Businesses make layoffs for a number of reasons, such as reorganization, budget cuts and automation. When a business faces employee layoffs, those in a leadership role must determine a strategy for selecting which employees should stay, and which should go. A performance-based strategy is one option that a business can use to ensure that it retains talented and skilled workers while still making the necessary cuts to survive and grow.
A performance-based layoff strategy relies on employee testing or evaluations to determine the efficacy of each worker, with only those scoring in the lowest percentiles, or below a predetermined standard, losing their jobs. The process may begin with a new round of employee evaluations or rely on the most recent evaluation and testing data. Before selecting individual employees or reviewing data, employers must determine their priorities and standards for selecting layoff candidates, including whether certain factors are more important than others in making final decisions.
A performance-based layoff strategy has several benefits for businesses. It removes the possibility of biased decisions or personal judgment from the layoff process. It also ensures that successful employees with excellent performance records remain with the company, regardless of their personal affiliations with managers or owners. Employees who lose their jobs are less likely to take legal action claiming wrongful termination if they know the selection is due to poor performance rather than personal characteristics. In the event of a challenge, the business will have a record of its evaluation process to provide a valid reason for the layoff.
Performance-based layoffs remove workers who are theoretically the poorest performers and least effective. However, this may remove a disproportionate number of workers from a single department or area, making it difficult for the remaining workforce to keep up with demands. Instead of instituting performance-based layoffs blindly, employers must consider how many workers each department or team can afford to lose. As with any sort of layoff, unemployment will increase and the remaining staff will likely face more challenging or stressful work.
In industries where workers belong to labor unions, employers may be bound by the collective bargaining agreements they sign. These agreements can include provisions for performance-based layoffs. However, when they do, they force employers to use the employee effectiveness determinations outlined in the agreement. Owners and managers can't formulate their own performance metrics. Unions may agree to performance-based layoffs to avoid layoffs that use seniority, job title or salary as determining factors.