• Bora Hamamcioglu

Creative ways companies can avoid upsetting layoffs

Updated: May 11, 2020

Nearly every company in every industry has been negatively impacted by the spread of the Covid-19 pandemic. With consumption having significantly slowed down in the first quarter of 2020, companies that have been losing out on cash flow have started mass layoffs. Workers that have not lost their jobs yet have started wondering how secure their job is, and for how much longer. The subsequent fear of unemployment has caused an additional decrease in consumption and economic activity, and consequently even more unemployment. The U.S. Labor Department reported on April 2nd 2020 that 6.6 million Americans applied for unemployment benefits. To prevent unemployment numbers from going up even more, companies must use all the tools available to them before making the drastic decision to start layoffs. Here are a few ways companies can weather this unprecedented storm.

Accelerated vesting

The term “vesting” defines the schedule of when and how an employee will receive shares from the company as part of their stock compensation package. A solid and fair vesting structure offers employees more skin in the game by allowing them to benefit more from the long-term success of the business, and it protects founders from their key employees simply walking away. A “cliff” defines the period of time employees must wait before they “earn” the right to start vesting. Though the vesting schedule offered by each company varies, the most common one is a 4-year vesting with a 1-year cliff. A possible solution to avoid layoffs is for employers to offer an accelerated vesting schedule to their employees who were considering leaving anyway and incentivize them to get off payroll sooner, so that other jobs can be saved. An accelerating vesting schedule will allow employees that are staying with the company just to vest their stocks fully, the opportunity to quicken their vesting and gain access to company stocks in a shorter amount of time.

Switch to stock-heavy compensation packages

To relieve some of the cash burden and to prevent as many layoffs as possible, employees should first be offered the option to temporarily lower their salaries in exchange for being compensated with more stocks. Some employees might find it more worthy to temporarily sacrifice part of their cash salaries to own more company stocks so they can share in the company’s long-term success.

Sabbaticals with re-hire guarantees

As employees/companies are now putting more importance into work-life balance, “adult-sabbaticals” are becoming more common. Many companies embrace the idea of offering a sabbatical period to retain good talent and show them they care about their personal growth. With flights and accommodation prices at unprecedented lows, now would be a good time for companies to encourage (when travel restrictions are lifted) some of their more tenured employees to take some voluntary time off and go on partially paid or unpaid sabbaticals with a guarantee of rehire upon return.

Extending company perks

If layoffs are unavoidable, companies should allow for those that are getting laid off and are also the primary health insurance provider for their family to continue using their insurance for a set period of time or until they are able to find a new job.

Additionally, some companies offer their employees company perks that allow them to purchase items at a lower price as an employment benefit. Extending credit compensations (or extending the validity of employee discounts) in a severance package can certainly alleviate some of the stress of losing a job as it would lead to some unexpected savings for example in groceries or transportation.

Making the executive decision to start furloughs or layoffs is never easy. Companies that cannot avoid them despite everything must still act as responsibly and humanely as possible. When business activity picks up and the workforce is needed again, it is important to remember that hiring and training new employees would be far more costly than bringing back former employees.

-Bora Hamamcioglu

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