Sugarcoating Layoffs Doesn't Work

SMITH BRAIN TRUST — Yahoo announced last week that it would be laying off 15 percent of its 11,000-person workforce, as the company seeks a profitable way forward. By the end of the cuts, the company will employ 42 percent fewer people than it did in 2012. But you'll never hear CEO Marissa Mayer use the word "layoff." The New York Times reports that Mayer forbids her managers to use the word, prodding them to say instead that Yahoo is "remixing" itself.

The CEO is trying to keep things optimistic at Yahoo, as she battles brain drain. A third of the companies' employees have left, voluntarily or involuntarily, over the past year. But does a happy talk approach — a less unusual example is when a company says it isn't downsizing but "rightsizing" — help bitter medicine go down? No, according to Debra L. Shapiro, the Clarice Smith Professor at the Robert H. Smith School of Business at the University of Maryland.

"Actions matter more than words," Shapiro says. "Labels don't matter, particularly when employees see them as a smokescreen. If you are calling it a 'remix,' but the action is equivalent to what other people call 'layoffs,' that doesn't do anything to help morale."

Shapiro says that employees will accept bad news with relative equanimity — even being laid off or seeing their friends laid off — if they perceive the existence of "procedural justice." In the case of layoffs, that means that managers must, first, make a persuasive case that cuts are necessary for a company to thrive (or survive), and, second, must demonstrate that specific decisions about whom to let go were fair.

Studies have shown that layoff "survivors" work harder, and better, when they judge that the process that led to the layoffs was fair. In contrast, survivors who perceive unfairness "are not going to go beyond the call of duty in their jobs," Shapiro says. Layoffs can inspire bad morale, which leads to diminished corporate performance, she suggests. Poor customer service is one common symptom of employee distrust of management. "It's a cycle, and it becomes ugly pretty quickly," she says.

The fairness of Yahoo's remixes are being challenged in court. On Monday, a former Yahoo employee filed a lawsuit, in Federal District Court, alleging that Yahoo rigged performance reviews to evade laws regarding mass layoffs. California law requires that employers provide 60 days' notice when 50 or more people are laid off in one location; a similar federal law is triggered when 500 people are laid off. Yahoo cut 1,100 people in late 2014 and early 2015, but said the severances were performance-related. (Performance-related firings don't require advance notice.)

The suit charges that managers manipulated a quarterly, five-tier performance review to achieve the desired number of layoffs. But Yahoo contends that the reviews, one of Mayer's signature policies, are an essential tool that helps it maintain an optimal workforce.

Legal issues aside, perceptions of fairness are also crucial where performance reviews are concerned, Shapiro says. One way to build confidence in reviews is seek out employees' opinions when choosing the standards for a job done well, or adequately. "If management alone ratchets up performance expectations without any input as to what employees think is fair or achievable, that can lead to perceptions of unfairness," Shapiro says.