Chapter Three: Reductions in Force (RIF)

From PIP to RIF: A four-part series tackling People & Culture topics for all markets

Happy new year! Carmela Krantz of Woven HR and I are excited to share the third installment of our four-part series on People & Culture. As a refresher, this series aims to distill People & Culture topics, techniques, and tools for our contemporary environment.

As People & Culture topics continue to capture material board-level airtime for most startups (and all companies, for that matter), getting these dynamics right remains table stakes for success — oftentimes taking priority over product-market fit or hitting revenue milestones. After all, people are the most important asset of any company.

We bring you this third chapter at a dramatically different time than when we instantiated this series in July 2022. Since our inaugural post, the tech industry has experienced a series of layoffs among both startups and big tech companies, which you can track here.

In 2022 alone, 1,026 tech companies laid off 154,386 employees, and in 2023 thus far, 288 tech companies laid off 87,749 employees.

Sparing our readers of any “2023 predictions,” the writing is on the wall, and unfortunately, we expect there to be many more layoffs in the tech sector this year.

Reductions in force, also known as layoffs or downsizing, are a far more common occurrence than what we’ve appreciated over the last decade in the startup ecosystem. RIFs involve the termination of a certain number of employees within a company in an effort to cut costs or restructure the organization. While these measures may be necessary for a company's survival or growth, RIFs have significant consequences for the affected employees and the overall culture of the organization.

In this piece, we discuss best practices for Reductions in Force (RIFs). 

Preparation

As the saying goes, “strategy eats execution for breakfast.” Preparation is the most important part of any RIF process, and management teams should prioritize investing the most time and energy here. We acknowledge that oftentimes, RIFs are time-sensitive, and so leadership teams are scrambling to conduct the RIF as soon as possible in an effort to begin realizing the expected savings of the action. A few extra days of preparation, however, will pay off every time, as evidenced by the stories of RIFs that have gone wrong (see Buzzfeed, Twitter, and this laundry list published by HBR). So, in order to ensure appropriate time for preparation, it’s important to instantiate the RIF process as soon as possible.

Job #1: Craft the list of impacted employees

You’ll want to consider a number of factors including:

• The number of impacted employees

• Duration of employment

• Are they in an office or in the field? Do they work from home?

• Are there any open roles or roles that will go forward that any of the potentially impacted employees can apply for? If yes, you might consider posting the jobs and allowing people to interview as part of the communication.

• Specifications about the attributes of these employees (e.g., are you eliminating a department or closing a full location?)

Consider characteristics such as the type of work, length of service, and diversity of impacted staff – not only because it’s the right thing to do, but because you want to be compliant with any state or federal laws. For example, the WARN Act is a federal law that requires employers with 100 or more employees to provide at least 60 calendar days advance written notice of a closing or mass layoff affecting 50 or more employees at a single site of employment.

From the above list, you also want to understand if there are any employee relations issues, anyone who is pregnant or out on a leave of absence, any ongoing performance issues, or other claims related to the individuals who would be impacted by the RIF.

A note on unions: It’s also important to be mindful of any organization that has a union. Though unions are typically less common with technology companies, we note for thoroughness that should your organization have a union, be sure to understand when and how to loop the union into the process.

Cut deeper than you think you need to.

In the planning process, cut deeper than you think you need to. This process is going to be painful no matter what, and it’s better to complete the process in a single RIF vs. death by a thousand small cuts over a series of months. So, the list is critical and needs to be tied to your P&L forecast such that the cost savings unlocked by the RIF get your company through the next phase.

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So you've established your draft list. Oftentimes, the list isn’t finalized until a day or two before the action; however, ideally, the list should be finished a week or so before. But we’re realists. And we know that doesn't always happen.

The list will trigger a number of other activities behind the scenes, which we describe below.

Job #2: Decide which leaders will be involved

You need to determine which company leaders are going to be trusted with the information about the RIF. We recommend keeping this information on a need-to-know basis, which typically includes only the most senior members of the team. You’ll also need to figure out:

• How and when to inform the involved company leaders

• Will you have an internal human resources support function for the effort? If not, do you need assistance from an external HR resource?

• Who will be involved in the activities day of?

Job #3: Compile appropriate documentation

The company needs to share a significant amount of information with impacted employees including separation agreements and state-required documentation, which we will refer to as the “exit packet.” Each of these documents needs to be crafted carefully in advance of the operation such that it can be sent out at the conclusion of the conversations on the day of. Drafting the documentation will require a series of key decisions:

What is the company’s position on severance? Are there going to be tiers of severance that are based on the level of position and/or tenure? What's the budget for severance? Are there any unique or sticky employee situations that warrant non-standard severance?

The historical framework for severance is two weeks plus one week for every year of service. If the company has the means, we are seeing the base be one month and then anywhere from 2-4 weeks per year of service in addition. Some companies choose to pay for COBRA for some period of time (e.g., a month or two). Oftentimes, there are two levels for severance packages:

• One for staff/managers

• One for VPs/Executives (typically much richer)

How's the company going to handle health benefits? Are you going to provide any sort of COBRA subsidy? If there's a 401k, if the employee has stock options, or if there are any other benefits offered, leaders need to make sure all of that information is handled clearly and sent as part of the exit packet.

Separation Agreement: A key document in the exit packet that needs to be prepared by legal counsel. Oftentimes, counsel can create a template that can be adapted across the impacted staff. It is essential to know which agreements go to which people as there are specific requirements based on the state, age (e.g., over 40), and other factors. Crafting appropriate templates is critically important.

Job #4: Draft communications

Crafting communications can occur in parallel with the creation of the list and compilation of documentation. Importantly, you’ll want to draft two forms of communication:

1. Communications for impacted staff

2. Communications for all remaining staff

3. External communications

For this exercise, you’ll want to facilitate collaboration among the internal marketing leader, HR, and leadership. Depending on the situation companies may also decide to partner with a “crisis communications” expert to draft additional internal and external statements should the situation become turbulent.

There is no single “right way” to craft these communications, and the style will vary based on your company’s culture; however, this is a time to resist the urge to say more. Brief, clear messaging with a commitment to follow up with more information targeted towards various groups (e.g., remaining employees, customers, suppliers, etc.) is best here. For public companies, typically the Investor Relations and/or Public Relations group be they internal or external are crafting the message to make sure both the employees and the market are addressed.

Additionally, it’s important that all communications — whether prepared for internal or external consumption — are drafted with the assumption that the message will be shared publicly.

We like the email Patrick Collison, Co-Founder of Stripe, wrote back in Fall 2022 as it’s extremely thorough (although this is not expected). And, we would suggest that any broad communication be reviewed by HR and/or counsel and/or Marketing/PR prior to publishing. The issue generally is that not everyone can/will communicate as cleanly and thoughtfully as Patrick did. And, there was still backlash about this message.

The Day of the RIF

On the day of the action, ideally, you'll talk to everyone live either one-on-one or in groups if it makes sense based on role or functional area. Your objective is to have as many conversations as possible in a short period of time because once you have one conversation, the word will begin to spread quickly across the company. Ultimately, you owe it to the people that are going to be included in the RIF to have a conversation with them (specifically someone from management) so they're not hearing through the grapevine.

The conversations themselves should be extremely brief and should follow a specific script. The impacted employee should also get their prepared "exit packet" as part of this conversation or very soon after the conversation happens.

In the communication on the day of the RIF, you’ll want to invite employees to have follow-up conversations on the following day out of respect for all the people that need to be informed. The message to internal people on the day of is that the company is taking action today and all impacted staff will be notified “in x manner by y time.” For those of you who will not be impacted, we ask that you “lay low” today out of respect for the impacted staff so that we can communicate with them. Additionally, we will have a follow-up meeting tomorrow to discuss the action to provide an update including sharing how the action treated people fairly and what the company is doing to support impacted staff (e.g., outplacement services may be provided to assist impacted staff with their job search).

The Day After the RIF

It is important that there is a certain level of transparency offered to “survivors” in order to rebuild trust and show that the company took care of the impacted staff. The message to survivors also needs to include information about why the company performed the action, what the action included, and how it connected the business to the future vision.

These conversations require a delicate balance of acknowledging the impact of the action on staff included in the RIF, while also connecting the action to the needs of the business moving forward. Drafting these communications in advance should include key members of leadership in HR, communications, and finance so that all the potential variables can be factored in to ensure comprehensive communications. This effort will require deciding when, how, and what will be said, as well as what metrics around the action to include (e.g., total numbers, the roles that were impacted, etc.).

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While nobody likes conducting a Reduction in Force, when performed with these tips in mind, companies can center the dignity of impacted employees while working to rebuild trust by tying the action to the needs of the business and future vision. In our next and final post, we’ll be covering another meaty topic: “Communicating People and Culture Information.” For additional guidance or support on how to execute a Reduction in Force, check out Woven’s website to contact Carmela.

Thanks for reading!

Morgan and Carmela