The Thinking on Layoffs Is Shifting
Zoom or in person? Wednesdays or Fridays? A month’s severance? In the age of Slack, social media, and worker empowerment, the stakes get higher.
Good Morning!
Here are today’s highlights:
Gene Marks says there’s a lot to like in Secure 2.0, the new package of laws governing retirement benefits.
While the Cheesecake Factory breaks all the rules and thrives, the word’s best restaurant concludes that fine dining is unsustainable.
Much like gamblers, some entrepreneurs can’t stop taking on challenges.
Economist Alan Blinder says inflation collapsed, and nobody noticed.
HUMAN RESOURCES
Smaller businesses can learn from the debates about how corporations are handling layoffs: “Executives across the corporate landscape say they are closely watching to see how others go about the process. Some human resources chiefs are asking teams to build spreadsheets to track how many positions are cut by peers and what rivals say to employees during the reductions. Laid-off workers, meanwhile, are comparing notes on severance agreements and beginning to push back on companies if they feel terms fall short, a situation that has at times led to tense all-hands sessions and pointed questions to executives.”
“Companies say it is important to handle layoffs carefully to both protect employers’ reputations and to help maintain morale with the employees who remain.”
“Some executives are now debating whether it is easier for employees to learn of a layoff on Zoom versus in-person, said Andy Challenger, senior vice president at outplacement firm Challenger, Gray & Christmas. ‘It almost seems cruel to ask someone to commute into the office just to let them go,’ he said.”
“Managers often flub the conversations by saying, ‘This is so hard for me,’ Mr. Challenger said. That phrase can irritate employees facing a job loss.”
“Whereas some companies once picked Friday as the preferred day to cut jobs, thinking it would give people a weekend to process a tough situation, many now see a midweek layoff announcement as more humane.”
“‘Take accountability, recognize the problem, be more generous than you have to be and as transparent as you can,’ Mr. Hoffman said. ‘That’s the playbook.’” READ MORE
Do your employees seem less ambitious than they used to be? “At law firm Nixon Peabody, associates have started saying no to working weekends, prompting partners to ask more people to help complete time-sensitive work. TGS Insurance in Texas has struggled to fill promotions, and bosses often have to coax staffers to apply. And Maine-based marketing company Pulp+Wire plans to shut down for two weeks next year now that staffers are taking more vacation than they used to. ‘The passion that we used to see in work is lower now, and you find it in fewer people—at least in the last two years,’ says Sumithra Jagannath, president of ZED Digital, which makes digital ticket scanners. The company, based in Columbus, Ohio, recently moved about 20 remote engineering and marketing roles to Canada and India, where she said it’s easier to find talent who will go above and beyond.”
“Since the onset of the pandemic, several employees have asked for more pay when managers asked that they do more work, she says: ‘It was not like that before Covid at all.’”
“Many white-collar workers say the events of the past three years have reordered their priorities and showed them what they were missing when they were spending so much time at the office.”
“At Portland, Maine, marketing and advertising firm Pulp+Wire, employees got three weeks of vacation pre-pandemic, and ‘they never took as much as they should have,’ founder Taja Dockendorf says. The firm, whose clients have included Petco and Allagash Brewing Co., moved to an unlimited vacation policy this year.”
“Now, so many people want to take time off in the summer and around the winter holidays that Ms. Dockendorf says she is considering shutting down the entire office for a week twice a year. That would require telling clients far in advance to expect dark weeks, she says.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Check out the new retirement plan rules: This week, Gene Marks says that the politicians behind Secure 2.0 are smarter than you think. The omnibus spending bill that recently became law includes a slew of generous changes to the rules that govern retirement benefits. The changes are designed to encourage both employees and owners to sock away more money, and they include a $1,000 tax credit per employee for owners who match employee savings. Plus: are non-compete clauses of any value to small businesses? And the IRS blinks on its requirement that third-party payment platforms issue 1099-K forms.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
THE ENTREPRENEURIAL LIFE
Are you addicted to taking on challenges? “In my book, Leading the Leaders, I describe a leadership style I have identified as Type (E). These are people that are very creative, and in extreme cases, arsonists—meaning they have too many ideas, all of which they insist on implementing, often without any testing, and this can burn a company down to the ground. The way to get a Type (E) excited and instantly engaged is to tell them there is a challenge or a problem and no one knows what to do about it. They will jump on the task right there and then. And the more difficult and impossible the challenge, the more committed they will be to overcoming it. I asked one of my clients, a multi-billionaire, ‘What do you need more billions for? What will you do with more billions? You have already many, many yachts and houses and planes. What else is there?’ His answer: ‘It’s another mountain to climb. Another challenge.’”
“Take Elon Musk. He continually brings on more and more challenging projects. He almost went belly up with Tesla. Survived. So, he moved on to the next challenge.”
“And it’s easy to predict that he will continue to take bigger and bigger chances as he seeks the limits of what he can do. Maybe he has found his limit with Twitter. If not, he will try something else that is even riskier. Until he fails.” READ MORE
BUSINESS MODELS
The world’s best restaurant is closing after concluding that fine dining is no longer sustainable: “Since opening two decades ago, Noma — the Copenhagen restaurant currently serving grilled reindeer heart on a bed of fresh pine, and saffron ice cream in a beeswax bowl — has transformed fine dining. A new global class of gastro tourists schedules first-class flights and entire vacations around the privilege of paying at least $500 per person for its multicourse tasting menu. Noma has repeatedly topped lists of the world’s best restaurants, and its creator, René Redzepi, has been hailed as his era’s most brilliant and influential chef.”
“Noma will become a full-time food laboratory, developing new dishes and products for its e-commerce operation, Noma Projects, and the dining rooms will be open only for periodic pop-ups. His role will become something closer to chief creative officer than chef.”
“The decision comes as Noma and many other elite restaurants are facing scrutiny of their treatment of the workers, many of them paid poorly or not at all, who produce and serve these exquisite dishes.”
“Mr. Redzepi, who has long acknowledged that grueling hours are required to produce the restaurant’s cuisine, said that the math of compensating nearly 100 employees fairly, while maintaining high standards, at prices that the market will bear, is not workable.”
“The Finnish chef Kim Mikkola, who worked at Noma for four years, said that fine dining, like diamonds, ballet and other elite pursuits, often has abuse built into it. ‘Everything luxetarian is built on somebody’s back; somebody has to pay.’” READ MORE
Meanwhile, the Cheesecake Factory’s menu is over 20 pages long, contains 250 items, and is a case study in everything restaurants should never do: “If there is one rule at the Cheesecake Factory, it’s that the conventional wisdom of the restaurant industry — keeping costs low, concepts simple, and menus under 200 items — is meant to be ignored. Year after year since 1978, the Cheesecake Factory has succeeded in abundance. Tens of thousands of diners pile into its 211 North American locations (the company opened its 211th location in Corpus Christi, Texas, in December). In monetary terms, that amounted to around $750 million of revenue per quarter in 2021 and nearly $3 billion per fiscal year. The Cheesecake Factory is often heralded as one of if not the ‘favorite’ sit-down chain restaurant to eat at.”
“In my informal survey of Factory fans, it wasn’t just the memories that stood out, but the absolutely stunning variety. ‘It’s the ultimate our-group-can’t-agree-on-a-place restaurant,’ said one responder, ‘A mall food court with table service.’”
“The [menu] expansion, according to the Cheesecake Factory’s origin story, happened because of owner David Overton’s unwillingness to let any other local restaurant compete. As he told Thrillist in 2018, ‘I didn’t want another restaurant to open down the block and take my business away,’ and so began adding anything someone might want to order. The more dishes — Mexican food, different kinds of pasta— that they added to the original 26, the more people responded positively.”
“Overton told Thrillist in that same interview that he wouldn’t have made the menu so big and expansive if he had known more about the industry and how restaurants are supposed to operate.” READ MORE
A Dallas restaurant group is adding a 3-percent service charge to cover employee benefits: “Anyone dining at Rye or sipping cocktails at Apothecary on Lower Greenville will see a new 3-percent charge on their checks. Walkabout Hospitality Group, the restaurant group behind the two concepts, announced that it is implementing the automatic charge in order to help fund employee benefits, including healthcare coverage and paid time off. ‘This is a major accomplishment for our team,’ says Tanner Agar, owner of Rye and Apothecary. ‘We’ve grown enough that now we can start to do some of the work we’ve wanted to do that we were just too small to do before.’”
“The 3-percent charge is now listed as a line item separate from gratuity on the bottom of every check, and a QR code on the menu takes guests to a web page that outlines the benefits all full-time employees receive, like paid time off and FMLA-compliant family leave.”
“There are restaurant operators who use ambiguous service fees to pad bottom lines instead of benefiting employees, Agar says, and so full transparency about the charge and its uses is necessary.”
“‘You will have a better experience if you’re served by people whose whole lives are supported and who are able to go on vacation, take time off to see people they love, go to the doctor and get medicine if they’re sick.’” READ MORE
THE ECONOMY
Mark Zandi keeps finding reasons to believe a recession is unlikely:
Alan Blinder says inflation fell without anyone noticing: “Maybe we should start the new year with some good news: Inflation has fallen dramatically. No, that’s not a prediction; it’s a fact. With one month remaining in 2022 (in terms of available data), inflation in the second half of the year has run vastly lower than in the first half. In fact—and this is astonishing—it’s almost back down to the Federal Reserve’s 2 percent target. Even more astonishing, hardly anyone seems to have noticed.”
“Hardly anyone has noticed this stunning development because of the near-universal concentration on price changes measured over 12-month periods, which are still 7.1 percent for CPI inflation and 5.5 percent for PCE inflation.”
“So is today’s true inflation rate a mere 2.5 percent, meaning that Jerome Powell and the Federal Reserve can relax? Not quite.”
“First, we’ve had this wonderfully low inflation rate for only five months. That’s longer than one or two months, which is why I’m writing this article. But it’s still too short a time to declare victory.”
“Second, if you concentrate instead on ‘core’ inflation, which excludes food and energy prices, annual inflation over the past five months has run higher: a 4.7 percent annual rate for the CPI and 3.7 percent for the PCE. So the Fed’s fight against inflation isn’t over.” READ MORE
RETAIL
We may never return to the days when car dealers kept a 60-day supply on the lot: “‘The domestic brands have a 30-, 40-day supply, which is still very, very low compared to historic levels,’ said Zack Krelle, industry analyst at TrueCar. ‘It's certainly better than it was a year ago,’ Krelle added, ‘but nowhere to the level of abundance that it used to be.’ That may be because over the past few years, automakers learned that customers will wait — and pay — for what they want. Even if they could revert to pre-pandemic inventory and wipe away supply chain issues, car-buyers have adapted to pandemic-induced trends. A recent study out of consultancy Deloitte found that 48 percent of U.S. consumers don't mind waiting anywhere from three weeks to three months for their next vehicle.”
“Especially with the dawn of EVs, Ford's CEO Jim Farley anticipates banking on a low-inventory, build-to-order approach. ‘The customer orders a vehicle, and then we ship the vehicle to the customer,’ Farley said in a Q2 earnings call. ‘That's what I mean by a low inventory model.’” READ MORE
Thanks for reading, everyone. — Loren