Why do some CEOs “leave money on the table” when they choose layoffs?

by cv harquail on April 20, 2009

In my MBA classes, we called it "Leaving Money On The Table". In business practice, we call it a "missed opportunity".

money table.jpg Managers "leave money on the table" when they fail to ask for something that a customer will give them readily and without extra charge. Managers "leave money on the table" when they take an action only far enough to make an incremental change, but not far enough to where their action could make a profound positive difference.

In any situation, it’s a shame when managers act in ways that fail to maximize the benefits for all involved.

Looking at the number of CEOs choosing layoffs rather than alternatives to layoffs, and in light of some important new research about employees’ willingness to consider each other’s job safety, I’m seeing "money left on the table". CEOs are making choices that fail to make a profound positive difference.  Am I overly concerned, or is this a big problem?

Just what portion of CEOs who are choosing to lay off employees are leaving "money on the table" by not pursuing alternatives to layoffs instead?

I want to get a sense of the size of the gap between the number of firms where employees would prefer some kind of alternative (like flexible downsizing) to avoid layoffs and the number of firms whose CEOs have executed or will be pursing layoffs. The gap between these two numbers will give us a sense of the proportion of CEOs choosing layoffs who are ‘leaving money on the table’.

(Come along with me in my effort estimate this gap…It’s fun, safe, and not too challenging mentally. However, it may make you adjust your thinking about layoffs. Ready?)

1. What percent of employees are willing to accept flexible alternatives to save jobs and avoid layoffs?

work+life fit, inc._1240246163243.jpeg

Work+Life Fit released an important survey this week that monitors progress on issues related to work life flexibility. This topic has become even more critical right now, since Work+Life Fit strategies, like alternatives to layoffs and flexible downsizing — can have a positive impact on your bottom-line when cash is especially tight.

The top finding of Work Life Fit’s "reality check" survey is that

That percentage seems pretty high to me. Of course, as an optimist about human nature, I would hope that individuals would be willing to give up a little of their own benefit to help protect the jobs of others. But consider how out of proportion it is that 94% of employees would accept alternatives, in light of the number of CEOs who have executed and continue to consider layoffs. CEOs continue to anticipate and execute layoffs, despite their employees’ willingness to accept alternatives. CEOs are "leaving money on the table", big time.

But how big is this problem? Let’s keep going…

2. What percentage of CEOs are planning to lay off employees or have already laid of employees in 2009? career-builder-usa-today-employment-survey-layoffs-q109-q209-permanentm-staff.jpg_1240148085631.jpeg

I tried to find some statistics on the percentage of CEOs choosing layoffs, anticipating layoffs, or explicitly pursuing alternatives to layoffs. [The Work+Life Fit survey focuses on individuals, so it has no data on CEOs.] I could not find a nation-wide survey of large and small businesses that asked upper management to predict whether or not they expected to lay off employees during 2009. We already know from a diverse set of sources an absolute number of organizations that have laid off employees in 2009, but this doesn’t give us a sense of the proportion of layoffs executed and anticipated across the US in 2009.

A data-based picture of the percent of CEOs choosing layoffs

Not to be deterred, I used my skill as a professional and internationally certified social scientist to cobble together some data that gives us a picture of what CEOs might be expecting… Here’s some information from a search from information published in the last month:

Let’s assumed that each of these studies is reasonably valid. Then, let’s use the "everyday math skills" taught to 3rd graders who want to estimate quantities of knowable unknowns…

=> Look at the range in the percentage of CEOs who are expected to lay off employees in 2009: It’s anywhere between 12 and 50%.

Now flip that around to get a sense of the proportion of CEOs who have or will be pursuing flexible work options to avoid layoffs. Even if you are super-conservative in your guesstimation procedures, these figures would suggest that only 50% to 78% of CEOs have or will be pursuing flexible work options.

3. Let’s compare CEOs’ intentions re: alternatives to employees’ willingness to accept alternatives.

Recognize that each of the employees surveyed represented a different business, and use the one employee’s willingness as a proxy for all employees at that firm…. Using this proxy, employees at 94% of firms would be willing to accept some kind of reduction to avoid layoffs. Even if we look at the best case, where 78% of CEOs would be considering alternatives…. that still establishes a situation where

Employees at 13% of firms would be willing to sacrifice something to avoid layoffs BUT would not be given the opportunity to preserve their own or their colleagues’ jobs.

Instead, CEOs at these 13% of firms have chosen or anticipate choosing layoffs in spite of what their employees are willing to offer.

Thus, 13% of CEOs are "leaving money on the table" when they choose layoffs instead of alternatives.

Makes your head spin, doesn’t it. Not my math… the amount of "money on the table".    Maybe 13% doesn’t seem like a lot to you… but think about it: That would be

  • 13 firms out of a hundred where jobs were saved
  • 130 firms out of a thousand where everyone was contributing to recovering the business.

No matter how you quibble with my guesstimations, this is real money, people! Real money, real people, real jobs, real opportunities missed.

So, now let’s consider –

If so many employees are willing to pursue alternatives to layoffs, why aren’t more CEOs willing to pursue alternatives?

Certainly, it is cost-effective to pursue alternatives. And, alternatives preserve the organization’s ability to respond as soon as business improves. Heck, these alternatives actually protect and preserve the resources an organization needs to turn its business around. Furthermore, it is patriotic to pursue alternatives to layoffs. And, it’s also good economic policy to pursue alternatives to layoffs.

So why is this happening? Why the gap?

  • Why are employees more willing to preserve a company’s workforce than the company’s own CEO? Said another way,
  • Why are (some) CEOs unwilling to pursue alternatives to layoffs, even when their employees would prefer this strategy to layoffs?
  • Why don’t more CEOs see a leadership opportunity in pursuing alternatives to layoffs?

Unfortunately, there’s no data that I can find to explain this gap. I can’t even figure out an everyday math kind of way to guesstimate an explanation…

Have you any ideas that might explain this discrepancy?

{ 2 comments }

Cali Williams Yost April 20, 2009 at 2:21 pm

CV,

Great post! One reason I saw discussed (can’t find link at the moment) was that CEOs, or senior leaders think everyone is like they are–and they would never stand for having their salary cut and would start looking for another job immediately. Therefore, the theory was they are afraid that cutting salaries and changing schedules would cause them to lose people, so instead they cut jobs…hmmm. Interesting logic. Looking forward to hearing more about what you learn. Thanks for adding your voice to this discussion.

Joseph Logan April 20, 2009 at 3:01 pm

Fantastic post. This was a great study, and your explanation makes it very accessible.

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