The "new economy" has crashed, and it's layoff time in the software industry. Your company is having financial trouble, and laying people off is the only alternative. Perhaps you're told to "Take five people out of your budget." Even worse, you get an across-the-board mandate: "We're getting rid of 10 percent of the organization."

No matter how it starts, you're going to lay people off, and it's never any fun. Despite the number of horror stories you may have heard, there are ways to treat people with respect while ending their employment. By using tact and reason, you can:

• Make a difficult situation a little easier for the people who've worked for you;
• Avoid damaging your or your company's reputation (which will prevent future problems hiring new employees;
• Avoid a lawsuit;
• Spend as little time as possible laying people off, letting you get back to making the company successful; and
• Live with yourself, knowing that you did the best job you could.

First, gather your courage—you'll need it. Then, get down to the task at hand. Figure out who will get laid off, and how you'll deliver the message. Plan your work: when, where and how to deliver the message, and how you'll deal with the work and the remaining personnel.

Whom Do You Choose?
Sometimes you're told whom to lay off. When faced with those circumstances, I tell the person who has made the choice that he can give the chosen people the bad news. As a manager, I expect to take responsibility for my own decisions. One manager I know was faced with laying off an engineer who, though an irritant to senior management, was a productive employee. When she was told to lay this person off, she refused. Her boss informed her that she couldn't save the engineer, but she replied, "You do it yourself. This is a bad decision, and I want no part of it."

To conduct layoffs wisely, you must combine your business expertise with managerial awareness of specific personnel and your human resource department's knowledge of legal issues. Consider the possibilities carefully: Numbers of employees, location, timing and other factors must all be taken into account. (The legalities for layoffs outside the U.S. vary from country to country.)

Personnel and Project
You'll have to make choices about project and process value, as well as personnel. First, take a good, long look at your project portfolio. Ax the projects that aren't utterly necessary, but remember to ask senior management about their current priorities. In down times, priorities change quickly, and communication must keep pace. Often, the people who are forgotten are those with projects that used to be urgent—but aren't now. So, schedule a review of all of your projects and your staff before you make any decisions.

But don't throw out the baby with the bathwater: Make sure you review the axed projects' personnel. Are there some good performers who just weren't able to save a failed plan or a less-than-stellar team? Consider transferring rather than laying off talented personnel.

In the still-viable projects, look for employees with minimal expertise, or those who drain energy from the team. Consider whether these people should be

terminated now—or given a slim chance on a team that will probably be laid off in the future.

Whatever you do, don't assume that your best people are working on your most critical projects. Some less experienced managers don't know how to prioritize their work. Other managers scatter their best people throughout many projects, hoping to maximize a chance of success. Instead, those managers make more projects fail, or at least run into trouble.

Review the projects that will be axed. Should some have been dropped at the start? Kill those projects now. Do some managers reflexively attempt the impossible? Look for telltale signs of poor management (such as project managers who say "yes" or "no problem" to any request) and start your layoffs with those managers who have failed to prudently manage human and fiscal assets. A single poor manager may cost the company far more than one poor engineer.

Look at both current and upcoming projects. Then, retain the people who can best help you get the required work done, now and in the future. If you have to make a trade-off, keep people who can help you now. If financial instability is the cause of the layoff, you'll want to do everything possible to ship the product and get revenue coming in.

If you've already staffed projects according to their importance to the company, you'll be able to cut projects and their staff simultaneously. This strategy has some decided advantages: There is less stigma and disruption for the survivors, and some people will feel better about being laid off as part of a project cut.

Today's Special vs. Tried and True
If you haven't carefully managed your staff's performance, you may end up choosing people based on their most recent performance, rather than their overall value. If your organization insists on ranking personnel, the people in the bottom ranks will be laid off whether or not they deserve it. (It's possible to have high-performing people in lower ranks, depending on how recently they were promoted or if the project they were working on was considered important. Typically, ranking has more to do with what people worked on rather than how well they worked.) Be careful when selecting people according to their perceived value—the best performer may be playing a catalyst or background role, and might not be readily visible.

Performance might also be affected by health, family and personal situations (exposing you to lawsuits under the Family and Medical Leave Act), poor matching of the assignment to the person (raising questions about previous management decisions) or other factors. Be honest in appraising each employee's value.

The software industry seems to have absorbed some negative lessons from manufacturing. Whereas the manufacturing industry traditionally retains senior employees, the senior employee in software is often in the crosshairs for layoffs, firings and forced transfers. In manufacturing, worker status was often protected by unions. Seniority—which indicated that one was a seasoned, productive and knowledgeable worker—was a plus. Therefore, layoffs directly affected managers (non-union personnel) and less-experienced employees. While the software industry has tried to avoid favoritism and the vested interests of the unions, in its quest for the latest and greatest, it has failed to honor its long-term obligation to its senior non-managerial employees. When it comes time to cut staff, don't forget to consider the value of prolonged service.

Finally, assemble your most trusted managers and put each of your projects on a whiteboard. Use sticky notes for each staff member, and negotiate a "best case" staffing scenario. Focus on this, and view the layoffs (or terminations or transfers) as a means of getting there.

Who's the Bearer of Bad News?
As the immediate manager, it's your responsibility to inform your staff that they're now unemployed. But you're not the only manager who should be involved: Your senior manager should also be on hand. One of my colleagues described a cowardly manager this way: "I was the first-line manager, and had been with my company about two years. My boss, the director, told me I needed to lay off five people, so I chose them. I prepared myself and got everything ready. On the day of the layoff, my boss stayed home. I laid people off because he hadn't planned which projects to do first, and he didn't even have the guts to show his face."

A good human resources support structure will give you the words and will often sit with you as you meet with your soon-to-be ex-employees. They will support you emotionally, guide you legally and assist in dealing with the aftermath.

Even if you're not normally from that office, you should be there to lay your staff off. One of my colleagues ran a group with three U.S. locations. He flew to each venue to be with the staff when the layoffs were announced, so that he could individually talk with the people being laid off and, even more importantly, with the survivors. He knew that to keep his credibility, he had to be there when the layoffs were announced, and deal with the survivors' concerns about the company's financial state. Otherwise, the survivors were going to leave.

Don't vacillate. Don't extend the impact. Try to make one cut—and then hold steady. Multiple layoffs convince people to expect more layoffs.

What to Say
It's often helpful to have a script for laying people off. The script ensures that you don't forget any critical information during an emotional time. At the time of the layoff, bring your employee into your office, and say something like this: "I have some bad news. We're laying off <whatever number of> people today. You're one of those people." Then, continue with the terms of the layoff: "You'll get this amount of severance pay (or salary continuance), and all your vacation pay. This adds up to <x dollars>. I need to take your card-key and credit card now. How much time do you need to clean out your desk?" Wait for the answer, and if you have some sort of time constraint, explain that. "You can have the next 30 minutes to clean out your desk, and then it's time to leave for today. Let's make time for you to come back and pick up the rest of your stuff tomorrow or the next day." Then, continue, "If there's something else you need, please call me (or the designated person)." If you're not in a position to let your staff clean out their desks, say, "I need to escort you out now, but let's make an appointment for you to clean out your desk next week."

Make sure you describe the circumstances of the layoff: Are they leaving today or in the future? Will they get a lump check today, or some sort of salary continuance? Will severance pay be part of the layoff package? Answer those questions first. Sometimes, companies give their employees outplacement services, or laptops in lieu of outplacement services, severance pay and so on. Know what your company will and will not pay for, and explain that clearly.

Also, give the employees the contact they'll need (probably someone in Human Resources) in case of further questions. No script can handle everything, and people, when they've just been told they've been laid off, aren't good at remembering details. If you provide the laid-off employee with a written statement, be sure that HR has signed off on it, or your script. If you haven't gotten HR's sign-off, remember that this paper can later be brought into court as an exhibit.

Don't forget to describe your availability for further discussion. Tell them which topics you can discuss and which you can't, and let them know when you're willing to meet with them. This will allow you to consider reference issues at another time.

While you're talking to your now ex-staff, don't apologize and don't explain. Your explanation, unless it matches the company's, can add legal fuel to an employee's grievance, leaving you and your company open to a lawsuit. But you can, and should, tell them that you're sorry the company had to have a layoff.

Before the meeting, discuss the subject of references with your HR department. With their approval, you can tell the appropriate employees, "Please use me as a reference for your next job." If someone requests a reference and you don't feel you can give a good one, you can respond, "Unfortunately, I can't give you a reference."

Deal with HR in post-layoff discussions, as well. While you can't formally bridge the gap between company and employee, you can respond to the employee's questions. And you can get HR to deal with some of the critical issues—including COBRA and rollover of pension plans, among others.

How to Do It
Make time to talk to each person individually. Once, I had to tell 30 people they were laid off. The human resources department insisted that I gather everyone in a group, tell them they were laid off, and then escort them out of the building. I did tell all of them together, but I also told them that I would be around to talk to each of them. I was able to give them names of recruiters and offer to be a reference.

There are some good reasons to lay people off in a group. First, you lower everyone's general anxiety of not knowing if they'll be called in next to get laid off. Second, the group announcement indicates that this was not a personal vendetta, but a company-wide decision. For a large group, the group announcement combined with your personal appointment (if the employee chooses it) seems best. This isn't a firing; it's a layoff.

When to Do It
Don't lay people off on a Friday afternoon. It's too hard for them to start looking for another job. And the survivors need some time to deal with the fact that other people have been laid off. If you lay people off on a Friday afternoon, you'll lose the week of work during the layoff and the following week of work. (People know what's happening behind all those closed-door meetings; they just don't know whom it's happening to.)

On the other hand, don't lay people off on Monday morning, because no one will get any work done the rest of the week. Lay people off in the middle of the week, so they can contact their network, and you can deal with the survivors to reorganize the work.

Where to Do It
I've been laid off in a hotel ballroom and in a private office, and I much prefer the private office. If you have to lay more than 10 people off, you may have to make a public announcement followed by a private conversation.

Laying people off in public and not following it up with a private conversation sends a specific message to your employees. You're telling the laid-off personnel that you don't care about them as individuals, and you're telling the survivors that you don't respect any of the people who work for you. The laid-off employees deserve a graceful exit, and the survivors deserve respect and hope. It's your job to provide this.

Preserving Your Corporate Assets
Being laid off is an emotional experience. Even if you've handled the situation with respect and care, some individuals may be angry enough to try to hurt you or the company. Especially if you're laying off a lot of people at once and you haven't let them know beforehand, you may want to turn off the file servers. If you've allowed people to keep personal e-mail and files on your machines, you need to give them time to get their electronic information.

Plan a time when people can come back in and get those personal files, but restrict their access to only those servers they need. Since that time will probably be during the day, let everyone know that access to these servers will be temporarily restricted.

Don't forget to ask for computers, phones, pagers, card-keys, credit cards and any other corporate asset your employees might have. In a large layoff, and sometimes even in a small one, you ought to plan on canceling credit cards and resetting locks, passwords and security codes. However, don't let a credit card cancellation or denial of e-mail access be the first notice someone has of a layoff, especially if the employee is on a trip representing your company. If everyone isn't in the office on the day the layoff is announced, you'll have to notify them by phone. As for tangible property, such as cell phones, you should be able to supply each person with a list of the company-owned equipment they have—and still cut off their phone access.

More importantly, deal with files and intellectual property. The employee who walks out with a half-built system may have gained far more than someone who nabs a laptop and a cell phone.

Survivor Strategies
Post-layoff survivors will have many reactions to the layoffs, including anger, fear and shock. The best way I know to deal with survivors is to gather your team and explain the situation. First, I explain the cash flow and revenue, so the employees can see where the money isn't. Then, I explain the project priorities, and describe which projects we're not going to do.

I find that this "not" list is a critical component for a successful layoff. Too often, I see organizations that, post-layoff, spread personnel far too thin, trying to achieve the impossible with a skeleton crew. You'll need all your observation and facilitation skills to make sure your staff can continue to work for the company's survival and growth.

The survivors need to see you ruthlessly prioritize the work and be consistent about the company's priorities. The more consistent you are and the more open-book management techniques you use, the more the survivors will be willing to continue working for you. If you're not consistent and open with the survivors, you'll lose the top 10-20 percent of your best people immediately after the layoff. You may lose some of them anyway, but your post-layoff actions are critical when it comes to holding onto your remaining personnel.

Some of my most challenging and exciting projects have occurred after substantial layoffs. As a team, we pulled together under challenging circumstances to accomplish a common goal. I share these experiences with my surviving staff, and check in with them during future project meetings and one-on-ones to ensure that morale is maintained.

Pull It All Together
If you have office locations across the world, be aware that what's legal and appropriate in one country may not be in another. Make sure you understand the laws of each location so that you can be as open about the situation as possible, while still treating employees appropriately. In addition, this article's advice is for non-union personnel only. Generally, unions have very specific rules about layoffs.

If you're managing an international layoff, investigate local as well as U.S. resources. In all cases, see HR and legal experts before the terminations, rather than after the suits.

Frankly, rather than conduct a massive layoff, I'd prefer to hire fewer people, keep some as temps, and work with constrained budgets. The best result then is that some will stay even when they expect to leave, rather than the opposite.

Be fair and be clear. Don't say more than you legally can.

I hate laying people off. On the other hand, if a layoff gives my organization some breathing room and I can treat people humanely, then I can live with a layoff, even if I don't like it. Make sure you choose layoff candidates based on their long-term value, and determine which projects you'll continue after the layoff. Know what you're going to say to the people you're laying off and the survivors. Lay people off in private when possible, and at a time when they can make their network for them. Make sure you haven't left your corporate assets vulnerable, but treat people with respect throughout the entire layoff process. Your ex-employees will remember that you tried to be a good manager, and the survivors will respect you—and remain productive employees.

Acknowledgments: I thank the following people for their insights and comments while reviewing this article: Mike Dedolph, Esther Derby, Dwayne Phillips, Sharon Marsh Roberts, Bertrand Salle, Steve Smith and Jerry Weinberg.

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