A week after Ken Makovsky, president of New York’s Makovsky & Company, cut eight staff from his agency’s payroll, one of his peers asked him to describe the experience. He didn’t have to think too hard. “It’s depressing,” he said. Even now, more than a month later, he describes the layoffs as “the worst experience” since he launched his own agency 21 years ago.
Steve Aiello, president and CEO of WPP Group’s Cohn & Wolfe, which this week slashed 30 positions from around the U.S., knows how Makovsky feels. “This has been the hardest thing for me in my professional life,” he says. “I look at this firm as a family, and I was proud of the way this was handled by my senior staff and by some of the people who left. They showed incredible character. But that didn’t make it any easier.”
With downsizing sweeping the industry—two more top 20 agencies announced significant cutbacks this week—senior executives at public relations firms are having to learn a new skill: how to lay people off the right way. It’s important to handle layoffs well, because the way people are terminated can impact not only a firm’s reputation in the marketplace but also its relationship with those who remain, and who will be responsible for its future growth.
For many managers, who have known only the boom times of the last decade, the first few months of 2001 haven’t been easy. Caught between two conflicting needs—the need to bring costs in line with the demands of a softer market and the need to demonstrate their continued commitment to building a first-class workplace—they need to think carefully about every aspect of their staffing decisions, from who to let go to how to explain the process to the survivors.
The first, and in some ways the most difficult, decision concerns who will stay and who will go. There was a time when companies practiced a last-in, first-out policy that had the benefits of being simple, and of relieving managers of the responsibility for a difficult judgment call. But that policy simply doesn’t make sense in an industry dependent on recruiting and retaining the best people. For the same reason, the approach taken by Burson-Marsteller a decade ago—allowing employees to self-select by offering early retirement packages—is unlikely to come back into fashion any time soon: as B-M learned, too many of the best people take advantage of the offer.
At Ogilvy Public Relations Worldwide, which has cut 70 this year, “it wasn’t about who was most billable,” says CEO Bob Seltzer. “It was about the people who we thought would be able to take this company forward, to help us grow in the future. The thing we wanted to keep in mind throughout this was that while we wanted to be fair to the people who were leaving, our priority has to be the people who are still here.”
Perhaps the most important thing for agencies to keep in mind as they downsize is that the ultimate objective of the exercise is not to cut costs, but rather to position the firm for survival in the short term and growth in the long term.
“We tried to look at it from this point of view,” says a partner in one west coast technology PR firm. “If you choose the wrong people, you’re going to get turnover among the people you don’t lay off, because they start thinking, ‘I can’t believe they let this person go and they kept this person.’ We had bonus payments scheduled, and we were concerned that if we did this wrong we were going to lose a lot of very good people. We focused much more on who we wanted to keep than on who we wanted to let go.”
“We looked first at the under-performers,” says the president of a New York agency that made cuts earlier this year. “We didn’t terminate anyone who we thought was going to be a meaningful part of our future in terms of building business.”
Cohn & Wolfe, meanwhile, conducts regular performance reviews, and people who fell into the last quartile based on their performance reviews were the most likely to be eliminated, but Aiello emphasizes that performance issues were not the reason for dismissal. “We had to make some difficult decisions about who could take us forward for the rest of the year and beyond,” he says. “But this was not a case of cutting dead wood. These were people who had made a contribution to our firm, but the business just wasn’t there to support them.”
The second difficult decision involves how to tell people that their positions have been eliminated. There are horror stories about people being called into conference rooms and notified en masse, and even being let go via e-mail. In January, for example, Internet retailer Amazon.com used e-mail to lay off some Seattle-area telecommuters who couldn't attend a meeting at which the Internet retailer announced the cuts.
“One approach that we looked at was to call everyone who was going to be terminated into a conference room and tell them en masse,” says the president of a New York firm that cut between 5 and 10 percent of its workforce. “In the end, we felt that was inappropriate. We wanted to do it one-on-one. We tried to have the practice leader and a human resources person present.”
The same approach was employed at Cohn & Wolfe, where individuals met with either practice leaders or the general managers of their offices, and an HR person.
Managers who are meeting with people need to be absolutely clear about what they are going to say. The first rule is to keep the discussion as impersonal as possible: make it clear that the decision was brought on by economic factors, not by personal issues. “We had discussions from a legal standpoint about what we could and couldn’t say,” says the New York agency president, who asked to remain anonymous. “We were advised to say simply that the job had been eliminated due to the economic downturn.”
Others were advised on the importance of making all decisions based on business criteria—and being sure to avoid the appearance of impropriety. “We were advised to go over the list and make sure there weren’t a disproportionate number of women, or minorities, or older people,” says the president of one major agency.
It’s also a good idea to address legal issues up front. “We asked people to sign a release [saying they would not sue the firm] in exchange for their severance check,” says the president of a midsize New York agency, who says the severance checks ranged from two to four weeks’ salary, depending on tenure. Three people signed on the spot, five others wanted to talk with their lawyers before signing, but everyone eventually signed.
Reactions are likely to vary.
“For some people, particularly those for whom this was the first economic downturn they had ever seen, it was shocking,” says Angela Scalpello, Ogilvy’s chief people officer. “But for people who had been with us longer, and who had seen billability decline across the agency, there was a full understanding of why we were doing what we were doing. In every case, though, we tried to handle it as calmly as possible, to make sure people didn’t feel there was anything personal about it.”
But companies clearly need to be prepared for extreme reactions.
“We had one person who was furious,” says the president of one of the New York firms. “The possibility had been discussed in our meetings, because one of our people had lived through cuts at a major financial services company and he said there were people there who had become hysterical, screaming in the halls. We had one person who was very angry. It was an individual who had been asked off a couple of clients and while we were ready for it, it was very disturbing.”
At Cohn & Wolfe, there were no extreme reactions, but “there were some very tearful scenes,” says Aiello. “There were people who had been with me for 10 years. They understood what was happening but they were still very emotional. There were some ‘why me’ questions. But on the whole people showed incredible character—a lot more character than I might have shown in the same situation.”
One west coast technology PR firm had a security consultant on site, although “we tried to be discreet; no one knew it,” says the president. As far as employees were concerned, the security consultant was there to conduct an audit. Even so, “we had people screaming and yelling. We had one pretty senior person who called us afterward to tell us he was pretty pissed off.” There were no serious incidents, but “we were glad we had someone there, just in case.”
Advice about whether companies should escort employees off the premises immediately or let them clear out their desks varies. Some consultants believe it’s more humane to allow people to return to their desks and say their goodbyes, others believe that simply makes the survivors feel uncomfortable and has a disruptive effect on the workplace.
“We allowed people to pick up their purse or their jacket, but we asked them all to leave the office immediately,” says the president of a west coast technology firm. “We didn’t want to have 20 pissed-off people in the office, clearing out their desks. We just didn’t feel that would serve any purpose. It wasn’t going to be a particularly productive day anyway, once word got out, but that would make it worse. We packed up their things and sent them on a day or two later.”
Once those who have been let go are out the door, phase two of the downsizing exercise begins: communicating the layoffs to remaining employees.
At Cohn & Wolfe, Aiello and New York general manager Donna Imperato met with staff the day after the layoffs, and Aiello later staged a teleconference with employees in other offices. Over the next few weeks, he says, he expects to meet with people in other offices. His message: “That while this has been a healthy business, we are not immune to the conditions of the market as a whole. The industry is down, and our sister companies are facing the same issues we are facing. But we have confidence in the future. We have great clients and great people.”
“I tried to be sincere, and upbeat, and realistic about what had transpired,” says one of the New York agency presidents, who says he thought the meeting went “extremely well.”
Says the president of a technology firm, “We wanted people to know this was about configuring the agency for survival in these hard times. We recognized that this was an unpleasant experience for everyone. We told them we knew how uncomfortable this was for everyone, that it wasn’t anyone’s idea of fun. We got very positive feedback after the meeting.”
“One of the first things we told people was that the people who were let go were not bad people, that this was not about cutting dead wood,” says the president of another west coast technology firm. “We had a client who made some cuts and who said he was cutting dead wood. I think that’s horrible internal communications.”
There will be questions, and while many of them will be unanswerable, managers need to be sympathetic to the concerns that give rise to them.
“The first question was whether there would be another round of cuts,” says the New York firm’s president. “They wanted to know whether they were still going to get raises. They wanted to know what the sales picture was like. A lot of the questions were questions we could not answer. We tried to be honest. We told them we hoped that this would be the only round of layoffs, but that we were not clairvoyant about the economy.”
People also wanted to know what moves the firm had made to cut non-payroll expenses. In this instance, the agency’s president had renegotiated terms with several suppliers—most of whom were very happy to cut a deal if it meant keeping the business, he says—and had taken a “huge” salary cut himself. He was surprised when other senior executives offered to take salary cuts too.
“I accepted in a couple of cases, but in another case I didn’t think it was appropriate,” he says. “In that case, I thought if anyone was going to take a cut it should have been this individual’s supervisor,” who presumably didn’t offer.
At Cohn & Wolfe, Aiello says, there have been significant cuts in discretionary spending, including marketing and corporate training. “My philosophy is that the last place we want to make savings is in personnel,” Aiello says. But some senior executives did make the transition to a four-day week, while others will have their pay frozen.
At one of the west coast’s leading technology firms, discretionary expenses have been cut to the point that “we no longer take people out to lunch,” says the principal, who says the partners at his firm took significant pay cuts. The general rule seems to be that pay cuts are common for owners, but less so for senior executives at the major publicly owned firms like Ogilvy and Cohn & Wolfe. But managers took pay cuts at Citigate Cunningham, which is owned by Incepta, and at Morgen-Walke Associates, now part of Cordiant. In both cases, earn-outs are still in effect.
At Ogilvy, “rent is our second biggest expense,” says Seltzer, “so we looked for ways to cut our rent. We looked at consolidation, where it was practical, and we looked at sub-letting.” Some time ago, the agency had worked with PricewaterhouseCoopers, and one of the consulting firm’s suggestions was that Ogilvy was large enough to benefit from hiring a procurement officer. That advice paid off when the firm’s procurement officer was able to negotiate better deals on a wide range of services, including the company’s phone bills.
Seltzer also made it clear that the company was maintaining its commitment to crucial programs such as its AGK (Attract, Grow, Keep) human resources initiative. “We want to make sure people understand there are still great opportunities here,” he says. “We wanted to be sure to give the people who were still here a reason to stay here
“We also decided that we were going to treat new business as a crisis issue, that we were going to go all out on the new business front. That was important because it let our people know management was taking action to keep growing the agency.”
Says Scalpello, “I think some people found it reassuring, because it gave them a sense that management was hands-on.”
Some firms offer counseling and outplacement services, which can help both those who are leaving and those who remain.
“We offered a counselor through our employee assistance program,” says one of the New York agency presidents. “Employees could meet with them individually or in a group, and we had a session two days after the departures. There was a small group of people who wanted to meet—about six or seven.”
Ogilvy, meanwhile, worked with an outplacement service, and even had outplacement counselors on site in some offices.
Finally, companies need to recognize that in addition to communicating the layoffs internally, they should be prepared to communicate externally too. The best companies are forthright about restructurings and downsizings, says Arky Ciancutti, head of California consulting firm The Learning Center. They explain why layoffs are necessary to discuss the next steps. Bad companies don’t tell the truth, and if they don’t talk about what’s going on it’s hard to explain—to employees or to external stakeholders—why it’s going on.
“If you don’t do this right, the costs can be enormous,” says Seltzer. “I know some of our competitors have made the same kind of cuts we have, but they have kept them quiet, they have done it a few people here, a few people there. That means they haven’t gotten the same kind of publicity we have, they don’t show up on the lists, but I think there’s a cost in terms of employee morale. Employees want to know management is in charge. They want whatever action is being taken to be quick and decisive. The longer you drag it out, the worse it is for morale.”