Europe’s biggest bank will lay off 10% of its workforce over the next 10 years. While that certainly cuts costs, how do you keep the remaining employees productive?
By Shelley DuBois, writer-reporter
FORTUNE — If you’re one of HSBC’s shareholders, you’re probably stoked. For the first time in a couple of
earnings periods, the bank exceeded expectations, netting a $11.5 billion pretax profit for the first half of 2011, up from $11.1 billion a year ago. CEO Stuart Gulliver also looks like he’s making good on his plan to cut costs and focus on growth markets, announced this past May.
But if you’re one of HSBC’s approximately 300,000 employees, it might be hard to join the celebration. Much of the cost savings in the company’s strategy will come from shedding a total of 30,000 jobs before 2013 (HSBC has laid off 5,000 employees over the past six months), not counting jobs lost from selling or disposing of portions of the company.
While HSBC may be on track to slim down, it now has to handle the tricky situation of maintaining a productive workforce when plenty of its people are facing the chopping block. The market seems to like it when big banks slim down these days, and several are doing just that. Today, Barclays BCS announced that it plans to cut 3,000 jobs this year, and that the company’s pretax profit dropped about 33% from the previous year.HSBC, on the other hand, announced its job slashing plans along with an increase in profits. Its share price rose 5% after yesterday’s announcement.
The job loss was expected, says Canaccord Genuity analyst Cormac Leech, a sentiment that HSBC CEO Gulliver echoed during an earnings conference call yesterday morning. “If we’re looking to take 10% out of the cost-base of the firm, it’s not altogether surprising that’s about 10% of the headcount of the firm.”
The layoffs may please shareholders because they reflect action, any action, which is better than what can be said of some of HSBC’s competitors, says Leech. “Every bank — and I’m thinking particularly Barclays and Lloyd’s — has provided ambitious strategic targets, and they’ve been struggling to hit them.”
But HSBC’s situation creates tension between shareholders cheering the job cuts on as good business strategy and employees who may be afraid of losing their jobs. Cost cutting looks great on a spreadsheet, but layoffs come at a significant cost to morale and productivity.
Understandably, employees afraid of losing their jobs can be less efficient, says Monika Morrow, senior vice president of career management services in America for Right Management.
Companies experiencing a major transition such as this one must handle it carefully, she says, and communicate more than normal. She suggests that organizations planning major layoffs should even discuss plans with employees at risk well before cuts take place, and inform them of the benefits they can still access even as they’re preparing to be let go.
“People always want to know why, and that’s really the first part of that communication strategy: being able to talk about what is going to happen, how’s it going to happen and who are you going to hear from,” Morrow says. “You can’t over-communicate during this period of time.”
That goes for employees who leave but also the ones who stay behind, often referred to as “survivors” in the academic world.
“We know from the downsizing wave, the survivors often don’t perform well. They’re often petrified about what has happened,” says Peter Capelli a professor of management at University of Pennsylvania’s Wharton school.
Capelli says that survivors often don’t know why they made the cut, causing anxiety and uncertainty about their future.
“They start thinking it’s random and they make up the worst story they can imagine,” Capelli says.
To avoid panic, companies need to tell remaining employees why they’ve been spared and how they fit within the company’s refreshed vision. This can help alleviate any “survivor’s guilt” they may feel following layoffs, says Kevin Hallock, director of the Institute for Compensation Studies at Cornell’s School of Industrial and Labor Relations.
It’s an all-too human response, Hallock says. People miss their coworkers, and it can strain the work environment if they don’t understand why their friend was fired instead of them, especially when that sentiment is coupled with a heavier workload.
“Anybody who’s transitioning really needs to experience what I would call a dignified process,” Morrow says. Employees who stay will work better if they see their fired friends treated with respect.
These negative side effects only add more weight to HSBC’s challenges. But, in the meantime, the bank’s stock jump could carry more long-term meaning for CEO Stuart Gulliver than it may seem.
According to Hallock’s analysis of years of data from Fortune 500 companies, “If you see a layoff and the market loved it, the CEO tends to stick around. If there’s a negative reaction, the CEOs tend to turn over in the subsequent years. It’s not a law of gravity, but on average, that tends to be true.”
If the trend holds, at least one HSBC employee will be sure to dodge the pink slip this time around.