How Companies Decide Who to Lay Off… and Who to Keep

Given the economic uncertainty at the moment, you might be bracing for the worst, wondering whether you’ll end up on your company’s layoff list. What can you do about this? How do companies decide who to lay off and who to keep?  

Startups and major tech companies have different objectives, but well-managed companies make deliberate, thoughtful decisions when deciding who to lay off. Since knowing the ins and outs of corporate layoff strategies can potentially help you avoid getting laid off, we’re providing an overview of the objective and subjective criteria that employers may use to determine who to let go (and who to keep).

Business-Based Criteria

When companies look to reduce operating costs, senior management often starts by adjusting the business plan, reallocating expenditures and changing the structure to support the new strategy.

Ideally, the primary selection criteria for eliminating staff should reflect the business goals going forward and the structure needed to execute its plans, explained Raymond Lee, president of Careerminds, a virtual outplacement company.

When times get tough, companies tend to prioritize revenue growth and profitability, explained Kelli Mason, co-founder of JobSage and a former attorney. Therefore, management will try to eliminate or outsource “nice-to-have” non-revenue-generating positions and keep “need-to-have” revenue-generating positions such as sales staff and engineers who develop, design, create and manage new product ideas.

For instance, management may consider releasing a product as soon as its core features have been tested, so they can scale back development and reinvest the savings in sales and marketing. That could have a significant impact on the technologist teams developing that product—if they’re moving immediately from that completed product to another mission-critical initiative, they have a better chance of staying onboard.

Skills- and Knowledge-Based Criteria

Once the structure is set, management will attempt to align existing talent with the business strategy by deciding which roles, skills and experience are vital to meet the changes ahead. For instance, losing too much tenure and institutional knowledge could hurt team performance and the ability to assimilate new workers.

During this talent mapping exercise, management will also identify redundant positions and the skills that are outdated or in surplus supply. Obviously, workers that fall into these categories are more likely to be laid off.

Performance-Based Criteria

Although objective criteria can help identify roles and skills that can be eliminated, management will usually consider additional, more subjective factors when determining who will stay and who will go.

For instance, they will often assess the work performance of team members and rank them against their coworkers using a curve (a practice known as stack ranking) in order to retain the top performers, all while identifying and weeding out lower performers, explained Eric Cormier, manager of HR service for Insperity.

Attitude matters, too. Managers also look for desirable qualities such as work ethic, teamwork and flexibility and essential soft skills including communication, collaboration, problem-solving, and so on.

To keep the slimmed-down organization functioning, managers tend to give extra credit to technologists who demonstrate the potential for long-term growth as well as the bandwidth and willingness to take on additional tasks. Management may conduct a business impact analysis (BIA) to determine and evaluate the potential effects of interruption to the culture, operations and teams, Lee added.

In short, if you’re a member of a high-functioning product development team, management may decide to leave the group intact. Members of non-product teams or low-performing teams are at a higher risk of being laid off from their jobs.

Financial Criteria

The truth is that management will use human capital metrics, like the value an employee adds to company compared to their expenses and their personal ROI, to finalize the layoff list.

In other words, workers who make more but produce the same or less output than their lower-paid counterparts are at greater risk of winding up on the layoff list.

However, businesses with long-term employees will sometimes weigh salary costs going forward against the cost of severance and possibly litigation. These companies may follow the rule of “last in, first out” to prioritize layoffs—meaning that the most recent employees to be hired will be the first to be let go.

Although its rare, some employers choose to offer severance pay to incentivize workers to leave on their own instead of being selected by management. It’s probably best to discuss your status with your boss before accepting a voluntary severance package.

How to Stay Off the Layoff List

Improving your performance in the face of layoffs can be difficult, since the reviews are “backwards facing,” Mason noted. However, you can still document your achievements and share them with your boss in the hopes of swaying their decision. Ideally, you want to be viewed as an “up and comer” who can deliver significant ROI.

Volunteer for cutting edge projects, keep your skills up-to-date and stay visible. “Don’t miss meetings or company events,” Cormier warned. Highly engaged employees not only produce better outcomes—they tend to be more supportive of organizational shifts and resilient in the face of change.

3 Responses to “How Companies Decide Who to Lay Off… and Who to Keep”

  1. Back in the 1990s when layoffs began to be an ‘accepted’ way to manage workforce, improve profit margins and increase shareholder value on a quarterly basis, there were studies describing the process.
    In general, the initial few rounds were based on managers’ ‘hit lists’ – people with whom the manager disagreed, was uncomfortable working with, saw as competition, etc.
    I saw this when someone was praised in one company meeting as a highly performing employee who was able to save the company $$$ and that same person laid off in the next round – oops his corporate champion was gone and he was a threat to the successor.
    Then, there were the employees laid off who were just collateral damage to some level of management – I was in a meeting with the VP of that company who said something to the effect of ‘it was seven of them or one of me and I was the one who got to choose’.
    The ones who were most attractive, sorry to say, were rarely on a layoff list.
    The studies made note of the fact that while the choice of those to be laid off was often a personal one, the managers would then hunt for the business reason to justify why they were included – and were giving the business reason as the sole criteria.
    If someone says it isn’t personal – you should understand that it is at one level or the other personal.