202406191248 - The effect of laying off high performing employees

Title: # When Employees Leave a Company, Others Often Follow
URL: https://www.wsj.com/articles/employees-layoffs-leaving-company-dc7e30f4?mod=saved_content
author: Lisa Ward
bib:
tags: #corporateculture #management #leadership #

Research

url: https://journals.aom.org/doi/10.5465/amj.2021.1327

This study proposes a unified, dynamic framework based on turnover event theory to evaluate the effects of dismissals, layoff announcements, and voluntary turnover on subsequent work-unit voluntary turnover. Applying our approach to 1,620 retail stores over 22 months, we show that modeling exit events as a dynamic and interdependent system adds to our ability to predict subsequent human capital outflow. Dismissals had the weakest total effect on subsequent voluntary turnover, layoff announcements had the strongest and most immediate effects, and voluntary turnovers had moderate but lasting effects. We also find that these three exit reasons each exhibit a distinct pattern of subsequent turnover intensity and longevity. Based on characteristics of work units in our setting, our results correspond to a cumulative worker-level average effect of 0.17 quits following dismissals, 0.23 quits following quits, and 2.2 quits following a layoff. We find that these “multiplier” effects are concentrated among workers of similar performance: high performer exits beget high performer quits, just as low-performer exits beget low-performer quits. Our findings suggest analyses offering individual-level estimates of turnover will generally underestimate the broader, work-unit level consequences of individual exit events on similar workers.

High-performing employees—employees whose performance reviews ranked in the top 40%—were often much more affected by layoffs than low-performing employees, those in the bottom 40%.
 
 The attrition rate for high-performing employees increased by about a third to about 2% from 1.5% within six months of the layoff announcement. The attrition rate for low-performing employees, though, rose only modestly within six months of the layoff announcement, to about 2.15% from 2.01%.

when layoffs are announced, these individuals might pre-emptively begin job searches to secure new roles rather than wait to see if they would be included in the layoff.

“High-performing employees may view the dismissal of a low-performing colleague as the organization maintaining standards, which can be seen as a positive sign about the organization’s commitment to performance,” Sajjadiani says. “On the other hand, low-performing employees might perceive the dismissal of a similar peer as a warning sign that they might be next, leading to an increase in voluntary turnover among this group.”

for every five employees who quit, another employee followed suit within six months.