Wherever layoffs happen, voluntary resignations are likely to follow.
That’s according to a new study conducted by researchers at the University of British Columbia and published in the Academy of Management Journal, which tracked the fallout from a round of staffing cuts at a major, unnamed brand across 1,620 retail stores over 22 months starting in January of 2014. Each store employed an average of 93.6 workers and researchers found on average at each store, 2.2 staff chose to quit one year after – the majority in the first six months – a company-wide layoff. By comparison, stores lost 0.17 staff on average after an isolated dismissal and 0.23 staff after a voluntary resignation.
“Employers should be very careful and take into consideration the consequences of these [layoff] decisions, because the human capital loss definitely doesn’t end after this decision,” said Sima Sajjadiani, an assistant professor of organizational behaviour and human resources at UBC’s Sauder School of Business and co-author of the study.
Not only do layoffs lead to more resignations, but they add a sense of urgency among staff who aren’t let go to consider leaving and separate research shows they can adversely affect stock prices over the long run, even though they are typically used to boost them in the short term.
“When high performers quit their jobs, it takes others about three months to make up their minds and decide their next step,” Ms. Sajjadiani said. “For layoffs, within one month it’s happening, and it shows that people are scared; it sends a signal that this job is not safe anymore.”
The study comes amid mounting layoffs in Canada and builds on a growing body of research that points to significant and costly downstream effects. Previous studies have found layoffs can negatively impact employee morale, trust, engagement, innovation, job security and mental health, but the severity of those effects often depends on the actions of the employer.
“Layoffs are jarring, shocking and threatening events; they tend to be viewed as a breach of the psychological contract between employees and their employers,” said Charlie Trevor, a professor of management and human resources at the Wisconsin School of Business. “Consequently, the layoff survivors tend to react by deliberating about the value of remaining at the firm.”
According to research published by Mr. Trevor in 2008, a 2-per-cent cut to staffing levels results in a 36-per-cent increase in quit rates, while a 1-per-cent cut increases voluntary turnover by 31 per cent. He adds that the correlation between layoffs and voluntary resignations is largely determined by the actions of the employer.
For example, among employers that offer strong benefits plans, hiring practices and more flexibility, the increase in resignations after a layoff is reduced to 14 per cent. Those that don’t provide those perks, however, can see as much as a 65-per-cent increase in voluntary turnover after a round of job cuts.
“Similarly, the presence of HR practices promoting a sense of having a procedurally fair place to work – such as practices involving confidential grievances or appeals – really matters,” said Mr. Trevor. “Low levels of such practices meant a 63-per-cent increase in quitting, while high levels constrained the turnover rate increase to 15 per cent.”
He said there is currently no data to suggest how long this effect on voluntary resignations can last, but other research on financial performance has found organizations can be negatively affected by layoffs for years.
“In businesses where we track financial performance, what we find is that the duration of these effects in companies can last as long as three years,” said Sandra Sucher, a professor of management practice at Harvard Business School and co-author of The Power of Trust: How Companies Build It, Lose It, Regain It. “The first two years after a layoff, if you compare companies in the same industry during the same period in time, you’ll find they underperform in terms of things like return on sales, return on assets – and then they recover by year three.”
Ms. Sucher says organizations typically pursue layoffs to boost their stock price in the short term, but empirical data suggests layoffs are neutral at best and more likely to be a net negative over the long run, because of hidden costs like retention, engagement and morale.
Employers can lessen those negative side effects by pursuing other cost-cutting measures – such as reducing non-personnel costs, offering furloughs and requesting voluntary resignation – before engaging in layoffs.
“There is in fact a pretty clear and sensible path for how to manage personnel related expenses where this becomes a genuine last resort,” said Ms. Sucher. “If people know that you’ve tried all of those different things, there’s far more a sense of, ‘We’re in this together.’”
Employers can also reduce the long-term costs by giving affected staff as much notice as reasonably possible, and by offering job transition resources, according to Ms. Sucher.
“Help build a path to re-employment for people, give them as much notice as possible, and work with them in a respectful way,” she said. “The companies that do that tend to be treated well by their employees in return.”