Hard Layoff Choices

      A long discussion about a difficult choice: whether to lay off a valued employee when sales fall off during a downturn. June 15, 2009

Question
We have been quite fortunate comparatively, with work until next summer, and no overwhelming worries about being able to find work to follow that up. However, our backlog is based upon half the capacity of a year ago.

This is not a bad thing, and we probably would have tightened things up whether the economy did what it did or not. The dilemma is in just how far I should go.

I can make just as much, if not more, money by taking on more responsibility in the shop. The problem is displacing a highly skilled, highly paid, long time employee if I choose to do so. The fact is, my business model is based in part on making my life easier. When times are good, I work my 7 hours a day, leave when I want, golf, vacation, whatever.

With the economy being what it is, I like everyone else, need to be very careful. If things were going to turn around tomorrow, no question I would keep this employee. But if it's going to be this slow for the next 12 to 18 months or longer, then I need to let this fellow go and do his job myself. It would mean working 8 hours a day at the shop and 2 to 3 hours a night from home. I know, big deal, lots of you guys do that. Lots of guys would kill to be in my position of even having work. But let's not forget I'd be firing somebody who has a family.

Questions I'm asking myself: How long is this downturn going to last? Just how far should we go to protect ourselves? Have I been keeping this guy around just because I'm lazy? What about my responsibility to his family, if any? Anybody else find themselves in a similar situation?

Forum Responses
(Business and Management Forum)
From contributor L:
If you are a compassionate guy, and it sounds like you are, you seem to have enough work for the time being. Give the guy a heads up about his situation, that there is a possibility in the future that his job may be eliminated because of the economy. He'll be upset but probably understanding. You might be able to get him to concede some pay just by doing this, and make it a win/win for both parties. This recession isn't going to last forever, they never do. But it is hard when the future has no promising signs. If this guy has been good for your company and it is just slow times, remember - these types of guys don't grow on trees. They are truly hard to replace. If he finds another job and you ask him back, you may get no for an answer and be sorry that you let him go during the tough times. But as usual, business is business and you've gotta do what makes the money come in.

By the way, 8 hours in the shop and a few hours at home is cake. My normal day starts at 10 hours in the shop and nonstop at home. It's been a long time since I pulled a 20 hour day in the shop, but I have, as I am sure most of you have. Try to keep the guy on... It'll do your golf game wonders.



From contributor H:
If he's that good, keep him. Cut his hours back and let him collect partial unemployment.


From contributor M:
I would keep him if I could, even if it means less money for now. Because I know if it were me, and I let him go, within a short time I would get the project of a lifetime and then would be screwed without him.

I work alone, and put in many hours, and still wish I could have a guy like that. This way, if something happened to me and I couldn't physically do the work, I would still have a method of generating income.

That said I am concerned about what the long term outlook is... We had a very good run in the economy for a long time, so what's to say we couldn't have a downturn for a long time? I know nobody wants it to get worse, but it certainly can.



From contributor P:
I have some questions:
- Are there just two of you in the shop?
- You have work for 6 months? Don't you think you might find some more in that time?
- Presumably you are operating profitably right now. Is the additional money gained from laying this guy off worth working yourself to death for?
- What happens if you lay the guy off and you get sick? Who will do the work?
- Can you be an effective salesman/owner/manager in the evening after a long day in the shop?
- What would happen to your sales if you put the 12 hours a day into that?
- Is there anyone else in your life who would be bothered if you are working constantly? Wife? Family?

Compared to everyone I know, you are sitting pretty. I wouldn't be in a hurry to lay your guy off - I'd concentrate on finding new work instead. You should have at least 4 months to do that before you make a decision that has such a drastic impact on yourself and your worker. Lay the guy off and you become part of the problem - keep him working and his family fed and you become part of the solution.



From the original questioner:
I am the owner of, currently, an 8 man shop; 2 1/2 office, 3 1/2 woodworkers, and 2 finishers. One of the finishers already knows that he's in his last 3 weeks. The other finisher is the person I'm talking about. He is very skilled and very expensive, but only about 10% of what he does requires his level of expertise. I would be replacing him. Finishing is something that integrates well with my other management duties. I can jump in and out of the tasks easily.

Although this finisher is highly skilled, as I mentioned, he is a big payroll burden. His position was never intended to be a 1 man show. He was supposed to have 2 or 3 helpers of lower wage to offset his wage, but alas, the times have changed.

You asked, "You have work for 6 months? Don't you think you might find some more in that time?" I hope so, but I don't know so. If I don't, then I've only prolonged the inevitable, and made much less profit in the interim, profit that is so very precious right now. If I do find more work, I can always hire myself a lower priced helper, or raise prices to keep the work load manageable. In other words, by taking on this role myself I can accommodate both scenarios. If I keep him, I'm banking on the economy which is out of my control.

You asked, "Presumably you are operating profitably right now. Is the additional money gained from laying this guy off worth working yourself to death for?" Working harder, yes. To death? I doubt it'll get to that point. With times the way they are, I almost feel obligated to work a little harder anyway.

"What happens if you lay the guy off and you get sick? Who will do the work?" Same thing as if he got sick, you find someone else, you outsource, you improvise.

"Can you be an effective salesman/owner/manager in the evening after a long day in the shop?" I'm not the salesman, so yes to that part of the question. Can I manage as well? Yes, I think so. I'll be at the shop as many hours as before, accessible to questions, and finishing affords me the ability to jump in and out of the office many times a day to return phone calls, etc.

"What would happen to your sales if you put the 12 hours a day into that?" Answered above, our sales would remain intact.

"Is there anyone else in your life who would be bothered if you are working constantly?" The biggest question of all. Yes, I am a husband and father of 3. I coach all 3 kids' sports teams year round. Of all the questions posed, this is the one I'm grappling with. But times are tough, and for me to just go on as if business is normal wouldn't be prudent I fear.

There's no guarantee that I'll have work past 6 months. My salesman is out there everyday, and finding very slim pickings, and what is there is pecked over by everyone. People are buying jobs left and right. If I have the opportunity to grow 6 months of backlog into 9 months with a layoff or 2, I think I have to consider it. It's not my job to single-handedly solve the economic problems. Laying people off hurts deeply on a personal level, but I'm under no illusion that keeping him helps the economy, especially if it bankrupts me and puts 7 more on the street. Thanks for your questions - they are appropriate and fair.



From contributor G:
You might consider helping him set up his own shop and subbing to him when you need him. Maybe not be feasible, but if it is...


From contributor S:
I'd look for some less talented help to lay off... Perhaps an office worker? Good help is hard to find and harder to keep. Get a service to do your payroll and billing and let an office worker go. That way you only pay for what you actually need. A full time employee costs at least $2k a month... You can buy a lot of payroll accounting for $500!


From contributor P:
The situation is very different if there's more people than 2 in the shop, but I would still be concerned about losing a highly skilled finisher. Very hard to replace, in my experience. I would look elsewhere for cost savings - maybe that helper or an office person as others have suggested.

Regarding your backlog: if you can delay delivery of projects for 3 months whenever you feel like it, that's a very powerful tool for balancing your workload. (By the way, what planet do you live on? And can I come stay for a while?) The first thing I would do if I were you would be to set up a detailed cash flow forecast that will tell you what the effect on your cash will be with different sized crews and different delivery dates. If you have the ability to make a detailed schedule to help you figure out how many people you actually need to do a given amount of work, that's a plus. We implemented both of these in the last six months and together they have helped me figure out when and who I need to lay off.

I would also suggest that you concentrate on what you do best, and do more of that - that's likely to be the biggest help for the business.



From the original questioner:
There are 4 things that my company does very well that have set us apart.
-The ability to sell
-The ability to engineer
-The ability to manufacture to a high standard of quality in an efficient manner
-The ability to finish

I have done the cash flow forecasts, and I have studied the effect of putting myself in every one of those positions.

-Being the salesman would pull me away from the shop, leaving engineering, manufacturing and finish without my supervision. I'm more comfortable leaving my salesman to fend for himself than the other three divisions.

-I am responsible for half of the engineering already. However, I do not have the necessary skills to do all of the engineering myself. So getting rid of the CAD guy is not a possibility.

-The three full time wood shop guys are the lowest paid in the company at 15, 17, and 22.50 per hour. Taking any of their positions would not be cost effective.

-My finisher makes about $80,000 per year. I have the skills to perform 90% of his responsibilities to the same level as he, and can perform the other 10% at a level that would likely pass anyone's standard except my own. Despite this gentleman's skill, he's not a perfect employee. The finish shop would run smoother and be more organized if I took over, simply from my bringing of an owner's mentality.

I appreciate everyone's advice in this matter. I'll continue to ponder this.



From contributor H:
I still say cut his hours and you fill in. 80K - wow! You're already going to let his helper go, so why not make the 80k guy your helper, at 40k? If he walks he walks, but where's he going to go and start at 80K, Dubai?


From contributor B:
When you went through the laundry list of your current setup and what and who to cut, I noticed one major item left untouched. If somehow you could create the business to take you closer to your ideal capacity, you would not be considering your current meat cleaver approach. Which one or ones to cut loose is never a pleasant task. But, as a very wise businessman told me when I was a brand new hiring manager, "If you don't let some people go, you're keeping them from finding their personal success in a new career or in a business of their own." He was dead right!

You said, "our backlog is based upon half the capacity of a year ago." Aside from current economic challenges, what changed? What have you done to replace the business that has evaporated?

Even if you personally don't do the selling, you do have the hands on the marketing and advertising throttle. Is there anything wrong with flooding your sales rep with more leads than he/she can handle? Right now, that might mean doing some things you did when you first started to build the business, only a bit smarter and more effectively this time. You might want to look to other geography close by to find the same kinds of business you currently do, or simply stay in your current area and looking for the kinds of jobs you maybe have not seriously considered in recent years. Or you might want to roll out a new or expanded advertising and marketing program to find new clients to replace the ones that have evaporated. You might want to do some of it all. No one else will do those things for you to even a pale resemblance of what an owner with a "grow to survive and prosper" mentality would or could do.

Again, you don't have to be personally involved in doing the actual sales work. But you are the only one in your organization that has the power to put resources, money and time behind making a change. As I see it, you can keep looking for ways to slice up a shrinking pie, or do everything you can to make a bigger pie.



From contributor E:
You stated that the finisher in question is not a perfect employee and the shop would run smoother... Well, maybe he is unhappy, but comfortable, and it's not the best time to start looking. As mentioned above, you might be doing him a favor letting him go.


From contributor K:
It sounds like your mind is already made up. $80K is a little outrageous. Then again, I don't know where you are located. Just remember... without family you have nothing. Your kids will never forget that dad was there to coach and watch them grow up. Cut his hours, or salary. If he doesn't like it, then your decision to lay him off may be made for you.


From contributor O:
80K a year? Where are you? That seems awfully high, unless you are working a ton of overtime.


From contributor W:
He was hired as a supervisor, but is no longer needed in that capacity. $80k is a huge amount on the bottom line. In retrospect, maybe he should have been $40k with a production incentive, so his income would have been $60k at peak times.

I am like you - I value my time as much as my paycheck. Fill in that position for now, but start training someone at $15/hr to do the easier stuff, eventually leaving you the 10% harder stuff. With the slow down, are there any of your carpenters interested in keeping their jobs enough to learn a new skill?



From contributor T:
Seems to me that what matters with regard to your finisher is not how much he costs but how much profit he is able to make for the company. $80K for a professional career finisher is not necessarily an exorbitant amount of money. I used to pay that for my top of the line finisher 20 years ago. Location makes a difference - in CA $80k doesn't go very far. Top quality finishers are usually worth their top pay.

More often than not, it is the finish which makes or breaks the project. Sometimes it is the quality of the finish which sells the job, establishes a great reputation and brings in another order.

Of the 10% of projects that are beyond your skill level, how profitable does your finisher complete those? In the current market can you increase the sales of those high end finishes?

No matter how careful a finisher is, unless they wear full head to toe suit up protection gear, they spend their careers with exposure and many die early because of it. Do you really want to be the one on a day to day basis dealing with the chemistry?

If there is an area or two that you feel you would be better at, such as organization, perhaps you could pitch in there and increase productivity and profits without having to take over the whole shebang.

There is no perfect employee, nor employer. I wonder why everyone keeps expecting to find that. Whatever you decide to do, I hope that you will be fair and provide notice if you cut hours or let this person go. You may find that you would like to rehire the same back someday.



From contributor Y:
I know my finisher makes way more than that. I am a one man shop and outsource all my finishing to him and spent $25k last year just in finishing, and I am a tiny client for him. If this guy is any good, he might be able to set up his own finishing shop as suggested previously, but I bet your cost for finishing will double once he gets set up.

I couldn't agree more about the chemical exposure - that is part of what you are paying for. There is no amount of money that would get me in a spray booth all day, every day. I would prefer to live beyond 50, thank you.

Why not sit him down for a little talk about the economy and his place in the company? No one wants to be looking for work right now beside 500,000 other people from last month alone. Maybe a heads up would alter his working attitude a bit, or maybe not.



From contributor I:
I would be careful in the right ways. I would trade playing golf and enjoying 7 hour days with keeping a careful eye on my books, implementing financial controls, and making improvements in the shop. This down time can be very valuable for your business. I would cut golf and leisure time, not this important part of your business!

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