Moving forward from a RIF:
Retaining and Motivating a Post-RIF Workforce
Any employer that downsizes its workforce should consider a two-pronged approach for its continuing employees. As discussed further below, they are needing a sense of security - and a bright future.
Fear.
- As soon as layoffs are rumored, and certainly after they are announced, all employees begin to worry. If they are next, what will be the severance benefits? How much advance notice will they receive? How will they be treated?
- Smart employers will anticipate these concerns, and address them proactively. An effective vehicle for creating some certainty comes from an ERISA severance plan because it may be designed to provide (1) a sense of certainty for employees, (2) significant flexibility for the employer, (3) trade secret and non-compete protections, and (4) release requirements and claim procedures that minimize the risk of employment-related litigation.
Optimism.
- Just as no athlete wants to play on a losing team, employees of struggling businesses want to sense that they have a bright upside by investing their future in their company. Steve Jobs saw this with Apple, when he bucked Wall Street and aggravated investors by serially repricing stock options in order to give his employees fresh starts during periods when Apple was struggling.
- It makes sense today for a struggling company to consider a menu along the following line in order to select the best incentives for its post-RIF workforce:
- Retention bonuses - these can be formula-based or fixed percentages of salary, and are best suited to stabilizing a workforce for a short critical period of time.
- Equity Awards - the following may include performance and service conditions that encourage long term employment as well as the achievement of company objectives: restricted stock units (RSUs), restricted stock (for companies with very low stock prices, e.g. below $1), and stock options.
- For private companies, "phantom" awards may provide comparable financial incentives while not expanding the shareholder base.
- Formula-based Cash Awards - these may replace equity awards, and may be customized to reward particular operating results (rather than to fluctuate in value based on the company's stock price).
- Liquidity Event Awards - these may a retention incentive for companies seeking a strategic exit such as a sale, merger, or IPO with vesting tied to continued employment until achievement of that event.
Messaging.
- Whatever the strategy that an employer pursues, the tone of communications to employees will be critical. Words matter greatly -- and are carefully dissected - by those who are anxious about their future.
- Employers need to be careful in both what is written and promised verbally, in order to assure that continuing employees are not only encouraged to work their best but also to feel fairly treated (and thereby preserve good relations, and avoid litigation over misunderstood promises).
See:Two-step Severance Plans