The Case Against Cutting the Bottom 10%

In The Layoff, the HBR case I have been blogging about, I come out pretty strongly against across-the-board 10% cuts focused on those ranked lowest, usually on the basis of the last performance evaluation.  There are several reasons I believe this:

1. Performance evaluations in most organizations are done badly enough that the way the bottom 10% are selected is flawed, and indeed, most people in flawed systems know that -- and see them as unfair.

2. An across the board cut punishes the most efficient units most, the least efficient units least.

3.  An across the board cut assumes that the best way to weather the bad times -- and then recover quickly when the good times return -- is to have an organization that is a perfect imitation of the one that you had before, but is just 10% smaller.   This last one is especially troubling, as strategic adjustments are almost always needed to weather and recover from tough times.

I have been getting a bit of push back from people  who are telling me that, although nothing is perfect (I agree with that), across the board cuts are most fair.

Let me know what you think.  This decision is facing many bosses right now.

Comments

[Dwayne Phillips]

How many case studies do people need to stop doing this?

My group tried it 15 years ago. What a disaster. One simple problem is that once you cut the bottom 10%, you have a new bottom 10%. What do you do with them? They may be better than the old bottom 10%, but they are the new bottom 10%.

Plus, the reviews that determine the bottom 10% are so poorly done they are just plain silly.

[Sara]

Across the board cuts are easy and allows management to appear to be addressing the concerns of the owners/shareholders/board. Unfortunately, it demonstrates a lack of integrity to find true costs that are can be cut due to being imprudent or excessive. Instead, this type of cut eliminates a good majority of people who actually do the work (tasks) that the company depends on daily. As for performance appraisals, I would venture to say that 9 out of 10 includes information that does not pertain the the review period and that a good majority of them are crafted to fit the manager's or management's perception of the employee rather than the reality. Someone that management wants to get rid of -- fairly or unfairly -- can be manipulated by the appraisal. I have personally seen exceptional reviews of incompetent people as well as poor reviews of exceptional employees who are somehow perceived as 'not a team player'. Bob, keep the insight coming. I love your blog!

[Simon]

Thanks Bob!

[Murthy]

Fascinating point and very relevant to the times. I think you raise a question that actually goes beyond the specific case of a workforce reduction, but the general problem of workforce planning and management.

In general, it seems that the organizational structure is often held fixed to execute workforce changes (hiring or laying off). In order words, if the company has 10% more budget, it gets peanut buttered across the org chart and if it has 10% less budget, the reduction is peanut buttered as well. Companies need a richer and more meaningful sort of virtual context by which to organize employees other than just the organizational chart. As an example, employees may report into functional managers, but perhaps are tracked for workforce planning purposes by the product line or market segment they work on.

By tracking staff by more meaningful dimensions, mgmt can make business decisions (i.e. exit a product, exit a market, etc) rather than simply announcing a 10% peanut butter that will reduce staff in promising areas as much as in areas that should be divested.

All of that said, given that the re-organization is guided strategically, I think performance ultimately should be looked at for literally deciding who's in and who's out. Organizations need ways to constantly move their best staff into the most critical and most emerging areas and to move the par players to areas that don't require the same exceptional performance. I've worked in a few companies that did not have this capability - the consequence was staff on divested projects were let go while emerging/critical projects were staffed with new employees - in addition to this being a generally absurd way to operate, it was also a major blow to productivity, knowledge transfer, loyalty, and morale.

So, to truly optimize the utilization of your staff, you have to
1) Have a way to think about their contributions that maps directly to your business goals so changes in goals can immediately be translated into workforce needs
2) Have a performance-based stack rank of everyone in a function, because at some point, if someone has to go, you want it to be employee #N and not employees 1 through (N-1).

[Wally Bock]

Any time I see the phrase "across the board" or something like "the bottom X percent" I go just a little crazy. You're right, Bob, the performance appraisal process is uneven at best and a productivity and morale killer at worst.

Most of them use some variation of a "meets expectations" standards which is nothing but a shell game. Until you have a performance management system with clear standards for acceptable performance, holding people accountable for performance is simply an exercise in power.

In many companies, supervisors receive no training in how to set standards or communicate to aid improved performance. In many of those same companies the supervisors are never evaluated on their performance management.

[Amit Sharma]

I would agree that implementing 10% across the board job cuts is a bad idea and knee jerk reaction. If its the cost that needs to go down by 10% then that can simply be accomplished by instituting variable pay component for all employees and work with that number. There is another systemic problem that you have captured is the way performance reviews are done and decisions based on those reviews. I personally am a proponent of open review process something like notice board reviews. If we create an environment where each employee's contribution is openly displayed and discussed then only we can bring some sanity in the review process. Otherwise it will always remain an exercise of fitting into someone's point of view.

[Kathy H]

If every company did this, that would make our unemployment rate soar. :(

[Jeffrey]

Being based in Asia and having numerous offices throughout the region, that are typically much smaller than the “home” office in the US, it is very difficult when you are given the across the board 10% staff cut. This isn’t the most fair. In an office of 10 people, working in an emerging market or building the foundation of the next growth opportunity, the loss of one staff member can be catastrophic. Why? Because a ten person office can ill afford to have a bottom performer, generally these staff members are all working at an incredible pace, and are only labeled bottom 10% via a forced ranking of a poorly designed annual review system; especially when you line up the value produced by a “bottom 10%’er” in one of these offices against the bottom of the 1,000+ person home office.

I agree with your statement, “…strategic adjustments are almost always needed to weather and recover from tough times.” When times are tough it isn’t about being fair it is about making tough decisions.

[Mike Connor]

Jonathan's comment is bang on. The idea that there is a single solution that would work at scale is seductive, but ultimately a sign of failing management.

I think that the fairness argument is rather misguided. If you need to cut 10% of your workforce, unless you've been managing poorly and have a ton of obvious fat, you're going to lose people who don't deserve to get let go. I think the most important aspect of fairness is giving the remaining 90% of the workforce the best shot at keeping their jobs and preventing the need for further layoffs.

[Ron Williams]

Most 10% across the board cuts are devices used by larger companies to get rid of employees that are otherwise protected by various labor laws (or are risks to be protected because of poor management to begin with). A great study would be to slice and dice the data to uncover issues like this. Take IBM: just reported record profits then pushed 2,000 people out the door.

The focus should be on growing market share in a recession. If a company really needs to cut then management should be suspect on their ability to turn around the sinking ship.

[Chris]

Prof. Sutton:

Starting your comment by raising the idea of alternative cost-cutting measures reflected a welcome focus both on humane-ness and creativity. I completely agree with your opposition to cutting the bottom-rated 10 percent: It puts undue and unfair credibility in the accuracy of those ratings. The other critical point is that each unit is not necessarily equally vital to the organization's future - that is, if layoffs are unavoidable, then they should be performed in a way that best positions the organization to succeed going forward.

[rick]

Across the board cuts reflect lazy management.

They're easy to justify ("it's the WORST 10%!!!" um... and YOU hired them, right?) and it doesn't require any thought about what functions should be trimmed and which might even need more investment. If you're management and you can't articulate a clear, detail answer to "why do we need to do layoffs and how will our business be better off with THIS layoff proposal," you might want to consider saving the company the cost of your own compensation.

Some questions to ask those who insist the bottom 10% need to go across the board:

1) If they need to go... why haven't you routinely been letting them go?

2) Are they tightly bunched right next to the group above them or are the significantly below the others in their group? In a very good group even the bottom 10% might be performing well but since someone has to be lowest, they're just below the group above. That's very different than people who are far below the mean.

3) Why aren't you cutting functions vs people? If there are lines of business that have been underperforming historically and you've been carrying them in good times... this might be the time to finally let them go.

I said above that across the board cuts are due to lazy management... but they can also be due to CYA management. It's much easier to cut across the board than admit that some divisions are run poorly from the top down.

[Bret Simmons]

I should think it would be very important for those that remain to understand very clearly the strategic imperative for their presence. They should know that leadership has a clear understanding of not only what got them in this mess, but how to get and keep them out of it in the future, and they should understand very clearly the importance of their role in taking the organization to a very different future.

[Rod Johnson]

No matter what the decision, a leader should expect unflattering feedback - it's human nature - and individuals that performed at 110% may face the chopping block. In a utopian world, a place where the brightest, smartest, the fairest and possess the best cultural fit are promoted - cutting the bottom 10% makes sense. However, every organization I've ever come to know has some degree of dysfunction. At the same time, such actions do force departmental managers to step up to the plate, and become part of the solution. And this is where the meat is. Engaging the team to become part of the solution, a place I refer to as the BOILS Zone, Bartering Over Ideas Logic and Solutions. Therefore, I'd recommend putting it on the managers plate and make them come up with the decision. And if they can't come forward with a workable and well thought out decision, maybe then one realizes where some of the cuts need to surface from.

[Jonathan Giuliano]

I strongly agree that a 10% cut is generally wrong as a process. I would add to the reasons noted in the blog that, as a process, a 10% cut simply limits creative solutions. I have been in this situation several times (when leading turnarounds) and have found that better solutions are available -- if you do the hard work of getting the facts, understanding the organization necessary to survive and thrive, and engaging everyone to think and act creatively.