Layoffs. Downsizing. Rightsizing. Job cuts. Separations. Terminations. Workforce reductions. Off-shoring. Outsourcing.
Whatever the term, getting rid of employees can be a necessary and beneficial strategic move for companies to make. Layoffs can signal that a company is reorganizing and moving in a more profitable direction and, as a result, give Wall Street a reason to cheer and improve the morale of remaining employees. But unless job cuts are handled and explained properly -- and are indeed necessary to achieve a thoughtful, overarching purpose -- the solution may cause as many headaches as the ailment it was meant to cure, according to Wharton faculty members and an outplacement expert.
Consider a recent move by Circuit City Stores, a big electronics retailer based in Richmond, Va. The company announced on March 28 that it cut 3,400 jobs, or 7% of its workforce, effective that day, because the salespeople were paid "well above the market-based salary range for their role." The company did not disclose specifics, but The Baltimore Sun reported that the laid-off workers, known as "associates," made 51 cents more per hour above what the company had set as market wages.
Circuit City also announced that it had entered into an agreement with IBM to outsource its technology infrastructure operations, which would eliminate the jobs of 130 employees. Fifty of these workers, however, were to be hired by IBM and remain on-site to serve the Circuit City contract.
These various moves, Circuit City said in a news release, were part of a "series of changes to improve financial performance largely by realigning [the company's] cost and expense structure." The decision to terminate the 3,400 employees was disclosed in the fourth paragraph of the release and described as a "wage management initiative" that led to the "separation" of the workers.
The job cuts "focused on associates who were paid well above the market-based salary range for their role," the news release added.
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