First comes the devastating news that a critical grant or contract will be smaller than promised, or won’t be coming in at all. A flood of self-doubt, confusion and anxiety inevitably follows. Then, in the midst of depression, comes that moment of cold clarity: someone you know will be getting laid off, or deciding who gets laid off, or surviving the layoff.

“While sometimes necessary, downsizing is never easy,” affirms Melanie Herman, director of the D.C.-based Nonprofit Risk Management Center. “Through no fault of their own, valuable employees may find themselves without a job.”

“Given the fact that payroll is generally the largest line item in a nonprofit’s budget, reducing the number of people on the payroll is often seen as the most effective strategy for reducing overall expenses,” Herman explains.

So what happens after the initial shock has worn off, when all the tears have been shed and the personal belongings have been packed away? Should the charitable mission of nonprofits also entail an obligation to bring a deeper sense of compassion to all manner of organizational decisions—including layoffs? And, if it does, how can an organization meet this obligation in times of crisis?

Layoffs (or “reductions in force”) can seriously undermine productivity by disrupting expectations, obligations and the range of comforting certainties that are the glue of organizational life. If clumsily managed, layoffs will place valuable skills, talents and organizational memory at risk. Worse still, handled insensitively, a force reduction can trigger employee claims of wrongful termination—costly by any reckoning. Layoffs not only affect the person losing their position, but the people who remain on the job as well. As a result, the organization’s capacity for productive work can be seriously constrained.

Moreover, since nonprofits reputedly value compassion and service over profitability, decisions to downsize are not readily reduced to calculations on a balance sheet. In truth, each staff position represents a dedicated and motivated worker; an individual who is more than just another “organizational asset,” but a trusted colleague, fellow visionary and some family’s breadwinner. Appropriately, Herman insists that “compassion” must be a “guiding principle” of an effective strategy for layoffs, especially in the nonprofit sector (See box: “Compassionate Layoffs: Proceed with Care,” page 64).

Appraising the ethical predicament and risks against expected benefits, the first question for leadership is: are layoffs our only alternative? Might cost savings be accomplished by other means?

Approaching the issue from the vantage point of who can be retained rather than who is being released, opens up new possibilities: perhaps a freeze on salaries or hiring, or a reduction in hours or pay scales, or a change in employee status from full-time to part-time, or a job-sharing arrangement will suffice? Will vendors accept deferred payments, or make in-kind donations of supplies and materials? Genesis II, a program serving court-involved mothers in the Minneapolis-St. Paul area, found that refinancing their mortgage generated monthly savings of $1,500, which nearly covers salary and benefits for a full-time position.

Of course, even the most creative efforts might still fail to realize significant cost-savings. The Appalachian Mountain Club, an organization of roughly 91,000 members and 140 full-time staff is a case in point. AMC was organized for the purposes of recreation, education and conservation in the Appalachian Region—an area stretching from Virginia to Maine along the East Coast. In September 2002, increased program costs, revenue shortfalls from grants, memberships sales, reservations, and book sales forced AMC to contemplate workforce reductions.

“We prepped the staff throughout the end of the summer by focusing on the budget crunch at our two-day staff retreat the first week of September,” says Patricia McCabe, AMC’s HR director. “We encouraged staff groups to come up with cost-savings ideas, which they did, but none were enough to balance the budget.”

AMC was finally compelled to release four people, including staff engaged in donor development research, naturalist education, conservation, and youth education programs.

Once exhausting the pursuit of reasonable alternatives to layoffs, the next questions for leadership are: how to deal with stakeholder uncertainty and anxiety, how to combat rumors and distortions, and how to respond to legitimate demands for honesty and fair treatment? (The California Association of Nonprofits has produced an excellent FAQ on approaching nonprofit layoffs, currently available on-line.1)

Consideration of mission, values and specific program needs provide a useful frame for activities at this stage. Also, consistent with the value placed on openness and democratic participation, practice suggests that maintaining open and responsive communication channels is crucial to a successful outcome. From here, analysis of mission-critical program functions, specific program needs, staff performance reviews and other relevant factors will begin to flesh out a downsizing strategy that’s ultimately concerned with restructuring and recovery. Criteria for interpreting this data and subsequent recommendations for action must pass a rigorous screening for bias on the part of management.

“After decisions were made on which positions needed to go, we made arrangements for each staff member to meet with their manager and myself,” McCabe explains. “I then announced each layoff to staff in an email.” (Having staff in eight locations, it’s difficult to hold meetings).

McCabe notes that each laid-off staff member was allowed a week to finish outstanding projects, and AMC provided severance pay and assistance with career planning.

“We alert the staff in advance about the condition of the organization’s funding, so that layoffs are never a big surprise,” says Mary Hartnett, who has been executive director of three different Minnesota human services organizations. “It’s hard for a staff to be productive waiting for the axe to fall.”

Immediately following the decision on specific position cuts, Hartnett will generally call for an exit interview with that individual, involving at least one other person. The meetings provide an opportunity to finalize departure arrangements and answer questions. “We tell people how much we appreciated their work, offering a letter of recommendation acknowledging their specific contributions, while also addressing their remaining vacation and sick time, COBRA and so forth,” she explains.
“Most people are okay in this meeting,” Hartnett observes. “I can recall only one individual who took it so personally that they got verbally abusive.”

Nicole Deters Spader, executive director of Genesis II, is convinced that the principal quality setting this sector apart from business and government is how nonprofits treat their staff. “We’re very compassionate toward our employees…we’re like a family,” she says. “It’s not like a corporation where you receive a pink slip and you’re gone.” For Spader, her staff’s investment in the organization during good times merits a reciprocal commitment on her part to move beyond strictly budgetary concerns in hard times. “So you take a hit for an extra month’s wages, or a temporary extension of medical coverage,” Spader continues. “But ultimately, you’re demonstrating that they are still valued and that you’re serious about your commitment to them.”

As Herman notes, layoffs are risky, last ditch responses to critical economic imperatives and affect individuals still considered “valuable employees.” Experts on risk management caution against using reductions in force as an excuse for terminating a problem employee—terminations are totally distinct processes, usually governed by procedures outlined in an organization’s personnel policies. Leadership is well advised to maintain a strict “fire wall” between force reduction decisions and disciplinary procedures to decrease exposure to subsequent charges of improper, punitive or biased actions.

Workforce reductions might answer the immediate economic need for cost-savings and still imperil an organization’s long-term survival picture. Studies of downsizing in the business sector suggest a number of hidden costs—levied over time—that include lowering the morale and productivity of remaining staff, damaging the hard-won trust of clients or constituents, and shaking the confidence of current or prospective funders.2

Moreover, extensive layoffs can lend to the perception of an organization in “decline”—frequently encouraging the exodus of the most talented staff, and resulting in what the Wall Street Journal has called “organizational anorexia.” In effect, not only are fewer people doing more, the best and brightest are also among the first to leave.

According to David Noer of the Center for Creative Leadership, the harmful effect on surviving staff  “is probably the primary reason that downsizing has seldom resulted in increased productivity.”3 Describing the range of dysfunctional behaviors and emotional turmoil frequently associated with recent layoffs as “survivor’s syndrome,” Noer cites symptoms including angry outbursts over perceived (or actual) workplace inequities, lingering fears for job security and reduced willingness to take risks, and distrust and alienation—all resulting in high levels of worker dissatisfaction and turnover.

Mounting evidence suggests that organizations themselves should anticipate a period of grief, discernible as a kind of “survivor’s guilt” that requires deliberate efforts to re-engage staff in planning the organization’s recovery. These activities might include exploring immediate and long-term job restructuring options, reassessing in-service training and professional development policies, and examining “external impacts” of layoffs on employee families, communities or constituents served by the organization.

At AMC, McCabe reports that staff had an opportunity to discuss the budget and cost-saving measures in depth with department-level managers and “dedicated the October staff meetings to a Q&A about the budget, with excellent questions and answers about the thorny decisions of this difficult time.”

“We are still not out of the woods,” says McCabe. “My goal is to keep communications with all staff open.”
The bad news is, even when the economy rebounds, nonprofits—much like the communities many serve—will continue to experience lean times for some time to come (See “The Nonprofit Sector’s Downward Slope,” page 22). On the other hand, it is still possible to respond to organizational crises without sacrificing the loyalty of our people, or compromising values implicit to our charitable mission.

1. “Layoffs: Negotiating the Rough Surf in Your Nonprofit,” California Association of Nonprofits ( risk/articles/layoffs.html).
2. “Downsizing: Layoffs/Closings,” BSR Issue Briefs, Business for Social Responsibility (2002) (http://www.
3. Noer, David M. 1993. “Leadership in an Age of Layoffs.” Issues & Observations (v.13, n.3) (http://triadcareers.job

Ty dePass is an associate editor at the Nonprofit Quarterly.

By Melanie L. Herman

Compassion is both a guiding principle and risk management strategy for layoffs in the nonprofit sector. Just as employees expect their nonprofit employers to treat them fairly and with respect during their employment, they expect that a nonprofit with a community-serving mission will be as kind and fair as possible when facing the need to reduce the work force. Being compassionate will serve you well on several levels.

• Departing employees will have little or no animosity toward the nonprofit and may be generous in helping with the transition and responding to post-layoff questions from remaining staff.
• Remaining employees will feel less anxious about their own positions in the organization after witnessing the assistance provided to departing staff.
• Morale among remaining employees will be as high as possible, thereby improving the odds the organization will be able to successfully move forward with its critical mission.

1. Never, never, never lay off employees to
avoid terminating someone for poor performance, violation of workplace rules or the simple desire to no longer have an employee on the payroll. Where employment practices are concerned, truth is both virtuous and a powerful defense to claims of wrongdoing. When you tell an employee he or she is being laid off, and subsequently hire a replacement, you’re being dishonest. Furthermore, you’re exposing your nonprofit to claims that your actions were a pretext for illegal discrimination.
2. Consider severance pay, but proceed with caution. Because layoffs are unexpected and not the fault of the employee, many nonprofit employers offer separation pay when termination results from economic necessity. There is a risk in having a standard policy that guarantees a certain amount of severance based on years of service. When a severe shortfall necessitates immediate layoffs, you may not have sufficient cash reserves to cover the separation payments. Failing to meet the promised formula exposes the nonprofit to breach-of-contract claims by laid-off employees.
3. Consider a wide range of alternatives before implementing a reduction in force.
Can the objectives of the reduction in force be accomplished through a hiring freeze, salary freeze, reduction in hours, or the change of some positions to part-time? Your nonprofit should document that it has considered alternatives to the reduction in force, and in a written memorandum to the board, spell out the business reasons for necessary layoffs, and the justification for selecting those positions to terminate.
4. Communicate individually with each affected staff member. The news that an employee will be laid off should be communicated verbally to employees on an individual basis. In addition to communicating verbally to the affected employee, prepare a letter to the person explaining the layoff.
5. Provide outplacement assistance and support. Be creative in offering outplacement assistance to employees affected by your reduction in force. Consider allowing—and, in fact, encouraging—employees to use the nonprofit’s equipment for writing resumes and cover letters, searching online employment listings, and setting up interviews with prospective employers.
6. Never use salary as a basis for determining who goes and who stays. Choosing employees at the higher end of the salary scale could result in an adverse impact on older workers and choosing employees at the lower end of the salary scale could result in an adverse impact on members of another protected class.
7. Review all reduction-related documentation to make certain that these materials don’t contain inadvertent references to protected classes, such as age, sex or race. In a case involving an older female employee who was laid off, the company’s ability to produce evidence of selection criteria for its reduction in force was an effective defense in a claim by the former employee alleging that the reduction was a pretext for age and sex discrimination (Krchnavy v. Limagrain Genetics Corp., 7th Cir., No. 01-2275, 2002).
8. Identify a single employee (such as the HR director or another responsible senior manager) to coordinate communication with laid-off employees after the selection process has been completed. Instruct other managers that they should refer laid-off employees with questions about the process to the single point-of-contact. This strategy helps to reduce the spread of misinformation.

Melanie Herman is executive director of the Nonprofit Risk Management Center. The Center offers a range of publications and resources for nonprofits on a wide range of risk management topics. Visit www.non profit for more information on the center’s products and services.