The CFO|Circle (65 attendees!) convened to discuss a topic most don’t ever want to live through, but now many are – Reduction in Workforce (RIF). Together they’ve identified the do’s and dont’s of executing a RIF, from where to start to what to offer and how to best communicate with their employees.
First, figure out how deep you need to cut. Find the best signal/proxy you can (Italy, NY/SF) to understand how your business will be impacted on both the topline and bottom-line. Use this to guide your high-medium-low scenario planning. Cut based on an aggressive middle case, or as makes sense (some add -20% padding to the low case). You won’t get judged on metrics in this timeframe.
Furlough if possible, but don’t delay ripping-off the band-aid. Only do one layoff. Cutting deeper is better than not cutting deep enough. More than one layoff will be disastrous.
The consensus on the package. The consensus on severance was 2 weeks +1 week/year of service and on medical it was 1 to 2 months. Accelerating cliffs and extending options exercising an easy give. Also for remaining employees is trading equity for cash on lost raises/bonuses. For sales, if headcount reduced then increase commission on the remaining team.
Pay-cuts don’t really impact the math. Exec pay cuts can send a strong signal to employees that they are in this for the long-haul and will suffer like everyone else. Pay-cuts below exec level hurt morale and culture. And, unless the company has a very large headcount, pay-cuts don’t really impact the math. A RIF is better for both morale and the balance sheet due to benefits, real estate, etc of a full workforce. Other places to cut/negotiate: real estate, legal, all suppliers.
For those departing, conduct one-on-two conversations (manager + HR, CEO/Founder or functional exec if possible). Some conducted a group-wide Zoom with those departing to avoid the rapid negative word-of-mouth. For those staying, do a company-wide Zoom (assuming WFH). The Founder/CEO needs to own it. Be transparent. Tell everyone about the layoff plans, why this is happening, and what needs to happen next. Office hours afterward can help the remaining employees feel more comfortable with talking about the future.
How departing employees are treated sends a strong message to the remaining employees. Don’t give them another reason to make big tech companies look more attractive and safe. [Outstanding piece by David Ulevitch of A16Z on planning and managing lay-offs. Very thoughtful. Very empathetic. Very real.]