What's an employee to do? Part 1

By Philip Brewer on 16 April 2008 (Updated 18 April 2008) 11 comments

During the recession of 1990-1991, and the period of very slow growth that followed, it became conventional wisdom that it was wrong to try to retain key employees through a slowdown.  If there was no work for an employee to do--even just for fifteen minutes--that employee should be let go.

In previous decades, companies made an effort to keep valuable employees.  They'd find other work for them to do--they'd even take on projects that could barely break even, just to keep their workers working.  It was considered critical for retaining the skills that the company would need when the economy recovered.

In the 1990s, the thinking changed.  Managers and (especially) investors decided that, if new work turned up sometime in the future, it would always be possible to hire someone to do it.

I spent that whole decade hoping that this thinking would turn out to be wrong--that companies would pay a price for letting valuable employees go just because there was a brief period during which there wasn't much work for them to do.

Sadly, the experience of the dotcom boom seems to show that they were right and I was wrong.

Maybe I was technically right--it's quite possible that it cost more in salary, options, signing bonus, and perks to hire a first-rate employee in 1999 than it would have cost to carry a skilled worker through the mid-1990s--but it almost doesn't matter.  When they're making money, companies can (and will) pay whatever it costs to hire the employees they need.  A hugely profitable company doesn't need to justify its payroll.  A money-losing company can barely justify payroll expenses that add directly to the bottom line.

(There may even have been some companies that went bust largely because they couldn't find (or couldn't afford) the skilled workers that they needed.  But that simply isn't visible to the investors who decide these things.  By the time the company is faltering that badly, the Wall Street investors have already dumped the stock.  Nobody cares if the root cause was excessive layoffs in the last recession--that's ancient history.)

There are a few strategies available to employees for dealing with this reality that I'll talk about in more detail in part 2, but the central point is that companies no longer have the option to carry employees through an economic slowdown.  Their investors simply won't allow it.  No argument or careful analysis showing that certain skills would be impossible to find or prohibitively expensive to recreate will make a difference:  The only way for management to justify an employee is to show how that employee makes money for the company right now.

Many valuable employees don't.  They might be designing the products the company will be selling two years from now.  They might be reducing future expenses by raising quality or heading off lawsuits.  They might simply be making other employees more productive.  These things are all valuable, and most managers know they're valuable.  Most managers will fight tooth-and-nail to keep these employees.  They'll even be successful to a limited extent.  But during an economic slowdown, employees like that are vulnerable every day.

If you're an employee, look at your job and figure out how you make money for the company every day.  Try to find a way to move to a profit center.

During good times it can work to educate people on how you add value, even if your job doesn't directly show a profit.  But during a slowdown, the only thing companies value--the only thing they are permitted to value--is the ability to make money.

In part 2 I talk more broadly about how being an employee has changed.

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Guest's picture
Roy in Virginia

Well,in the for what it is worth column, I would like to mention Circuit City. Several years ago they let senior and skilled employees go to cut costs, and that move still haunts there business. I for one, and have heard from many others, that because of that bone-headed move that they will never shop at Circuit City again. So much for the expectation of employee loyalty.

Guest's picture

Good subject...

But, the last two recessions were lead by company layoffs, which followed with a drop in consumer spending. This time is just the opposite as consumer spending is diving, leading companies to layoffs. Most companies are still holding on to their employees, believing the market is going to turn around in the second half of 2008. When that doesn't happen we may see a wave of layoffs.

Another way to protect your job is to work for a private owned company, which are not under the pressures that investors will put on non-private owned companies to product a profit. Private owned companies are more likely to hold on to key employees during a recession.

The weakness in the dollar is also reducing the advantage of outsourcing, which is increasing the need for knowledge workers and engineers in the US. Companies from around the world are competing for these high skilled workers. These jobs are likely to be good during the recession.

Guest's picture
Brian

I always read discussions like this, and they almost never take on the moral and ethical dimensions of this situation. During boom times I, as an employee, am expected to work overtime, produce more, take on extra work and sacrifice my personal time and needs to further the interests of the company. Frankly, that's usually without the benefit of extra pay (I'm salaried, so no time and a half).

During slack times, the company should be willing to repay that dedication by keeping me on, finding work, allowing me to earn my keep as best I can. Instead, their only real inclination is to "downsize" me to keep profits up.

I'm sorry, but profit is not the only, nor even the best, motivation to be in business.

Philip Brewer's picture

@Brian:

I'm with you--but I think it's because of my age.  Baby boomers think this way, because it's the way things had been done for a long time.

Gen X folks figured out early that "loyalty" is a personal relationship concept and not a business concept.  Tell them that companies will expect them to work extra hard for no extra pay when things are good, only to dump them when money gets tight, and they'll say, "It took you till now to figure that out?"

Raise the subject with the Gen Y folks and they'll just look puzzled--you'll have to lend them some history books just to get them to understand the issue.

Come back in a day or two for Part 2, which will have a bit more on this topic.

Linsey Knerl's picture

You bring up some very tough points, Philip.  Having worked in a non-sales role in the Sales Department of a company for years, I always thought my role was expendable.  I worked very hard for 3 years to bring a value to my position that would make it very hard for me to be replaced.  I developed a system of documentation for all sales and operations procedures that touched sales in any way.  I also took the initiative to "assume" certain functions that had been management's duties.

Some people could argue that I absorbed too much responsibility in my position.  In fairness, I did ask for raises when they were due, and even worked out an alternative system of compensation that included bonuses for performance.  I was paid very well for just being "support staff," and I LOVED my job.

Eventually, the chopping block was getting worn out, and we lost tons of staff.  Our culture changed so drastically that it just wasn't what I had come to love.  I was able to hold on to my job, keep my nice salary, and pretty much keep the higher-ups from breathing all over me by being "that person" that if I ever left, they would have to trash many of their processes and start all over.

When I left due to a relocation and new marriage, I was still getting calls at home asking where this was or how to do this.  Obviously they got over me leaving, they always do.  But the important thing was that while I was there, I was the ONLY person who could do my job -- profit-center or not.  It's possible, and according to your insightful article, also very necessary. 

Keep up the good work!

Xin Lu's picture
Xin Lu

Well, I'm too young to have been  let go, but it could happen someday. I think because I'm so young I'm not even worried about being laid off.  I do work for a small private company where everyone is sort of important. My hubby on the other hand, used to work for Oracle and survived 3 rounds of layoffs because they bought so many companies.    I think taking on an unique-ish job is good for job security, too.  I am a release engineer, and there are a lot of of software engineers but only a few doing release. 

Guest's picture

I’d like to know what an employee (or ex-employee) is to do in this type of market. My husband, after working for his company for eight years, was just laid off. It is very frustrating because I saw so many ways that I thought they could have afforded to keep him around longer and they didn’t because they are spineless and selfish (bitter much?). They were a very small company and I think you get the false impression that they care more about their employees, but I think the bottom line is still what was most important to them. And now we are living in THE WORST area we could live in for the job that he is qualified to do (read: where are the most foreclosures happening in CA? and he is a residential architect, no license, but he is everything but licensed). And I work for a developer as well, who laid off half of the company last year! Fortunately I work in the commercial department, but that is slowing down a lot, too, and my income is certainly not enough to live off of. I am very scared for us.

Guest's picture
Curt

RubiaLala -

All your husband can do is move on, find another jobs, start a business, find two part time jobs, etc. The housing industry is not likely to turn around for years and the coming inflation will drive up interest rates which will slow commercial construction to a standstill.

I have friends that are mortgage brokers and they have decided to stick it out. But, they are on the edge of bankruptcy and will be operating that way for years. I wouldn't stick it out. I say, move on to another market that is growing, like wind power or healthcare.

Another idea is to ask your employer to hire you back at half the pay. Then use the income to help pay the bills until you can find another job.

Linsey Knerl's picture

Linsey Knerl

My husband and I recently discussed the struggle his parents went through during 91'.  This downturn resulted in their family moving from Oregon to Nebraska for employment and really survival.   They had folks doing everything they could do to help, from offering use of a home for free through the winter (in return they were to paint the house in the summer which they did).

Today, the middle  states have consistent growth  with jobs available to those who want to work. Also, the cost of living is more affordable so that even in a "financial bind" it is more possible to survive on one income.  I have seen a tremendous migration from the west and from the rust belt to consistent growth/high growth areas in the plains states and Wyoming/Montana regions. 

We may continue to see relocation as a viable choice for those stuck in a lay-off situation.  Fortunately, when you see a slow-down or recession regionally/or state-wide, it does not necessarily mean you may not be able to do better elsewhere.

Xin Lu's picture
Xin Lu

My parents' next door neighbors all sold their highly inflated homes and moved the hell out the Bay Area.  They moved to places like Oregon and Idaho and Colorado and I think they probably had enough money to retire from selling their two bedrooms for 600 to 800 thousand dollars.  Recently one of my hubby's friends from work also moved to Oregon.  He got a better paying job and was able to afford a house.  I'm pretty jealous actually.  Maybe one day the hubby will  be okay with moving, too.