Q. We’ll have to “downsize” about 20 people, because we just don’t have the business to support them any more. We’ve tried everything—shortened hours, pay cuts, voluntary resignations—and we still have to cut back. The problem is that these are really good people, and it’s not their fault we have to let them go. How do we do this in a way that will minimize the impact on them—as well as on those we can keep?

A. Do it with honesty and caring—and don’t delay it or drag it out. How you treat the downsized employees directly affects the morale and retention of the valued, high-performing employees who aren’t downsized. And don’t keep it a secret: let people know it’s coming and why—and ask their help in getting through the process. The best advice I can pass along comes from management psychologist and consultant Alan Downs, who specializes in strategic human resources planning. He’s written several books, including AMACOM's Corporate Executions (1995), a much-acclaimed expose on downsizing. Some highlights:

The tough decisions of who must be laid off, how much notice they’ll receive, the amount of severance pay, and how far the company will go to help the laid-off employee find another job aren’t given enough attention. These are critical decisions that have as much to do with the future of the organization as they do with the future of the laid-off employees. Here’s how to make downsizing as painless—and as effective—as possible:

1. Don’t Let Legal Concerns Design the Layoff.

Most corporate attorneys will advise laying off employees on a last-hired, first-fired basis across all departments. Or they’ll say to lay off 10 percent of employees across all departments on a seniority-only basis. This way, no employee can claim that he or she was dismissed for discriminatory reasons.

Furthermore, attorneys often advise against saying anything more than what's absolutely necessary to either the departing employees or the survivors. This is designed to protect the company from making any implied or explicit promises that aren't then kept.

But laying off employees by a flat percentage across different departments is irrational. For example, how can accounting cope with the same proportion of fewer employees as human resources? The decision of how many employees to lay off from each department should be based on an analysis of business needs, not an arbitrary statistic.

Laying off employees strictly on the basis of seniority also doesn’t make good business sense. The choice of employees for a layoff should be based on a redistribution of the work, not the date the individual employee was hired. Sometimes an employee of 18 months has a skill far more valuable than one with 18 years' seniority.

2. Give as Much Notice as Possible. Managers fear that if employees know their fate ahead of time, they might become demoralized and unproductive—and may even sabotage the business. But there’s no documented evidence that advance notice of a layoff increases the incidence of employee sabotage. The lack of advance notice, however, does dramatically increase mistrust of management among surviving workers. By not giving employees information that could be enormously helpful to them in planning their own lives, management creates a cycle of mistrust and helplessness that can be destructive and require years to correct.

Afterward, Talk About It.

Many managers believe that after a layoff, the less said about it the better. With luck, “Everyone will just forget and move on.” The reality is, surviving employees will talk about what’s happened whether the management team does or doesn't. The more the company tries to suppress these discussions and act as if nothing has happened, the more subversive the discussion becomes. Recovery from a layoff happens faster if managers and employees can speak their minds freely about what's happened. In fact, it can be a great opportunity for the team of surviving employees to pull together and renew ties.

Downsizing Effectively

Here are a few final suggestions. They won't completely eliminate the dangers of downsizing, but they’ll help you avoid the common pitfalls of a poorly planned layoff.

• Lay off because you’ve overstaffed for your business plan, not because

you’re not making a enough profit. If profits are down, you’ll need all your

human resources in place to correct the problem.

• It’s better to communicate too much, rather than withhold information—before,

during, and after the downsizing.

• Research applicable laws and follow the spirit of the legislation.

• After the layoff, give employees the psychological space to accept, and discuss,

what has happened. 

• Respect employee dignity as much as business planning.

When you can’t avoid the need for a reduction in staff, you can accomplish a layoff in such a way that the problem is fixed and the organization excels.