Layoffs for short-term gains can be detrimental

Despite the emergence of green shoots of growth, signifying an economic recovery, some companies in the UAE continue to lay off senior staff to save on immediate costs.

Analysts warned that it could be detrimental in the future as the cost of rehiring will be very high, especially in a region where firms rely in a large part on foreign skills.

Vernon Bryce, Managing Partner for staffing firm Kenexa Middle East, said: "Unsurprisingly, many companies are saving on monthly costs by looking for the larger spends. This will include expensive people, however well-qualified."

According to executive search firm Heidrick and Struggles, companies are laying off well-qualified people at senior levels. Thousands of executives from the so-called C-suite (CFO, CMO, CTO etc) have been affected.

However, HR analysts insisted that while the policy of relentlessly laying off superior staff may be a viable option on a monthly, short-term basis, they say these tactics are not the right way of dealing with things.

"Cost-cutting often eats into the very future fabric of a company, socially and psychologically. A balance has to be struck between economics, community and sustainability," Bryce told Emirates Business.

"Our research shows that inspiring leaders, caring managers, exciting jobs and social responsibility are vital. Risk cutting into the vital organs that keep the patient alive can be harmful. Never play games or save money on the very oxygen and sustenance injected daily by these people," he said.

Michael Jarrett, Adjunct Associate Professor of Organisational Behaviour, London Business School, said: "Tough times create opportunities, and they help companies make hard decisions. CEOs in the Gulf have not had to make difficult calls before and this new urgency can accelerate the change process… just as important as getting through the recession is looking at how we will respond to the upturn.

"Companies need to manage the cost-cutting and redundancy process, while not leaving themselves unable to move forward. Companies need to focus on the long-term and ask what kind of organisation they want to be.

"What I would urge Gulf companies to do is to 'take your people with you' – that is, do not allow the staff that are left behind after redundancies to feel guilty for still having a job. You need to regroup and engage all your stakeholders – and this is just as important as making cuts, " Jarrett said.

Siobhan O'Reilly, Recruitment Manager, BAC Middle East, an executive recruitment firm, believes good firms will always seek to retain talented and qualified people whenever possible.

"However, economic and financial pressure is forcing some organisations to make very difficult choices. In some cases, this has meant losing highly qualified senior personnel due to cost constraints. This has particularly affected those firms that were 'top-heavy' before the impact of the credit crunch was felt, and have therefore had to make the greatest readjustment."

James Sayer, Senior Manager, Robert Half International UAE, a staffing firm, sees companies that need to reorganise due to the crisis are making people redundant at all levels.

"We are seeing that companies are taking the opportunity to re-organise their senior teams, this in turn is resulting in demand for senior professionals that have experience of working within downturns."

Panos Manolopoulos, Managing Partner Middle East at Stanton Chase, an executive search firm, said he has seen senior people going away in some functional positions such as HR, training and marketing. "Some senior personnel had to go because of restructuring but it has been much more thoughtful than what we had seen in the past," he said.

Analysts also said that some of the restructuring happening at the top levels is because of the high level of managerial and executive compensation that companies have to foot in the region.

"During the rapid growth of the past few years, there was a significant increase in the level of managerial and executive compensation in the region. We have noticed that in the sectors most severely impacted by the economic situation, a common response has been to streamline the management structure and reduce the number of people employed in middle management roles," explained O'Reilly.

According to Sayer, "In some cases companies do see it as an opportunity to save on their payroll, in most cases though it is down to re-skilling the workforce who can cope with the downturn and see the business through tough times. We therefore doubt this is a strategy to save on larger salaries."

"We see that companies are using the crisis as an opportunity to build strong teams. During this quality check they make sure the people currently in their team, at any level, are the best in the market and fit to help their business grow when the economy picks up again. We do also see that salaries in Middle Eastern markets have normalised of late, especially among expats. Previously, expats with a specific profile could enjoy a large pay increase. Now, the main economic benefit stems from lack of income taxes in markets like Dubai," he added.

According to Manolopoulos, the employment market is entering the second phase in this period of downturn. "Yes, there are layoffs but it is much less now. I can also say that some companies are in the hiring mode now and are getting new people in strategic positions. We have seen a lot of changes happening in the past 60 days."

Explaining this shift in mode, Manolopoulos of Stanton said: "The first is the psychological factor – companies have overcome the initial stages of shock. Second, money is coming back to the market. Companies are thinking before letting people go."

Despite the so-called green shoots of recovery, people continue to be anxious about their longevity in the companies they are employed with. Various polls conducted in recent weeks suggest a higher degree of anxiety among employees in the country.

According to some economists, this euphoria of revival may be short-lived.

The rise in oil prices and the surge seen in stock markets may not be able to sustain itself for a long period.

"There have been some positive indications. The common theme that is being felt is that worst has already passed by. This does not mean that strong growth rates will return immediately. It just means that the extent of declines might be lower than what was experienced before and in the latter part of the year, there might be a recovery," said Amrith Mukkamala, Senior Analyst at Kuwait Financial Centre (Markaz).

Even the signs of recovery being seen in the economy may not immediately translate into the employment market and analysts said job losses could actually mount. There may be some jobs being created and companies hiring but unfortunately, it is not keeping pace with the decline in jobs.

Headhunters said that it is not easy to say in which segment have the maximum number of jobs been made redundant.

"There have been job losses at all levels. The balance has been dependant upon the individual circumstances of each organisation," O'Reilly said.

"While there will always be a demand for highly skilled and experienced executives, there has been a shift from a market defined by a severe shortage of such candidates to one in which employers have much more choice and negotiating power," she added.

According to Sayer, the kind of jobs being made redundant (whether at the higher level or the lower people) depends on the structure of the company.

"We see that in companies with a 'normal' pyramid structure there are simply more people working at a lower level and therefore a higher percentage of this level can be made redundant when necessary. Next to this, we also see that the knowledge factor is important. Qualified people at a senior level often take with them a lot of knowledge about the company when they leave. Retaining this institutional knowledge is desirable, and such a desire often influences some of the decisions taken.

"Currently, we are seeing a high demand in the market for senior professionals, due to the fact that these individuals possess the experience to navigate a downturn.

"The number of people at all levels searching for work has gone up. We are currently experiencing a large number of job seekers from all over the world.

"Further, many of the people who have been made redundant are open to project-based work in the region in the short-to-medium term while they explore alternatives. For example, expatriates who were made redundant and have a family will often await the end of the school term before deciding whether to head back to their home country or to stay in the region. For them, interim management is an ideal fit. From April to May, we have experienced a 70 per cent growth of responses to our openings posted on job boards."

Speaking to Emirates Business from Singapore, Professor Narayan Pant, Dean of Executive Education at Insead, said jobs that constitute "variable" costs, or are directly correlated with volume of activity, are the most likely to be lost.

These tend to be lower-paid jobs but do not have to be so always. In some cases, higher-paid advisory jobs that are closely linked to volumes of activity – investment advice, advisory services etc – could also be disproportionately lost, he said.

Globally, big names such as Goldman Sachs, Citibank, Merrill Lynch, American Express and Nomura have seen a lot of senior executives leave. "They have been the victims of the employee culling that is taking place. That is a sad comparison but I think quite appropriate," said one expert on the condition of anonymity.

Other sectors besides financial services, where senior executives have been hit hard include retail, real estate, media, hospitality and automobiles.


Insead's viewpoint

"Companies are laying off well-qualified people, but equally many are holding on to people as they perceive the crisis may be turning around soon.

"Remember, most companies have come out of severe competition for talent just a few months ago, and they can remember those challenges. So they will want to hold on to key talent for as long as they can.

"I believe companies will only be prepared to lose key talent if they have no choice. Ultimately, most professional companies understand that they will pay for mistakes they make with talent, in the morale of their companies and the trust they build with their senior talent. Few companies will want to damage this trust and destroy the climate in their companies, voluntarily," said Professor Narayan Pant, Dean of Executive Education at Insead

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