There is economic cooling in the air.

Despite the low unemployment rates in the United States, there is a feeling that corporate and employee layoffs will take place again. One level of decisions facing leaders is “who stays/who goes.” A second level of decisions revolves around “how do we treat people who leave?” This second level of decisions puts leaders in a dilemma between being generous to the people they are hurting and being prudent with owner money in times of economic stress.

At one end of the termination continuum, many associates who enter the partnership track at the international law firm of Bingham McCutchen may not be elected to that position. Whatever his reasons for leaving the company, one of the things that makes Bingham stand out is that he sees former associates as future resources. End of employment is beginning of membership as a Bingham McCutchen Alumni. The firm does everything possible to help departing professionals and maintains an active alumni group.

At the other end of the termination continuum are companies that treat departing employees with the same corporate logic that they treat job denials: remove them at the lowest possible cost and not get involved in litigation. We don’t care what happens to our trash or our former employees after they leave the premises.

These two approaches represent extremes of attitude toward termination decisions. Where does your company fit? Where should it fit?

The purpose of this article is to provide leaders with a framework to help them decide where on this continuum their company should be. And we want to provide a framework with more business logic than “it’s nice to be nice.”

In completion planning, it might be helpful to look at the threat analysis framework developed by the 2005 Nobel Prize winner in economics, Thomas C. Schelling. Schelling is Professor of Economics at the University of Maryland. He received his award for applying game theory to conflict. His focus was on weapon issues, but we’ve applied his insights to the design of executive completion packages.

Schelling says that “uncertain retaliation is more efficient than certain retaliation” when negotiating and “the ability to retaliate is more useful than the ability to fight back.” Now let’s be practical.

GOODBYE SCENARIO

As a verb, “Goodbye” denotes farewell. Saying “goodbye” means that once employees leave the building, they will never be a factor in the future of the company. The relationship was transactional and the transaction is now over. If the company defines termination as a parting scenario, the company should be guided by a business model that says, “What is the least expensive way to end this relationship consistent with reducing legal risk?”

AUWIEDERSEHEN STAGE

“Auwiedersehen” is a German word that is often used when people leave. But Auwiedersehen is not “Goodbye”. It literally means, “Until we meet again.” Saying “Auwiedersehen” assumes that once employees physically leave the building, they have only physically left. They can continue to be factors in the success or failure of the company. For example:

Once their non-compete agreements are up, they can join other companies in their industry. Will they be opposed to your M&A plans or attempts to foster industry-wide standards or strategic alliances?

As you look to attract new talent to your company, are the people you fired considered opinion leaders in your physical or industry community? Will they warn new talent about joining?

Once their non-compete agreements are up, they could work for clients or potential clients and encourage clients to go elsewhere.

Each of these scenarios assumes the ability to retaliate plus degrees of uncertainty about that retaliation. This is Schelling’s scenario. Signing a waiver of rights does not reduce these risks or reduces them for a defined period of time. From the business perspective, the two questions are:

o How much greater than zero is the probability of retaliation?

does it matter?

ARE COMPANIES USING TOO NARROW PERSPECTIVE ON RISK MANAGEMENT WHEN MAKING TERMINATION DECISIONS?

With many of our client companies, termination discussions often involve meetings with finance, human resources and legal representatives to discuss risk management and cost factors. All three functional perspectives are important. They are also incomplete.

When examining risk factors, the voice of marketing and strategy must be present.

We use a framework like the one below to help structure the conversation.

ANALYSIS OF THE THREAT OF TERMINATION UPON THE EXPIRATION OF THE NON-COMPETE AND NON-DEGRADATION AGREEMENTS.

Rate each factor on a scale of 0 to 9. A score of “0” means the factor does not apply. “1” means “minor threat”, while “9” means “significant threat”.

SCORE FACTOR

Ability to undermine M&A targets in the next 36 months.

Ability to damage strategic alliances in the next 36 months.

Ability to negatively influence sales for the next 36 months.

Ability to negatively influence the talent we seek to hire in the next 36 months.

**

We use 36 months as a framework because many critical business decisions in product line creation, business acquisition, or acquisition require that type of time perspective.

The above is a framework for discussion during the termination planning stage and can be applied to both group and individual termination decisions.

The people around the table have different areas of expertise in evaluating these marketing/strategic issues. HR and sales can better discuss the impact on attracting and retaining talent. But strategy people are better able to discuss M&A plans.

By applying these and other risk factors, the goal of the meeting is for the group to determine whether the decision to terminate employment is nearing the end of the Goodbye continuum or the end of the Aufwiedersehen continuum.

Moving toward the end of the Goodbye Termination Continuity, a company must pay departing employees severance pay that is no more than the median relative to other companies of its size in the industry and must keep costs of relocation to a minimum. There will be no follow up with employees once they leave the building, other than what is legally required. The company’s message is: “Goodbye. We want to give you a good start on your job search.”

Moving toward the Auwiedersehen end of the termination continuum, a company must pay severance pay and employee redeployment programs that are leaving using the median as a starting point. At the Auwiedersehen end, former employees would be called Alumni and there could be a section on the company website for Alumni to find out what’s going on at the company and to communicate with other Alumni. At the same time, those who frequent the Alumni section are useful targets for the company’s commercial staff. Alumni would be invited to reapply for future job openings the company would have. The company’s message is: “We would like to see you land after this layoff decision and we want you to know that you are still a member of our business ‘family’. We are confident our paths will cross again.”

COMPANY CULTURE

As someone who works with leaders on their way out of organizations, we love working for client companies that treat departing employees with dignity because it’s an integral part of their culture. Our perspective in this article, however, is a contingency-based approach to managing termination decisions. Our framework suggests that marketing and strategy representatives be present when termination decisions are made and ask some specific questions to examine the threat from a broader perspective than a strict legal perspective.

Termination decisions can be oriented towards the Goodbye scenario or oriented towards the Auwiedersehen scenario. Where your business is located on that continuum should be a carefully thought out business decision.

REFERENCE: Thomas C. Schelling. THE CONFLICT STRATEGY. Boston: Harvard Press, 1980