Making layoffs manageable

It's no surprise to anybody now that world economies are in free fall. A drop in global liquidity has affected Dubai's access to capital - critical to the growth of the real estate industry, supported by banks. The impact is not limited to real estate companies and financial institutions.

Unfortunately it affects other sectors - manufacturing and warehousing companies that support building materials, and as things get tough retailing gets hit. So it is safe to say, the effect is across the board.

Unfortunately for boards of directors, chief executive officers, and human resource heads, the time has come to cut costs deeply, and that means headcount and salary costs. A few years ago, in a major bank restructure I helped reduce over 20 per cent of the headcount (300 people) in the UAE.

While doing this is always a painful option, there is a fair way to do to, and I want to share some of my experiences today.

First, it helps to do it logically, basing it on transaction volumes. If transaction volumes have dropped by 50 per cent, cut headcount by 30 to 35 per cent (keep a 15 per cent buffer), and do it in departments directly affected. Don't fudge it like 10 per cent across the board.

At a senior level, merge departments to reduce the number of senior positions. The reasons are obvious: with a smaller headcount to manage, the number of managers needs to come down.

While you may want to look at personal files, attempting to identify people on that basis alone may not do it. The numbers will not be enough, and I am still not convinced of the integrity of the performance evaluation systems.

Obviously retain the upcoming stars, or strategic skills. Reassign, wherever feasible, to new units you may want to expand. For example, diversifying risk by growing operations outside UAE is an opportunity - an expansion of the international department may be quite in order.

Once you have identified those that need to be let go, design an exit programme that is fair. While contracts may require to give only 30 to 60 days compensation, attempt to raise it to 90 days.

Back that up with some innovative benefits - the cash equivalent of one year's medical insurance coverage in their home country, double the transportation allowance of their goods back home, provide an investment advisor to help them invest their benefits, and selectively cover the balance part of any leases that may extend past 90 days since some young children may be in the middle of the school year.

Those that have been fortunate to be left behind need to share in the pain. For the last four years, Dubai has seen unprecedented increases in compensation and bonus. It's time to normalise. I would recommend a 10 to 20 per cent reduction across the board in compensation, and freezing bonuses.

This is not a fun article to write, but it's time to protect shareholders' interests and the employment of 80 per cent of employees before the situation becomes irretrievable. May the force be with you.

The author is the Managing Director of Cedar Management Consulting International.