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A study of reemployment challenges after downsizing
Organizational Dynamics, Vol. 29, No. 1, pp. 64 –75, 2000 © 2000 Elsevier Science, Inc.
ISSN 0090-2616/00/$–see frontmatter PII S0090-2616(00)00013-9
RESEARCH IN ACTION JOHN W. SLOCUM, JR., EDITOR
What Ever Happened to Laid-Off Executives?
A Study of Reemployment Challenges After Downsizing DANIEL C. FELDMAN
INTRODUCTION
M
assive layoffs in the 1980s and 1990s spawned a renewed interest in the effects of unemployment not seen since the Depression. Consistent with this focus, however, laid-off managers weren’t studied much after they had obtained new jobs. Reemployment signaled that a new, if somewhat different, equilibrium in employees’ careers had been restored. More recently, though, greater attention is being paid to the quality of the replacement jobs managers take after their layoffs. Many downsized executives end up “underemployed” in jobs that pay less money, are at lower levels than their last jobs, and for which they are overqualified in terms of their competencies and experience. The present paper addresses four interrelated questions 64 ORGANIZATIONAL DYNAMICS
CARRIE R. LEANA
about the subsequent career paths of downsized managers. First, the study presents evidence on the extent to which managers have had to take pay cuts, demotions, or jobs for which they are overqualified. It looks at the trade-offs these individuals make in deciding which replacement jobs to accept. Second, we examine the consequences of underemployment on downsized managers’ satisfaction with, commitment toward, and trust in their new employers. Third, we examine how the length, quality, and helpfulness of various outplacement programs facilitate (or hinder) employees’ abilities to deal with the trauma of job loss, get organized for a job search, and obtain new jobs. Finally, we examine the ways in which poorly conducted downsizings by former employers have long-term consequences for executives’ attitudes to-
wards their subsequent employers and their careers in general.
SAMPLE AND PROCEDURES
Daniel Feldman (Ph.D., Yale University), is Distinguished Business Partnership Foundation Fellow and a professor of management at the University of South Carolina. He has published five books and over 100 articles on career development in organizations and has served as chair of the Careers Division of the Academy of Management. His current research interests include underemployment, relative deprivation, contingent employment, telecommuting, and dysfunctional mentor-prote´ge´ relationships. During the past two years he has been the recipient of the University of South Carolina’s Educational Foundation Award (the University’s highest research award), the Addison–Wesley Award, and the Cason Hall Award from the Academy of Management. He received a Best Paper Award from the Southern Management Association for his work on expatriates, a Best Paper Award from the Midwest Academy of Management for his work on psychological contract violations, and was named a Fellow of the Southern Management Association.
The sample consisted of 517 senior managers who had lost their jobs through downsizing within the past year. All the participants had used the services of a major outplacement firm, headquartered in the U.S. and with offices throughout the country and overseas. The respondents in the study had all been identified as upper-level managers and had participated in outplacement programs specifically designed for executives at higher levels of organizations. Participants in the study answered both quantitative and openended questions about their experiences being laid off, searching for new jobs, and adjusting to their present career situations. The average age of the participants in the study was 46. The sample was 74% male and 26% female. Seventy-seven percentage of the respondents were married; 51% had completed at least some graduate school. The most common industries in which participants were presently working were computers (20%), heavy manufacturing (14%), banking and financial services (13%), and consumer products (10%). At the time of their layoffs, 35% of the participants earned over $100,000 per year, 52% earned between $50,000 and $99,999, and 13% earned annual salaries of less than $50,000. On average, respondents had worked for the organizations from which they were laid off for 12 years. After their layoffs, it took the participants in the study an average of five months to transition into their current positions. In their new jobs, only 33% earned over $100,000 per year, 50% earned between $50,000 and $99,999, and 17% earned annual salaries of less than $50,000. Respondents in the study had been working for their current organizations for eight months at the time of the survey. SUMMER 2000 65
THE NATURE AND EXTENT OF UNDEREMPLOYMENT As the data in Table 1 suggest, there is considerable underemployment among the downsized executives in this study. Thirtysix percentage took some type of demotion in hierarchical level, and 44% took some kind of pay cut. Twenty percentage of the sample reported significant underutilization of their competencies, whereas two-thirds of the sample reported at least some decrease in skill utilization. Overall, then, 10% of the sample felt highly underemployed, about 50% felt at least moderately underemployed, and onethird found better jobs after downsizing. Implicitly, if not explicitly, there were four key trade-offs managers seemed to be making in accepting and adjusting to replacement jobs.
Lower Compensation for Less Stress Perhaps the most conscious decision was to sacrifice salary for the opportunity to have
TABLE 1
DEGREE
OF UNDEREMPLOYMENT AMONG DOWNSIZED EXECUTIVES N Percent Hierarchical Level Much lower level Lower level Same level Higher level Much higher level Pay Difference Pay cut of 20% or more Pay cut of 1–10% Same pay Pay increase of 1–19% Pay increase of 20% or more Skill Underutilization Highly underutilized Moderately underutilized Little or no underutilization Perceived Underemployment Highly underemployed Moderately underemployed Little or no underemployment
66 ORGANIZATIONAL DYNAMICS
50 131 147 114 56
10 26 30 23 11
84 134 93 82 111
17 27 18 16 22
99 329 65
20 67 13
49 234 224
10 46 44
Carrie Leana (PhD, University of Houston), is professor of business administration and public and international affairs at the University of Pittsburgh. She has published on such topics as participative management, employment relations, and the process and effects of organizational restructuring. Two of her current projects focus on how social capital in organizations facilitates learning and collective action, and how reemployment is defined and experienced by downsized executives. Her book, Relational Wealth: A New Model of Competitive Advantage (edited with Denise Rousseau), was published by Oxford University Press in 2000. This book describes the tension between stability and flexibility in employment practices and how relationships within organizations can reconcile these two forces for enhanced performance. Her earlier book, Coping with Job Loss: How Individuals, Organizations, and Communities Respond to Layoffs (with Daniel Feldman), was a finalist for the Academy of Management’s Terry Book Award in 1993.
less stressful jobs or to work in less stressful organizations. In some cases, downsized upper-level managers also seemed amenable to accepting replacement jobs with the same (or lower) salary as their last positions for jobs with prospects for far greater accumulation of wealth in the future: I am MUCH happier in my current situation. I have achieved a better balance between work and family/ hobbies. I no longer feel pressured to work 60 to 100 hour weeks. I work hours that suit me, am able to work from home 50% of the time, and have the flexibility to take long vacations and time off when I want. High salary and career advancement are not what are important to me— time for family, friends, and hobbies are now what matters. Although my salary is more than 20% less than it was, I have moved from a high-pressure metropolitan area to a beautiful rural countryside and have a much better quality of life. This is a smaller company, and more hands-on. I have less salary, but great stock options!
Large, Bureaucratic Organizations for Small, Friendly Firms Another dominant theme in participants’ comments was the move from large, bureaucratic corporations to small, friendly firms. In part, this trade-off is driven by a desire for a more collaborative environment often associated with smaller firms. The trade-off is also driven by a desire to be in a more ethical corporate culture, or a corporate culture where layoffs are used only as a last resort. Losing a job with a large firm made several managers look for new employers where the chances of sudden “hatchet jobs” would be less likely, and where employees were seen as people rather than as “human resources:” I went from 20-plus years with Fortune 100 companies to a small firm. I
am a valued, respected contributor rather than a cog in the machine. . . . My current job better utilizes all of my skills as a manager. I am now in a senior executive role for a $200 million company, which I find to be more challenging and rewarding than being a middle manager in a $20 billion company.
Individual Rewards for Supportive Team Environments Managers also frequently commented that they desired supportive supervisors and team-oriented co-workers in their new jobs, even if that meant, at times, the sacrifice of some of their own power and status in the firm. Many respondents had very negative feelings towards their previous supervisors, either because of the way they handled the layoffs or because they blamed personal animosity from their bosses for their job loss. Consequently, downsized managers were more likely to view their new job positions as satisfactory if their supervisors and co-workers were helpful, even if the individual-level rewards of the new job were not as high: I worked for Corporation X for 16 years. The first 14 were very rewarding; the last two were hell. The new regime was incompetent, petty, shortsighted, and killed the company. I dislike very few people, but I hated my last boss there. . . . . I love my new job. The people (in my new job) are great and the work is challenging and exciting. I’d like to be making more money. . . but I really lucked out. My current company is respected and looked upon as ethical, responsible, and having integrity. My previous firm was run by an egomaniac and a top management team with ulterior motives; I was unappreciated and overworked. Now I am really part of a team and have real input. SUMMER 2000 67
Firm Status for Job Stability Finding jobs in organizations with strong prospects for future growth and in strategically important business units within those firms often becomes more important than finding jobs in equally high status firms. In large part, this reflects downsized managers’ desire to increase job security and buffer themselves from the chances of being downsized yet again: My current situation has enabled me to make use of skills I was not able to use at my former employer. In addition, although the position I’m in is very similar to the one at my former employer, this job is seen as important and not a peripheral position in the organization. My current employer has a greater level of integrity in dealing with business and personal issues than my previous employer. The new employer has a more stable management history, which gives it a clearer long-term vision and strategy. The previous employer’s business strategy was constant shortterm profit-taking. . .
IMPACT OF UNDEREMPLOYMENT ON JOB OUTCOMES The second research question examined the impact of underemployment on important job outcomes. The six job outcomes most associated with underemployment are job satisfaction, organizational commitment, fulfillment of psychological contracts, organizational trust, careerist attitudes towards work (belief that one does not get ahead mainly on the basis of merit), and continued job-hunting behavior.
Lower Job Satisfaction and Organizational Commitment Because underemployment often entails decreases in pay, job responsibilities, and job 68 ORGANIZATIONAL DYNAMICS
challenge, it is often associated with lower job commitment and satisfaction. Comments from downsized executives in this study highlight these feelings: My former job was delightful. I enjoyed going to work, socializing, my responsibilities, and my supervisors. In my current job situation, I’m less motivated and more of an assistant than a supervisor. I am discouraged from commenting on, or inputting, any information of any kind. I’m spending a lot less time worrying about political positions that people have, worrying about the possible repercussions, and less distracted by emotional issues. I feel nothing for the organization, my colleagues, the staff, beyond a mild ‘I’ll miss them a bit when I leave’ feeling. It is true freedom!
Lower Trust and Greater “Careerism” Downsized managers also have lower trust in their subsequent employers and are more cynical about the nature of their careers. Many executives feel that organizations have violated implicit “psychological contracts” with them. Having misplaced their trust in previous employers, re-employed executives are now more wary and are less willing to trust them with the same level of confidence. Moreover, individuals who have been downsized often perceive that they lost their jobs through “political” battles: I’m still very angry that I needed to go through this. I was growing my unit at 35%, had better numbers than my peers, and in general, I was running a better operation than my peer who won the ‘beauty contest’ when we consolidated from six units to three. My boss was a jerk who did not have common decency. . . . He’ll get shot one day! In my current job, I don’t trust
the chairman/CEO to do what’s best for the company. He is too concerned with his own net worth. Does not treat all executives the same and appears not to place much emphasis on human resources. My old job was exactly the opposite. . . Managers’ negative attitudes towards their present jobs spilled over to their perceptions of their careers as well. Many appear to have lost the enthusiasm and zest for their careers they had before the layoffs: After 27 years as a division controller, Corporation X spun off the division I worked in. I had outstanding performance reviews, and it made no difference. . . . my reward was to go to a high-risk, spin-off company or retire altogether . . . . All this has left me critical and very disgusted with corporate America . . . . Job loyalty is gone; they treat people like animals (I should say worse than animals). I’m now a free agent, no commitments beyond what is good for me and good for my future, and they (corporations) enjoy the same freedoms. I am ready and willing to part ways at any time, negotiate a nice severance package, and I become a free agent once again, selling myself to the highest bidder with the best offer. I actually enjoy this realistic relationship a lot more because I know I won’t be hurt again, nor will anything surprise me or upset me.
Continued Job-Hunting Underemployed workers are more likely to voluntarily leave their “new” employers and keep job hunting even after accepting replacement jobs. This job hunting, even within the first few months in the new position, is driven both by a desire to find more rewarding work and by fear that initial setbacks on new jobs are unlikely ever to be fixed. Unfortunately, many other re-em-
ployed executives were job hunting again –involuntarily— because they were victims of yet another merger, or because the job fit in the new situation was so poor that they were terminated: One month after accepting a position at Bank A, a proposed merger with Bank B was announced. As of the beginning of November my department and position were eliminated. The work I was able to perform in the intervening five months was severely constrained by the uncertainty surrounding the proposed merger . . . Bank A is trying to relocate me internally, but I suspect I’ll wind up outside. . . On the positive side, several executives who were downsized out of their jobs went into self-employment to avoid another unpleasant layoff or to avoid having to deal with large organizational bureaucracies again. For most of these individuals, that career decision led to satisfying outcomes: I am self-employed now. The company is a not-for-profit corporation with a high emphasis on customer service, ethics, integrity, and honesty—very different from my previous position. . . . I do not have to make any supervisor happy by doing things he wants regardless of what needs to be accomplished. I found freelance work immediately and did not ever seriously look for a full-time job with one corporation. . . . The new job is just right for me, much better than my previous one. I should be more highly paid, but that will come, I’m sure. . .
LENGTH, QUALITY, AND HELPFULNESS OF OUTPLACEMENT We also examined the length and quality of the outplacement services provided to downsized managers, looking at the extent SUMMER 2000 69
TABLE 2 LENGTH, SATISFACTION, AND HELPFULNESS OF OUTPLACEMENT Percent Length of Outplacement Up to one month 1–3 months 4–5 months 6 months or more Satisfaction with Outplacement Very dissatisfied Dissatisfied Neutral Satisfied Very satisfied Helpfulness of Specific Services 1. 2. 3. 4. 5. 6. 7.
19 45 16 20
6 8 11 34 41 % Used Service Counseling from psychologist 52 Word processing support 69 Use of office equipment 69 Group support/strategy session 79 Resource library/comp. database 85 Career development materials 86 Meetings with consultants 98
to which downsized managers used specific components of outplacement packages (e.g., counseling) and the helpfulness of those specific outplacement services. These data appear in Table 2. About half the participants used outplacement services between 30 and 90 days. Roughly 20% used outplacement less than one month, and about 33% used outplacement services more than 3 months. In general, participants were quite pleased with the quality of the outplacement; 75% were either satisfied or very satisfied with the assistance they received.
Psychologist-Assisted Counseling Respondents spoke quite glowingly of the counseling they received from psychologists and their helpfulness in battling depression and motivating them: My psychologist was very attentive, caring, supportive, and insightful. . . She is an astute listener who lifts up, 70 ORGANIZATIONAL DYNAMICS
underscores and highlights the interests, strengths, and opportunities as well as where more emphasis is needed. The entire staff was positive, and the encouragement had a contagious effect on most who stayed with the process. My psychologist always presented my positive skills and characteristics rather than trying to analyze why I lost my job. She gave me the confidence and attitude that I was still a valuable employee regardless of what happened and that I will find a position that will be perfect for me. As it turned out, she was correct. I will always have fond memories of (her help) . . .
Placement Consultants Respondents were less enthusiastic about meetings with placement consultants. Unfortunately, whereas psychologist-assisted counseling was the most helpful of the specific services offered, only 52% used this service. In contrast, although meetings with placement consultants were seen as the least helpful service, they were the service most frequently utilized by our executives (98%). Participants were critical of some placement consultants, saying they were not adequately equipped to deal with high-level searches in general, or searches in their market niches in particular. Another reason why placement consultants were not always positively received was that some managers (perhaps unreasonably) expected consultants to find them jobs, as opposed to helping them organize their job searches: The consultant I had was not familiar with the oil industry. She continued to focus on banking (her background) even after I explained about the type of work I had previously done and the oil industry. We went round and round with no end in sight—she was not a help, but a detriment. The only problem I had with the
outplacement firm is that their method seems most appropriate to broad job fields, like sales. . . Niche positions, positions that are more skill-specific, are not addressed well . . . . too much focus on skill transfer.
Word-Processing Support/Office Support/Computer Databases Executives who used the outplacement firm’s word-processing support staff and office support found those services quite useful. On the other hand, the participants’ reactions to the computer databases, websites, and library resources were somewhat muted. Perhaps because they came from toplevel management positions themselves, these downsized executives were disappointed in what they felt were outdated and inadequate computer services: In providing me an office with secretarial and receptionist support, I had a place to go each day to conduct business and my job search. It gave the outside world the perception that I had opened my own office, which I felt was very important during my job search. Being in that office atmosphere boosted my attitude in dealing with others, particularly in networking, and I believe it positively affected the attitudes of others toward me. The outplacement firm’s computer resources to help information technology people get jobs were totally inadequate. They were neophytes with the web; only one PC had Internet access. . . . They do not recognize they can help search engines find you by getting you on a resume database.
CORPORATE ASSISTANCE PROGRAMS Although outplacement services are clearly appreciated by downsized managers, there
TABLE 3 CORPORATE ASSISTANCE AND DOWNSIZING PROCEDURES N Percent Amount of Advance Notice 0–31 days 32–90 days 91–182 days 182⫹ days Severance Pay Little or none at all A good or great deal Treated with Dignity and Respect Little or none at all High or very high Fairness of Layoff Procedures Little or none at all High or very high
294 147 51 15
58 29 10 3
170 337
34 66
266 241
52 48
306 201
60 40
are other ways in which corporations can assist those whom they lay off. For example, they can provide downsized employees with greater advance notice of layoffs and with substantial severance pay. Along with these tangible forms of assistance, there is also some evidence that the way in which organizations implement layoffs has longer-lasting consequences for managers’ attachment to future employers. Table 3 provides some summary data on the level of corporate assistance and the nature of downsizing procedures experienced by participants in this study. As the data in Table 3 suggest, about 60% of the sample got less one-month’s advance notice; only 13% got three or more months of advance notice. In contrast, 66% reported receiving either high or very high amounts of severance pay, whereas only 34% reported receiving little or no severance pay.
Advance Notice The comments from managers in the study reinforce the idea that advance notice is of critical importance to laid-off employees’ adjustments. Although previous research on blue-collar workers has focused on the financial benefits of advance notice (i.e., advance SUMMER 2000 71
notice gives employees more time to line up new jobs) for upper-level managers advance notice is central to dealing with the emotional shock of job loss as well: I felt as though the rug was pulled from beneath me. I never saw it coming and was completely and totally shocked. My immediate supervisor was cold and business-like when she delivered the news. I was assassinated. . . . Told I was gone . . . my keys were confiscated and I was not allowed back in the office. My personal items were boxed by an assistant and sent to me. . . . . This was a traumatic experience that will take me a long time to overcome.
Severance Pay Approximately two-thirds of the downsized executives felt they had received a good deal or great deal of severance pay. Even many that received little or no severance pay recognized they were not contractually entitled to receive it. What seemed to cause the most conflict was whether firms were providing the full amount of severance pay promised, were trying to manipulate the formula for distribution of severance pay, or were trying to renege somehow on payment for unused vacation days and other prepaid benefits: I had to hire an attorney to get my severance package, but it finally turned out well. They tried to set me up . . . tried leaving me with nothing and I sued them. Even their attorneys agreed to side with me.
to be unfair and tinged with age discrimination: They would not tell me the criteria that were used for selecting me for termination. I was only given one day to vacate my office and did not have an opportunity to say goodbye to my friends and co-workers. With nearly 32 years at my firm, I was making a good salary. Although no one would admit to this, the higher-paid, 30-plus years of service employees were targeted for termination . . . . ‘Your skills are no longer needed’ . . . . It’s a method of cost cutting. They can hire two MBA’s for what they were paying me. Age discrimination! Although mergers and acquisitions were responsible for many executives being laid off, losing a job in a mass layoff, ironically, led to perceptions of greater fairness of layoff procedures. As bitter as managers were about being downsized, at least facility shutdowns were impersonal in nature, and individual employees did not feel singled out for punishment: The acquisition was expected for some time. I was more concerned about my department, the 600 people who I was directly responsible for. The good news was an excellent severance package and outplacement service for all of them. I was let go as part of a reorganization of my company. The acquiring company was generous in termination benefits—much more generous than my own company would have been.
Treated With Dignity and Respect Fairness of Layoff Procedures Another theme that emerged from the participants’ comments was that they found the procedures used to identify them for layoffs 72 ORGANIZATIONAL DYNAMICS
Related to both the issues of advance notice and procedural justice were problems of disruption of social networks and undermining of individuals’ self-confidence. By being sud-
denly and unfairly let go, downsized managers experienced a tremendous loss of professional status, social support from colleagues, and sense of self-worth. This lack of treatment with dignity and respect also made it more difficult for downsized managers to cope with unemployment: That will be a day that I will never forget . . . It was my birthday. My department had taken me to lunch and when I returned there was a note on my desk to see the President in his office at 1:00 p.m. I was told I would no longer be needed due to a reorganization of the company . . . . After that, I was given a short time to pack my belongings in my office and turned in my keys, pager, phone, garage key, and company credit cards. In four hours, I was on my way home from a job that I had for 27 years. I no longer had a position. I no longer had a way to provide for my family. . . .
MANAGERIAL IMPLICATIONS The first issue related to outplacement that warrants managerial attention is setting appropriate expectations for downsized managers to bring to the experience. Many participants come with the expectation that the purpose of this program is to get people jobs, as opposed to helping people develop and implement a job-hunting strategy. As a result, some managers going through outplacement are perhaps more passive in the job search than they should be, and are more dissatisfied with the program because of their initial expectations. Second, when offering outplacement services to upper-level managers, some of the programs (e.g., generic networking) that are very helpful for lower-level employees are mistargeted. Given the smaller, more specialized labor markets in which these individuals operate, downsized executives appear to need one-on-one counseling and
other forms of job-hunting assistance. Also, given the new importance of the Internet and computer databases in finding employment information, making sophisticated technology available to downsized employees is vital. Third, giving advance notice to employees and treating departing managers fairly and with dignity has two complementary benefits. From the employees’ perspective, such treatment gives downsized managers time to adjust to the trauma of job loss, to leave with more of their self-esteem intact, and to depart with greater energy to find satisfactory reemployment quickly. From the organizational perspective, giving advance notice and treating departing managers fairly and with dignity seems to be inversely related to employees’ desires to sue former employers for wrongful discharge, age discrimination, and other procedural violations related to their termination. This study has some implications for how downsized managers seek out replacement jobs as well. Although many participants desired to pursue their subsequent careers in smaller or newer firms, this strategy had two unforeseen consequences. In smaller firms, many re-employed executives had fewer managerial responsibilities per se and were forced to do more hands-on activities they felt they had outgrown. Moreover, the level of sophistication of managerial practices and procedures in many small firms is considerably lower than that in the larger firms from which they were outplaced. Thus, whereas working in smaller firms may be an excellent way of rebalancing work and family priorities, managers seeking reemployment in smaller firms might want to consider the potential downside of less managerial responsibility. Another major hazard in finding new employment after layoffs is the chance of being downsized out of the replacement job as well. Several executives went from one declining firm or takeover target to another. Although, on one hand it may make sense to leverage past experience to find new employment in the same field, it may make SUMMER 2000 73
greater sense to switch out of downsizing industries and fields to avoid the inevitable waves of layoffs in the future. Finally, for managers who are over age 55, the decisions about subsequent career trajectories are inextricably linked with decisions about retirement and other ways of reorienting their lives. To the extent that downsizing can have a silver lining for upper-level managers, it is that they have the
74 ORGANIZATIONAL DYNAMICS
financial resources to not have to simply jump at a job to get money. Instead, there are many other options open to them as well: self-employment, decreased work involvement, and consulting, among others. In short, before pursuing new employment opportunities to recreate the path once taken, many downsized executives would do well to consider the potential pleasures of some roads not yet taken.
SELECTED BIBLIOGRAPHY For a greater understanding of executives’ experiences with underemployment, please see B.H. Burris’s No Room at the Top: Underemployment and Alienation in the Corporation (New York: Praeger Press, 1983) and K.S. Newman’s Declining Fortunes: The Withering of the American Dream (New York: Basic Books, 1993). For more technical treatments of underemployment, please see D.C. Feldman’s “The Nature, Antecedents, and Consequences of Underemployment,” Journal of Management 22 (1996): 385– 409, and L.J. Khan and P. C. Morrow’s “Objective and Subjective Underemployment Relationships
to Job Satisfaction,” Journal of Business Research 22 (1991): 211–218. A broad picture of the changing psychological contract between managers and corporations is provided by D.M. Rousseau in Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements (Thousand Oaks, CA: Sage, 1995). A fuller picture of corporations’ and individuals’ strategies for dealing with downsizing appears in C.R. Leana and D.C. Feldman’s Coping with Job Loss: How Individuals, Organizations, and Communities Respond to Layoffs (New York: Macmillan/Lexington Books, 1992).
SUMMER 2000 75
ISSN 0090-2616/00/$–see frontmatter PII S0090-2616(00)00013-9
RESEARCH IN ACTION JOHN W. SLOCUM, JR., EDITOR
What Ever Happened to Laid-Off Executives?
A Study of Reemployment Challenges After Downsizing DANIEL C. FELDMAN
INTRODUCTION
M
assive layoffs in the 1980s and 1990s spawned a renewed interest in the effects of unemployment not seen since the Depression. Consistent with this focus, however, laid-off managers weren’t studied much after they had obtained new jobs. Reemployment signaled that a new, if somewhat different, equilibrium in employees’ careers had been restored. More recently, though, greater attention is being paid to the quality of the replacement jobs managers take after their layoffs. Many downsized executives end up “underemployed” in jobs that pay less money, are at lower levels than their last jobs, and for which they are overqualified in terms of their competencies and experience. The present paper addresses four interrelated questions 64 ORGANIZATIONAL DYNAMICS
CARRIE R. LEANA
about the subsequent career paths of downsized managers. First, the study presents evidence on the extent to which managers have had to take pay cuts, demotions, or jobs for which they are overqualified. It looks at the trade-offs these individuals make in deciding which replacement jobs to accept. Second, we examine the consequences of underemployment on downsized managers’ satisfaction with, commitment toward, and trust in their new employers. Third, we examine how the length, quality, and helpfulness of various outplacement programs facilitate (or hinder) employees’ abilities to deal with the trauma of job loss, get organized for a job search, and obtain new jobs. Finally, we examine the ways in which poorly conducted downsizings by former employers have long-term consequences for executives’ attitudes to-
wards their subsequent employers and their careers in general.
SAMPLE AND PROCEDURES
Daniel Feldman (Ph.D., Yale University), is Distinguished Business Partnership Foundation Fellow and a professor of management at the University of South Carolina. He has published five books and over 100 articles on career development in organizations and has served as chair of the Careers Division of the Academy of Management. His current research interests include underemployment, relative deprivation, contingent employment, telecommuting, and dysfunctional mentor-prote´ge´ relationships. During the past two years he has been the recipient of the University of South Carolina’s Educational Foundation Award (the University’s highest research award), the Addison–Wesley Award, and the Cason Hall Award from the Academy of Management. He received a Best Paper Award from the Southern Management Association for his work on expatriates, a Best Paper Award from the Midwest Academy of Management for his work on psychological contract violations, and was named a Fellow of the Southern Management Association.
The sample consisted of 517 senior managers who had lost their jobs through downsizing within the past year. All the participants had used the services of a major outplacement firm, headquartered in the U.S. and with offices throughout the country and overseas. The respondents in the study had all been identified as upper-level managers and had participated in outplacement programs specifically designed for executives at higher levels of organizations. Participants in the study answered both quantitative and openended questions about their experiences being laid off, searching for new jobs, and adjusting to their present career situations. The average age of the participants in the study was 46. The sample was 74% male and 26% female. Seventy-seven percentage of the respondents were married; 51% had completed at least some graduate school. The most common industries in which participants were presently working were computers (20%), heavy manufacturing (14%), banking and financial services (13%), and consumer products (10%). At the time of their layoffs, 35% of the participants earned over $100,000 per year, 52% earned between $50,000 and $99,999, and 13% earned annual salaries of less than $50,000. On average, respondents had worked for the organizations from which they were laid off for 12 years. After their layoffs, it took the participants in the study an average of five months to transition into their current positions. In their new jobs, only 33% earned over $100,000 per year, 50% earned between $50,000 and $99,999, and 17% earned annual salaries of less than $50,000. Respondents in the study had been working for their current organizations for eight months at the time of the survey. SUMMER 2000 65
THE NATURE AND EXTENT OF UNDEREMPLOYMENT As the data in Table 1 suggest, there is considerable underemployment among the downsized executives in this study. Thirtysix percentage took some type of demotion in hierarchical level, and 44% took some kind of pay cut. Twenty percentage of the sample reported significant underutilization of their competencies, whereas two-thirds of the sample reported at least some decrease in skill utilization. Overall, then, 10% of the sample felt highly underemployed, about 50% felt at least moderately underemployed, and onethird found better jobs after downsizing. Implicitly, if not explicitly, there were four key trade-offs managers seemed to be making in accepting and adjusting to replacement jobs.
Lower Compensation for Less Stress Perhaps the most conscious decision was to sacrifice salary for the opportunity to have
TABLE 1
DEGREE
OF UNDEREMPLOYMENT AMONG DOWNSIZED EXECUTIVES N Percent Hierarchical Level Much lower level Lower level Same level Higher level Much higher level Pay Difference Pay cut of 20% or more Pay cut of 1–10% Same pay Pay increase of 1–19% Pay increase of 20% or more Skill Underutilization Highly underutilized Moderately underutilized Little or no underutilization Perceived Underemployment Highly underemployed Moderately underemployed Little or no underemployment
66 ORGANIZATIONAL DYNAMICS
50 131 147 114 56
10 26 30 23 11
84 134 93 82 111
17 27 18 16 22
99 329 65
20 67 13
49 234 224
10 46 44
Carrie Leana (PhD, University of Houston), is professor of business administration and public and international affairs at the University of Pittsburgh. She has published on such topics as participative management, employment relations, and the process and effects of organizational restructuring. Two of her current projects focus on how social capital in organizations facilitates learning and collective action, and how reemployment is defined and experienced by downsized executives. Her book, Relational Wealth: A New Model of Competitive Advantage (edited with Denise Rousseau), was published by Oxford University Press in 2000. This book describes the tension between stability and flexibility in employment practices and how relationships within organizations can reconcile these two forces for enhanced performance. Her earlier book, Coping with Job Loss: How Individuals, Organizations, and Communities Respond to Layoffs (with Daniel Feldman), was a finalist for the Academy of Management’s Terry Book Award in 1993.
less stressful jobs or to work in less stressful organizations. In some cases, downsized upper-level managers also seemed amenable to accepting replacement jobs with the same (or lower) salary as their last positions for jobs with prospects for far greater accumulation of wealth in the future: I am MUCH happier in my current situation. I have achieved a better balance between work and family/ hobbies. I no longer feel pressured to work 60 to 100 hour weeks. I work hours that suit me, am able to work from home 50% of the time, and have the flexibility to take long vacations and time off when I want. High salary and career advancement are not what are important to me— time for family, friends, and hobbies are now what matters. Although my salary is more than 20% less than it was, I have moved from a high-pressure metropolitan area to a beautiful rural countryside and have a much better quality of life. This is a smaller company, and more hands-on. I have less salary, but great stock options!
Large, Bureaucratic Organizations for Small, Friendly Firms Another dominant theme in participants’ comments was the move from large, bureaucratic corporations to small, friendly firms. In part, this trade-off is driven by a desire for a more collaborative environment often associated with smaller firms. The trade-off is also driven by a desire to be in a more ethical corporate culture, or a corporate culture where layoffs are used only as a last resort. Losing a job with a large firm made several managers look for new employers where the chances of sudden “hatchet jobs” would be less likely, and where employees were seen as people rather than as “human resources:” I went from 20-plus years with Fortune 100 companies to a small firm. I
am a valued, respected contributor rather than a cog in the machine. . . . My current job better utilizes all of my skills as a manager. I am now in a senior executive role for a $200 million company, which I find to be more challenging and rewarding than being a middle manager in a $20 billion company.
Individual Rewards for Supportive Team Environments Managers also frequently commented that they desired supportive supervisors and team-oriented co-workers in their new jobs, even if that meant, at times, the sacrifice of some of their own power and status in the firm. Many respondents had very negative feelings towards their previous supervisors, either because of the way they handled the layoffs or because they blamed personal animosity from their bosses for their job loss. Consequently, downsized managers were more likely to view their new job positions as satisfactory if their supervisors and co-workers were helpful, even if the individual-level rewards of the new job were not as high: I worked for Corporation X for 16 years. The first 14 were very rewarding; the last two were hell. The new regime was incompetent, petty, shortsighted, and killed the company. I dislike very few people, but I hated my last boss there. . . . . I love my new job. The people (in my new job) are great and the work is challenging and exciting. I’d like to be making more money. . . but I really lucked out. My current company is respected and looked upon as ethical, responsible, and having integrity. My previous firm was run by an egomaniac and a top management team with ulterior motives; I was unappreciated and overworked. Now I am really part of a team and have real input. SUMMER 2000 67
Firm Status for Job Stability Finding jobs in organizations with strong prospects for future growth and in strategically important business units within those firms often becomes more important than finding jobs in equally high status firms. In large part, this reflects downsized managers’ desire to increase job security and buffer themselves from the chances of being downsized yet again: My current situation has enabled me to make use of skills I was not able to use at my former employer. In addition, although the position I’m in is very similar to the one at my former employer, this job is seen as important and not a peripheral position in the organization. My current employer has a greater level of integrity in dealing with business and personal issues than my previous employer. The new employer has a more stable management history, which gives it a clearer long-term vision and strategy. The previous employer’s business strategy was constant shortterm profit-taking. . .
IMPACT OF UNDEREMPLOYMENT ON JOB OUTCOMES The second research question examined the impact of underemployment on important job outcomes. The six job outcomes most associated with underemployment are job satisfaction, organizational commitment, fulfillment of psychological contracts, organizational trust, careerist attitudes towards work (belief that one does not get ahead mainly on the basis of merit), and continued job-hunting behavior.
Lower Job Satisfaction and Organizational Commitment Because underemployment often entails decreases in pay, job responsibilities, and job 68 ORGANIZATIONAL DYNAMICS
challenge, it is often associated with lower job commitment and satisfaction. Comments from downsized executives in this study highlight these feelings: My former job was delightful. I enjoyed going to work, socializing, my responsibilities, and my supervisors. In my current job situation, I’m less motivated and more of an assistant than a supervisor. I am discouraged from commenting on, or inputting, any information of any kind. I’m spending a lot less time worrying about political positions that people have, worrying about the possible repercussions, and less distracted by emotional issues. I feel nothing for the organization, my colleagues, the staff, beyond a mild ‘I’ll miss them a bit when I leave’ feeling. It is true freedom!
Lower Trust and Greater “Careerism” Downsized managers also have lower trust in their subsequent employers and are more cynical about the nature of their careers. Many executives feel that organizations have violated implicit “psychological contracts” with them. Having misplaced their trust in previous employers, re-employed executives are now more wary and are less willing to trust them with the same level of confidence. Moreover, individuals who have been downsized often perceive that they lost their jobs through “political” battles: I’m still very angry that I needed to go through this. I was growing my unit at 35%, had better numbers than my peers, and in general, I was running a better operation than my peer who won the ‘beauty contest’ when we consolidated from six units to three. My boss was a jerk who did not have common decency. . . . He’ll get shot one day! In my current job, I don’t trust
the chairman/CEO to do what’s best for the company. He is too concerned with his own net worth. Does not treat all executives the same and appears not to place much emphasis on human resources. My old job was exactly the opposite. . . Managers’ negative attitudes towards their present jobs spilled over to their perceptions of their careers as well. Many appear to have lost the enthusiasm and zest for their careers they had before the layoffs: After 27 years as a division controller, Corporation X spun off the division I worked in. I had outstanding performance reviews, and it made no difference. . . . my reward was to go to a high-risk, spin-off company or retire altogether . . . . All this has left me critical and very disgusted with corporate America . . . . Job loyalty is gone; they treat people like animals (I should say worse than animals). I’m now a free agent, no commitments beyond what is good for me and good for my future, and they (corporations) enjoy the same freedoms. I am ready and willing to part ways at any time, negotiate a nice severance package, and I become a free agent once again, selling myself to the highest bidder with the best offer. I actually enjoy this realistic relationship a lot more because I know I won’t be hurt again, nor will anything surprise me or upset me.
Continued Job-Hunting Underemployed workers are more likely to voluntarily leave their “new” employers and keep job hunting even after accepting replacement jobs. This job hunting, even within the first few months in the new position, is driven both by a desire to find more rewarding work and by fear that initial setbacks on new jobs are unlikely ever to be fixed. Unfortunately, many other re-em-
ployed executives were job hunting again –involuntarily— because they were victims of yet another merger, or because the job fit in the new situation was so poor that they were terminated: One month after accepting a position at Bank A, a proposed merger with Bank B was announced. As of the beginning of November my department and position were eliminated. The work I was able to perform in the intervening five months was severely constrained by the uncertainty surrounding the proposed merger . . . Bank A is trying to relocate me internally, but I suspect I’ll wind up outside. . . On the positive side, several executives who were downsized out of their jobs went into self-employment to avoid another unpleasant layoff or to avoid having to deal with large organizational bureaucracies again. For most of these individuals, that career decision led to satisfying outcomes: I am self-employed now. The company is a not-for-profit corporation with a high emphasis on customer service, ethics, integrity, and honesty—very different from my previous position. . . . I do not have to make any supervisor happy by doing things he wants regardless of what needs to be accomplished. I found freelance work immediately and did not ever seriously look for a full-time job with one corporation. . . . The new job is just right for me, much better than my previous one. I should be more highly paid, but that will come, I’m sure. . .
LENGTH, QUALITY, AND HELPFULNESS OF OUTPLACEMENT We also examined the length and quality of the outplacement services provided to downsized managers, looking at the extent SUMMER 2000 69
TABLE 2 LENGTH, SATISFACTION, AND HELPFULNESS OF OUTPLACEMENT Percent Length of Outplacement Up to one month 1–3 months 4–5 months 6 months or more Satisfaction with Outplacement Very dissatisfied Dissatisfied Neutral Satisfied Very satisfied Helpfulness of Specific Services 1. 2. 3. 4. 5. 6. 7.
19 45 16 20
6 8 11 34 41 % Used Service Counseling from psychologist 52 Word processing support 69 Use of office equipment 69 Group support/strategy session 79 Resource library/comp. database 85 Career development materials 86 Meetings with consultants 98
to which downsized managers used specific components of outplacement packages (e.g., counseling) and the helpfulness of those specific outplacement services. These data appear in Table 2. About half the participants used outplacement services between 30 and 90 days. Roughly 20% used outplacement less than one month, and about 33% used outplacement services more than 3 months. In general, participants were quite pleased with the quality of the outplacement; 75% were either satisfied or very satisfied with the assistance they received.
Psychologist-Assisted Counseling Respondents spoke quite glowingly of the counseling they received from psychologists and their helpfulness in battling depression and motivating them: My psychologist was very attentive, caring, supportive, and insightful. . . She is an astute listener who lifts up, 70 ORGANIZATIONAL DYNAMICS
underscores and highlights the interests, strengths, and opportunities as well as where more emphasis is needed. The entire staff was positive, and the encouragement had a contagious effect on most who stayed with the process. My psychologist always presented my positive skills and characteristics rather than trying to analyze why I lost my job. She gave me the confidence and attitude that I was still a valuable employee regardless of what happened and that I will find a position that will be perfect for me. As it turned out, she was correct. I will always have fond memories of (her help) . . .
Placement Consultants Respondents were less enthusiastic about meetings with placement consultants. Unfortunately, whereas psychologist-assisted counseling was the most helpful of the specific services offered, only 52% used this service. In contrast, although meetings with placement consultants were seen as the least helpful service, they were the service most frequently utilized by our executives (98%). Participants were critical of some placement consultants, saying they were not adequately equipped to deal with high-level searches in general, or searches in their market niches in particular. Another reason why placement consultants were not always positively received was that some managers (perhaps unreasonably) expected consultants to find them jobs, as opposed to helping them organize their job searches: The consultant I had was not familiar with the oil industry. She continued to focus on banking (her background) even after I explained about the type of work I had previously done and the oil industry. We went round and round with no end in sight—she was not a help, but a detriment. The only problem I had with the
outplacement firm is that their method seems most appropriate to broad job fields, like sales. . . Niche positions, positions that are more skill-specific, are not addressed well . . . . too much focus on skill transfer.
Word-Processing Support/Office Support/Computer Databases Executives who used the outplacement firm’s word-processing support staff and office support found those services quite useful. On the other hand, the participants’ reactions to the computer databases, websites, and library resources were somewhat muted. Perhaps because they came from toplevel management positions themselves, these downsized executives were disappointed in what they felt were outdated and inadequate computer services: In providing me an office with secretarial and receptionist support, I had a place to go each day to conduct business and my job search. It gave the outside world the perception that I had opened my own office, which I felt was very important during my job search. Being in that office atmosphere boosted my attitude in dealing with others, particularly in networking, and I believe it positively affected the attitudes of others toward me. The outplacement firm’s computer resources to help information technology people get jobs were totally inadequate. They were neophytes with the web; only one PC had Internet access. . . . They do not recognize they can help search engines find you by getting you on a resume database.
CORPORATE ASSISTANCE PROGRAMS Although outplacement services are clearly appreciated by downsized managers, there
TABLE 3 CORPORATE ASSISTANCE AND DOWNSIZING PROCEDURES N Percent Amount of Advance Notice 0–31 days 32–90 days 91–182 days 182⫹ days Severance Pay Little or none at all A good or great deal Treated with Dignity and Respect Little or none at all High or very high Fairness of Layoff Procedures Little or none at all High or very high
294 147 51 15
58 29 10 3
170 337
34 66
266 241
52 48
306 201
60 40
are other ways in which corporations can assist those whom they lay off. For example, they can provide downsized employees with greater advance notice of layoffs and with substantial severance pay. Along with these tangible forms of assistance, there is also some evidence that the way in which organizations implement layoffs has longer-lasting consequences for managers’ attachment to future employers. Table 3 provides some summary data on the level of corporate assistance and the nature of downsizing procedures experienced by participants in this study. As the data in Table 3 suggest, about 60% of the sample got less one-month’s advance notice; only 13% got three or more months of advance notice. In contrast, 66% reported receiving either high or very high amounts of severance pay, whereas only 34% reported receiving little or no severance pay.
Advance Notice The comments from managers in the study reinforce the idea that advance notice is of critical importance to laid-off employees’ adjustments. Although previous research on blue-collar workers has focused on the financial benefits of advance notice (i.e., advance SUMMER 2000 71
notice gives employees more time to line up new jobs) for upper-level managers advance notice is central to dealing with the emotional shock of job loss as well: I felt as though the rug was pulled from beneath me. I never saw it coming and was completely and totally shocked. My immediate supervisor was cold and business-like when she delivered the news. I was assassinated. . . . Told I was gone . . . my keys were confiscated and I was not allowed back in the office. My personal items were boxed by an assistant and sent to me. . . . . This was a traumatic experience that will take me a long time to overcome.
Severance Pay Approximately two-thirds of the downsized executives felt they had received a good deal or great deal of severance pay. Even many that received little or no severance pay recognized they were not contractually entitled to receive it. What seemed to cause the most conflict was whether firms were providing the full amount of severance pay promised, were trying to manipulate the formula for distribution of severance pay, or were trying to renege somehow on payment for unused vacation days and other prepaid benefits: I had to hire an attorney to get my severance package, but it finally turned out well. They tried to set me up . . . tried leaving me with nothing and I sued them. Even their attorneys agreed to side with me.
to be unfair and tinged with age discrimination: They would not tell me the criteria that were used for selecting me for termination. I was only given one day to vacate my office and did not have an opportunity to say goodbye to my friends and co-workers. With nearly 32 years at my firm, I was making a good salary. Although no one would admit to this, the higher-paid, 30-plus years of service employees were targeted for termination . . . . ‘Your skills are no longer needed’ . . . . It’s a method of cost cutting. They can hire two MBA’s for what they were paying me. Age discrimination! Although mergers and acquisitions were responsible for many executives being laid off, losing a job in a mass layoff, ironically, led to perceptions of greater fairness of layoff procedures. As bitter as managers were about being downsized, at least facility shutdowns were impersonal in nature, and individual employees did not feel singled out for punishment: The acquisition was expected for some time. I was more concerned about my department, the 600 people who I was directly responsible for. The good news was an excellent severance package and outplacement service for all of them. I was let go as part of a reorganization of my company. The acquiring company was generous in termination benefits—much more generous than my own company would have been.
Treated With Dignity and Respect Fairness of Layoff Procedures Another theme that emerged from the participants’ comments was that they found the procedures used to identify them for layoffs 72 ORGANIZATIONAL DYNAMICS
Related to both the issues of advance notice and procedural justice were problems of disruption of social networks and undermining of individuals’ self-confidence. By being sud-
denly and unfairly let go, downsized managers experienced a tremendous loss of professional status, social support from colleagues, and sense of self-worth. This lack of treatment with dignity and respect also made it more difficult for downsized managers to cope with unemployment: That will be a day that I will never forget . . . It was my birthday. My department had taken me to lunch and when I returned there was a note on my desk to see the President in his office at 1:00 p.m. I was told I would no longer be needed due to a reorganization of the company . . . . After that, I was given a short time to pack my belongings in my office and turned in my keys, pager, phone, garage key, and company credit cards. In four hours, I was on my way home from a job that I had for 27 years. I no longer had a position. I no longer had a way to provide for my family. . . .
MANAGERIAL IMPLICATIONS The first issue related to outplacement that warrants managerial attention is setting appropriate expectations for downsized managers to bring to the experience. Many participants come with the expectation that the purpose of this program is to get people jobs, as opposed to helping people develop and implement a job-hunting strategy. As a result, some managers going through outplacement are perhaps more passive in the job search than they should be, and are more dissatisfied with the program because of their initial expectations. Second, when offering outplacement services to upper-level managers, some of the programs (e.g., generic networking) that are very helpful for lower-level employees are mistargeted. Given the smaller, more specialized labor markets in which these individuals operate, downsized executives appear to need one-on-one counseling and
other forms of job-hunting assistance. Also, given the new importance of the Internet and computer databases in finding employment information, making sophisticated technology available to downsized employees is vital. Third, giving advance notice to employees and treating departing managers fairly and with dignity has two complementary benefits. From the employees’ perspective, such treatment gives downsized managers time to adjust to the trauma of job loss, to leave with more of their self-esteem intact, and to depart with greater energy to find satisfactory reemployment quickly. From the organizational perspective, giving advance notice and treating departing managers fairly and with dignity seems to be inversely related to employees’ desires to sue former employers for wrongful discharge, age discrimination, and other procedural violations related to their termination. This study has some implications for how downsized managers seek out replacement jobs as well. Although many participants desired to pursue their subsequent careers in smaller or newer firms, this strategy had two unforeseen consequences. In smaller firms, many re-employed executives had fewer managerial responsibilities per se and were forced to do more hands-on activities they felt they had outgrown. Moreover, the level of sophistication of managerial practices and procedures in many small firms is considerably lower than that in the larger firms from which they were outplaced. Thus, whereas working in smaller firms may be an excellent way of rebalancing work and family priorities, managers seeking reemployment in smaller firms might want to consider the potential downside of less managerial responsibility. Another major hazard in finding new employment after layoffs is the chance of being downsized out of the replacement job as well. Several executives went from one declining firm or takeover target to another. Although, on one hand it may make sense to leverage past experience to find new employment in the same field, it may make SUMMER 2000 73
greater sense to switch out of downsizing industries and fields to avoid the inevitable waves of layoffs in the future. Finally, for managers who are over age 55, the decisions about subsequent career trajectories are inextricably linked with decisions about retirement and other ways of reorienting their lives. To the extent that downsizing can have a silver lining for upper-level managers, it is that they have the
74 ORGANIZATIONAL DYNAMICS
financial resources to not have to simply jump at a job to get money. Instead, there are many other options open to them as well: self-employment, decreased work involvement, and consulting, among others. In short, before pursuing new employment opportunities to recreate the path once taken, many downsized executives would do well to consider the potential pleasures of some roads not yet taken.
SELECTED BIBLIOGRAPHY For a greater understanding of executives’ experiences with underemployment, please see B.H. Burris’s No Room at the Top: Underemployment and Alienation in the Corporation (New York: Praeger Press, 1983) and K.S. Newman’s Declining Fortunes: The Withering of the American Dream (New York: Basic Books, 1993). For more technical treatments of underemployment, please see D.C. Feldman’s “The Nature, Antecedents, and Consequences of Underemployment,” Journal of Management 22 (1996): 385– 409, and L.J. Khan and P. C. Morrow’s “Objective and Subjective Underemployment Relationships
to Job Satisfaction,” Journal of Business Research 22 (1991): 211–218. A broad picture of the changing psychological contract between managers and corporations is provided by D.M. Rousseau in Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements (Thousand Oaks, CA: Sage, 1995). A fuller picture of corporations’ and individuals’ strategies for dealing with downsizing appears in C.R. Leana and D.C. Feldman’s Coping with Job Loss: How Individuals, Organizations, and Communities Respond to Layoffs (New York: Macmillan/Lexington Books, 1992).
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