2002 Layoff Trends Survey

December 2002

This report summarizes the 2002 Layoff Trends Survey, conducted jointly by WorldatWork and The Center for Workforce Effectiveness. In its second year, this survey is meant to gauge companies’ usage of layoffs and layoff alternatives to manage their headcounts.

Methodology

In November 2002, surveys were electronically sent to 5,465 WorldatWork members to gauge their perceptions of layoffs, downsizing, and the associated policies and procedures at their respective organizations. Nearly 1,100 of those in the 2002 sample were participants of the 2001 Layoff Trends Survey (conducted October 2001), while the remaining were randomly selected from the current membership database.

A total of 730 responses were received, a 13% response rate. Demographically, these respondents match the WorldatWork membership as a whole, and therefore, can be considered statistically representative of the membership, which is generally representative of employees at the manager level and higher, working in the headquarters of large, industry-diverse companies.  In addition, responses were analyzed by industry and company size; significant differences in responses are discussed in the appropriate sections of this report.

Summary of Findings

Since the tech bubble burst in late 2000, U.S. companies have found themselves forced to cut costs. Among these cost cutting measures have been headcount reductions. According to the 2002 Layoff Trends Survey, more than half (55%) of the 1,100 responding companies indicated they had experienced layoffs in the past 12 months and 30 percent indicated they expect layoffs in the coming six months.

Layoffs have been avoidable given the economic conditions of the past year. However, despite the seemingly large number of companies experiencing layoffs, most (71%) reported that the layoffs affected less than 10% of their workforce.  And, according to the survey, the affected workforce was not overly concentrated in one particular area or employee category. Employees in “operations” were the single most affected by layoffs according to all respondents; “technical” and “professional” employees were also affected -- but these were only slightly more affected than other areas.

The good news for employees is that many organizations have been doing their best to cut costs through means other than headcount reduction. The bad news for employees is, based on responses to survey, more than half (58%) indicated they have or are considering reducing or suspending annual pay increases, and 46% have or are considering reducing or suspending bonuses and incentive pay for the year. Other cost cutting alternatives to layoffs reported in the survey include: voluntary severance, perquisite reduction and early retirement packages.

Organizations that conducted layoffs handled the news in a face-to-face manner in most cases (97%), as opposed to either in a large or small group setting. Almost all companies (94%) offered a severance package to laid off employees, and 73% set up outplacement services to help affected employees find employment elsewhere. In most cases (55%), organizations provided approximately two weeks’ notice of the layoff. In addition, more than half of the responding companies (53%) indicated they also had conducted some “immediate” layoffs.

Findings

I. Prevalence of Layoffs

More than half of all respondents to the survey (55%) indicated their organization has had a layoff in the past 12 months.

Figure 1: Has your organization had layoffs in the past 12 months?
(November 2001 – November 2002) (n=729)

According to survey respondents, smaller companies with fewer than 500 employees have had fewer layoffs than large companies; with 44% of small companies reporting layoffs in the past 12 months compared to nearly 60% of companies larger than 500 employees reporting layoffs. Additionally, respondents in the service, healthcare/insurance and finance industries have experienced fewer layoffs than the technology, manufacturing and transportation sectors.

Figure 1a: Percent of respondents reporting a layoff in the past 12 months by industry

Overall, the percentage of the workforce impacted has been small, less than 5% of the total FTE workforce in 50% of responding organizations and less than 10% in 71% of respondents. The average was 9%.

Few respondents (5%) reported more than 40% of their workforce being laid off. However, the technology and finance industries report slightly larger percentages than other industries– 14% of technology respondents indicate laying off more than 40% of their workforce and 9% of finance respondents report laying off more than 40% of their workforce. Additionally, smaller companies (less than 500 employees) report larger layoffs, with 13% laying off more than 40% of their workforce.

Figure 2: Percentage of FTE workforce impacted by layoffs in past 12 months (n=400)

II. Employees Impacted by Layoffs

No single department of the organization has been overwhelmingly and disproportionately impacted by layoffs. Rather, all departments -- from human resources to marketing -- have experienced headcount reductions. Of all departments, however, “operations” seems to have been the hardest hit area.  The information technology (“IT”) department has shows the largest year-to-year change vs. 2001 survey.

Figure 3: Layoffs in past 12 months’ level of impact on specific areas

Compared to all other industries, the technology industry reports that layoffs have had more impact on all departments. Additionally, companies in the pharmaceuticals/chemical industry report more impact on research & development (R&D) than other industries.

Looking at organizations’ employee groups, as with departments, no one group seems to stand out with a large or disproportionate cut in headcount. Rather, from upper management to clerical staff, all employees have seen some of their ranks laid off. Technical staff has seen the largest change since the 2001 survey, with more of an impact in 2002 than in 2001. Additionally, technical staff in technology companies has experienced more of an impact than in all other industries. There is little effect of company size on who is impacted by layoffs. The only significant difference by company size is supervisors in small companies (less than 500 employees) who have been impacted less than supervisors in larger companies.

Figure 4: Layoffs in past 12 months’ level of impact on specific employee groups

III. Anticipation of Future Layoffs

While more than half of respondents experienced layoffs from November 2001 to November 2002, 30% are projecting layoffs in the December 2002 to May 2003 time period. The transportation industry reports a higher likelihood of layoffs, with nearly half (48%) of respondents in that industry anticipating layoffs in the next 6 months.

Figure 5: Do you anticipate layoffs in the next 6months?
(December 2002 – May 2003) (n=730)

Nearly twice as many large companies (with more than 10,000 employees) are anticipating layoffs than small companies (with less than 500 employees). Thirty-nine percent of 5,000+ employee firms said they have a layoff in the next six months compared to 18% of companies with fewer than 500 employees.

And, as with the layoffs conducted in 2002, among those who do anticipate a layoff during the December ’02-May ’03 time period, few anticipate more than 10% of their entire full time workforce being affected by the headcount reduction. Reponses by industry and company size show no significant differences in the upcoming estimate of number of workers laid off.

Figure 6: Estimate of percentage of FTE workforce to be impacted by layoffs in next 6 months (n=213)

III. Employees affected by anticipated layoffs

Although not by a huge margin, respondents in November 2002 who thought headcount reductions likely during the next six months believed that employees in their organizations’ operations departments will feel the largest impact of the downsizing. Respondents indicated that employees in customer service, sales and marketing will feel the least impact. Responses by industry show no significant difference among industries.

Figure 7: Anticipated layoffs in next 6 months’ level of impact on specific areas (n=215)

When looking at the data by company size, marketing departments in large companies (more than 5,000 employees) will see a larger impact of layoffs than in all other size companies while R&D departments in mid-sized companies (500-2,499 employees) will be more impacted than those in larger companies (more than 2,500 employees).

While respondents indicated that technical staff was the most impacted employee group of 2002 layoffs, it appears that professional staff may bear the brunt of the layoffs anticipated in the next six months. Again, responses by industry show no significant difference among industries. By company size, it seems supervisors in small companies (less than 500 employees) will again feel less of an impact than supervisors in larger companies.

Figure 8: Anticipated layoffs in next 6 months’ level of impact on specific employee groups (n=215)

IV. Layoff Alternatives

In the last several years, creative alternatives to layoffs have been heralded as the optimal way to cut costs while preserving human capital. From job sharing to contract workers, companies have experimented with various alternatives to letting employees go. Survey respondents in 2002, show an increase in the usage of some of these options. Mainly, hiring freezes are up with 63% of respondents using them in 2002 compared to 56% in 2001. In addition, contracting arrangements and job sharing have increased in 2002.

Figure 9: Usage of alternatives to layoffs (n=730)

Some industry groups have used alternatives to layoffs differently than others. Mainly, companies in the service industry and in the healthcare/insurance industry have used hiring freezes less than companies in technology and transportation. Additionally, 75% of companies with more than 5,000 employees have used hiring freezes compared to only 57% of smaller companies (less than 5,000 employees).

In addition to the creative alternatives to layoffs created in the 1990’s, many forms of cost cutting are available to cut compensation costs. The most prevalent practice reported in the 2002 Layoff Trends Survey is reduction and/or suspension of annual pay increases, reported by 38% of respondents. This figure matches another WorldatWork survey finding the October 2002 Special Update to 2002-3 Salary Budget Survey where nearly 40% of respondents reported a possible change to the salary budget plans they had made in May 2002.

In addition to reducing annual pay increases, a reduction and/or suspension of bonuses or incentive pay has been implemented by 30% of respondents. Voluntary severance packages and early retirement packages have also been implemented in one in five responding organizations (22% and 19% respectively). Larger companies (more than 2,500 employees) make more use of early retirement and severance packages with nearly one-third of large employers offering these options compared to less than 15% of small (less than 500 employees) companies.

Most organizations have not made use of mandatory pay cuts (92% have not made any changes) nor have they reduced company contributions to 401(k)s (8% have implemented).

Figure 10: Usage of additional compensation cost cutting measures (n=730)

Firms in the technology industry have used mandatory pay cuts much more than all other industries. In addition, using stock options in lieu of pay is a practice more often utilized by technology companies.

V. Layoff Practices

When a layoff occurred in 2002, employees were told the news predominantly through a face-to-face meeting and were also provided with a severance pay package of some kind. More than 90% of respondents indicated using these two practices. The vast majority of respondents had an HR representative present at individual meetings (78%), followed a script in the meeting (74%), and provided outplacement services (73%).

In addition to individual face-to-face meetings, many respondents also conducted small group meetings (77%).  Also, few respondents (5%) used “business recovery” bonuses an option that is often considered an opportunity for companies to create good will with remaining employees.

Table 11: Common Practices in Layoffs

According to the survey, the amount of notice an organization gives to employees being let go varies widely. Although some industries and businesses are affected by the WARN Act which mandates a certain amount of notice, others are not.  Survey respondents reported answers ranging from “immediate notice” to “more than two weeks.” Survey respondents indicated using all three practices between 45% and 55% of the time. Technology companies and pharmaceutical/chemical companies were the exception to this average, with nearly two-thirds (65% and 63% respectively) asking employees to leave the premises immediately. Overall, however, the variety of approaches shows an increasing amount of attention to the long-term impact of layoff practices and the decline of “pink slip” notices.

Figure 12: Amount of notice given to laid-off employees

Appendix: Respondent Demographics

Company Size

Industry

About WorldatWork
WorldatWork, formerly the American Compensation Association and the Canadian Compensation Association, is the world's leading not-for-profit professional association dedicated to knowledge leadership in compensation, benefits and total rewards. Founded in 1955, WorldatWork focuses on disciplines associated with attracting, retaining and motivating employees. In addition to providing professional affiliation, WorldatWork offers highly acclaimed certification (CCP^®, CBP^TM and GRP^®) and education programs, the monthly workspan^® magazine, online information resources, surveys, publications, conferences, research and networking opportunities.