same research shows what can happen if retrenchment is handled properly.

Few things contribute more to anxiety and helplessness than being left in the dark, especially regarding activities that affect one's livelihood. “Clear, early, and frequent communication is an empathetic expression of trust and empowerment. Moreover, when employees sense they’re being treated honestly, their perception that the organization cares about them increases by 10 times.” A participant in a recent focus group shared how transparent communication, resume support, and tailored networking experiences prepared employees for potential layoffs while ensuring they continued to support the organization. “It’s huge because … you don’t go into a depression – I mean, like a tailspin – and become unproductive. It gives you structure.”

Effective communication

It will surprise no one that giving employees a voice in the decisions that affect them goes a long way to improving workplace well-being. “Employees who are given an opportunity to express their thoughts across surveys, town halls, focus groups, and in one-to-ones with their leader are 1,284 percent more likely to have a positive change experience.”

Listen to employees

Employees who believe their leaders have the right tools to manage change are 10x more likely to feel a strong sense of trust in their workplace. That’s the good news. But there’s bad news as well. Only 27 percent of these leaders say they’re in fact very prepared to help employees navigate change. “We conducted a first-of-its-kind experiment on leader communication,” Stettler says, “and we learned that positive outcomes continue to rise as the level of information shared increases. “When leaders shared what they knew, the level of trust and desire to stay among employees increased.”

Support the leaders

“Managing layoffs has always been a critical function of HR,” says Meghan Stettler, director at the O.C. Tanner Institute. “But each new layoff announcement puts mounting pressure on HR managers to deliver two seemingly opposing outcomes: reconciling market realities while preserving culture and the employee experience.” Fortunately, fresh research is illustrating how HR professionals can navigate these changes. In a recent discussion with Human Resources Director magazine, Stettler highlighted findings from a new report about leadership and organizational change that will be released at O.C. Tanner’s Influence Greatness Conference held from September 12–14, 2023, in Park City, Utah. Stettler explained how O.C. Tanner is providing solutions that lead to less attrition, more optimism, and better well-being.

“When an organization conducted a layoff or furlough, we saw a 36% increase in intent to leave”

Layoffs lead to departures

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