The Cost of Layoffs

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By Sergey Novoselov
September 20, 2009 in Unemployment


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It's easy to calculate the savings from firing staff, but figuring the real costs is hard. A lot of managers just assume that they equal the severance payments, which is wrong. Layoffs cannot be avoided sometimes, but their true cost should be considered:

Brand
Layoff can damage company's brand as an employer and its ability to attract the best talent.

Leadership
You never know who you might be laying off. It happened before and some companies paid a heavy price when they needed experienced leaders and couldn't find any in their ranks.

Rehiring costs
When the economy picks up, it will be expensive to rehire and hard to react quickly because of the hiring and training delays.

Morale
The workers who remain after a layoff continue to fear the loss of their job. Undermining morale may not be a great idea in tough times. People with deep knowledge of the business are needed to find possibilities to cut costs in smart ways, and to create new innovative solutions.

Stock Price
If a company is laying off employees just to cut cost, Wall Street may see it as a sign of trouble and reduce the stock price.

According to Bain & Company study conducted in early 2000s, if you refill a position within 6 to 18 months, you lose money and the main drags are severance packages, temporary declines in productivity/quality, and rehiring and retraining costs.

It's hard to determine the exact cost of a layoff, but it's usually cost a lot.The companies that keep people and find other ways to save money will rebound faster when the economy turns around. So instead of relying on layoffs, other savings opportunities should be considered.
 


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