I learned last week that a close friend was being laid off from a profitable Fortune 500 company after 20 years of loyal, well-reviewed performance. How could this happen? It turns out that this company is deliberately letting go of older employees because they are considered too expensive, and too easily replaced by lower-paid younger workers. She is high up on the pay scale and, at 47 she’s probably more expensive to insure for healthcare than a 32-year-old. She gets more vacation that someone with a five year tenure. It’s a cost-cutting move that has no reflection on work performance.
That’s life, right? Sure, this company has the right to do whatever it wants to do to cut costs, but that doesn’t make it right. Or smart. Where is this woman going to go? She’s going to work for a major competitor and she’ll have no problem finding a job. They will hire her without hesitation because the word is out that the layoffs at her company have nothing to do with competence. She’s taking 20 years of institutional knowledge, 20 years of “this is how we can destroy you” to a competitor. For what?
Let’s say this company can save $50,000 a year by getting rid of her. Big whoop. What will this company lose in terms of earnings and shareholder value over the medium-term by losing her to a competitor? Over five years, they’ll save $250,000 with the new, cheaper replacement. (Who will himself go up in salary and need to be cut loose before long, too.) Given that this company sells systems that typically go for $500,000 and up, if they lose even one deal because of her working for a competitor, they’re underwater. And, that’s not even taking into account the loss of organizational value and cohesion that these layoffs produce.
I suspect this layoff will cost them millions over the next five years. Not only will they lose deals and competitive advantage through the loss of knowledge and networks, they are poisoning the organizational culture permanently. Once management has shown that it will kick you out after 20 years of loyal service because someone a little younger can do it a little cheaper, everyone is hip to what’s going on and no one will stick around for very long. Everyone will be polishing the resume and winking at competitors on LinkedIn full time.
If this were just the case of one person being unjustly laid off, I wouldn’t focus on it. But it’s not. This is part of a trend. American companies are dumping hundreds of thousands of skilled, experienced middle aged employees in acts of pathological shortsightedness. This layoff, and the thousands of others like that are occurring in the U.S. are part of a new way of managing businesses. It’s a policy of cutting costs in the short term no matter the price. If they can save $50,000 in one year while perhaps losing $1,000,000 over 5 years, that’s a win – for the CEO. The CEO knows that he (or she) will be gone in 5 years after collecting some gargantuan, and, let’s face it, unearned, bonus and be on to his next hustle. As long as the CEO can pump up those earnings in the short term and make the stock spike, all catastrophic decisions are fine. The company can tank after that but that’s no problem for him. He got his. Someone else will pick up the tab.
The problem is rooted in a lack of loyalty at the top of the organization. The CEO has no loyalty to the company, so he has no incentive to make anything resembling a smart, value-based decision. The CEO’s lack of loyalty to the company translates downward into a corporate lack of loyalty to employees. The CEO is the winner because he walks away with millions of dollars for a goosing the share price short term while everyone else – the workers, their families and communities, and shareholders, all suffer.
Where does that leave us? This story is a sad reminder that we middle aged workers are on our own. We work for ourselves, even if a corporation writes our paychecks. We cannot rely on any loyalty from an employer nor delude ourselves into thinking that many years of excellent work will protect us from a capricious and greedy senior executive with a short-term incentive.