Nikes Recent Layoffs

Swoosh. And just like that, 1,400 jobs, or about one twentieth of its workforce, are gone from Nike, proving perhaps that even a company that makes sneakers and baseball uniforms isn’t immune from the recession.

The Nike cutbacks last week of course are a grain of sand on the beach when measured against the loss of 524,000 manufacturing jobs last December alone, and the highest unemployment rate since 1945. But they and other similar reductions in force raise a question: Does this really save money, and in the long run, are they penny wise and pound stupid?

To illustrate, a laid off employee who has four years of service with the company will, in many instances, be entitled to eight weeks severance, so the “savings” from terminating him and her won’t really be felt on the payroll for two months. And when a platoon of fired workers shows up at the unemployment office wicket, that means a rise in the ex-employer’s unemployment insurance history rate and a boost in ongoing payments that will be felt for years.

But there are not-so-obvious costs, too.

Dr. David Dell of Poughkeepsie N.Y., a management consultant who has studied this area, says that mass layoffs “can hurt a company’s brand image” with consumers, and they may not be so keen to buy your goods in the future.

And of course, he notes, it’s not just consumers, but the morale of the employees who kept their jobs; he says that you can expect those workers to jump ship and start looking for other jobs the minute a recovery starts.

Leadership IQ, a management consulting company based in Washington, D.C., reports that when surveyed 4,132 workers who kept their jobs in companies that had mass layoffs, it found that there was a marked drop-off in productiviy. It said 69% of the survivors felt the quality of their company’s products had suffered, and 87 percent feel their company is no longer a good place to labor that they would recommend to others.

Leadership IQ says its study destroys the myth that the workers who didn’t lose their paychecks will be grateful and would re-double their efforts to pick up the slack. Instead, it says its research shows a drop in produtivity and product quality.

There’s also the question of timing. Taking the view of many economists that the Recession has reached its nadir, those same companies may be hiring again in the near future. But replacing skilled workers and training new ones, what the human resources people call “on-boarding,” is an expensive process that can cost thousands of dollars per employee.

There’s a better way, says Dr. Dell, and many companies are doing it. That is to spread the pain by shortening the workweek for everybody; each employee works four days a week and makes 20% less, but nobody loses a job.

In England, that extra day off is called a “gardener’s holiday.” Nike in Dr. Dell’s view might have been better off if 5 percent of its work force spent the summer pulling weeds.