Felix Salmon points out the following from a book review from the Wall Street Journal:
Mr. Koller contends that layoffs deprive companies of profit-generating talent and leave the remaining employees distrustful of management—and often eager to find jobs elsewhere ahead of the next layoff round. He cites research showing that, on average, for every employee laid off from a company, five additional ones leave voluntarily within a year. He concludes that the cost of recruiting, hiring and training replacements, in most cases, far outweighs the savings that chief executives assume they're getting when they initiate wholesale firings and plant closings.
Having actually built some of the models that directly or indirectly determined hiring and layoffs, and more importantly having been the one who explained those models to the higher-ups, I very much doubt that most companies spend enough time looking at the hidden and long term costs of layoffs.
The book is Spark, by Frank Koller. Sounds interesting.
"far outweighs the savings that chief executives assume they're getting when they initiate wholesale firings and plant closings."
ReplyDeleteThis assumes that CEOs give a shit. Their performance bonuses are usually not aligned with long-term corporate health anyway. Their behaviours makes far more sense when you realise that firing large numbers of people gets them a bonus for the paper profit they tabulate at the end of the year. The long term damage that they have now done to the company causes them to be fired within 18 months- which is when they get their golden parachute payout.
The contracts that corporate boards negotiate with CEOs often incentivises them to get fired inside a 3-5 year timeframe and be paid more money than most of us will earn in 5 lifetimes.