South-Western - Management  
Smoothing the Hiring-Firing Curve
Topic Human Resources Management
Key Words hiring, firing, layoffs, compensation
InfoTrac Reference A85966640
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News Story

In the late 1990s, companies couldn't find enough qualified employees to hire. The fall of the dot-com era and an economic slump resulted in 2.2 million people getting pink slips in the past 18 months. Many of these employees had never experienced lean times before and were ill-prepared for it.

Wall Street did not react well to mass layoffs either. One study found that from August, 2000, to August, 2001, the stocks of companies in the S&P 500-stock index that had no layoffs rose 9% on average. The shares of companies that announced layoffs of more than 10% of their workforces fell by 38% on average. Investors appeared to view job reductions as a sign that the company was in distress.

Many companies are now relying on contractors to handle tasks that aren't part of their core business. They are also putting more emphasis on performance reviews to weed out ineffective employees and get a better picture of the skills and talent in their organizations. They are tightening their hiring standards, and pricey executive search firms are being used less frequently.

For top executives, overall compensation is being tied increasingly to corporate performance. The bulk of executive compensation—70-80%—now comes in stock options, tying their compensation even more closely to performance.


What recruiting techniques are discussed in this article, and what are the pros and cons of each?


Define internal recruiting and external recruiting. Which is likely to have greater startup time and cost? Which motivates employees to perform their job better?


Name 3 things companies can do to prevent the hiring and firing swings that can occur with changing business cycles.

Source Eric Wahlgren, "Smoothing the Hiring-Firing Curve," Business Week Online, May 10, 2002.
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