Companies are rarely penalized by the labor market for having mass layoffs. Similar to restaurant grades, an easy metric can change that, helping workers pick companies less likely to lay them off in the future.
In New York City, every restaurant needs to display a letter grade to show the sanitary inspection results. The grades are A through C. If you’re curious about how they work there’s a good analysis here.
The thinking is that the transparency of having the letter grade displayed would cause restaurants to be more conscientious about their sanitary conditions. It seems to have worked. A few years into the grading system the aptly named study, Impact of a Letter-Grade Program on Restaurant Sanitary Conditions and Diner Behavior in New York City, showed that restaurants getting an A rating went up by 35%. This, in turn, would reduce the number of food borne illnesses (which reduced medical costs ultimately impacting your healthcare premiums).
The study notes that before letter grades posted in restaurants, “Inspection results were available on the Health Department Web site. However, financial disincentives and the Web site posting were insufficient to drive improvements across the industry, with most restaurants cited for multiple public health hazards.” Compared that to, “88% (95% CI = 85%, 92%) [of diners] considered grades in dining decisions in 2012” after the grades were prominently displayed by the door of the restaurant. I can tell you personally I was ok sometimes getting pizza at a B location, but when it comes to sushi anything less than an A is concerning.
I’ve repeatedly written and spoken about how employees need to be personally responsible for their careers. When taking a job at a company they must assess how likely the company will grow or contract and their own opportunities for growth. It’s not unlike investing, your financial advisor can recommend assets but at the end of the day it’s your money.
But stocks and mutual funds have some degree of transparency. They all have prospectuses; since a prospectus involves a lot of complicated reading, many mutual funds provide ratings from third party rating agencies. What do companies have? They have 10-Ks and annual reports, but like prospectuses, they are long and technical. Perhaps it's time to have more summary information. While it’s true that Wall Street analysts will give buy, sell, and hold ratings on a company, they are typically looking at current market conditions or maybe a quarter or two ahead. This is often not sufficient for someone contemplating spending the next 4-5 years as an employee at that company.
It may be time to have a layoff rating on a company. Companies of a certain size, say 250+ people, would publish annual data on employment, such as hiring, firing, quitting, and layoffs. Some of this data may already be available for public companies. Like the financial ratings agencies, third parties could develop a rating for a company. My guess it needs to be more than just 1-5 stars, likely a score 1-100, or maybe a few dimensions. It's up to the agency how they want to do this, e.g. whether it's absolute or takes macroeconomic conditions into account, or if an executive should carry over some weighting from his or her prior company the first year. For example, lots of companies had layoffs in 2009 but maybe under some algorithms companies with below average layoffs could even go up in ratings. Just as mutual funds often show returns for 1 year, 3 years, 5 years, and 10 years, these scores can be shown for different times or a running score over a time period and a second score during the tenure of the current CEO.
https://layoffs.fyi/ have some layoff data as does Crunchbase but both are tech centric and the former is based on news reports and press releases. Any system needs to be more comprehensive, such as using unemployment data.
There are also review sites like Glassdoor. But these are people’s opinions of working at the company (valid, but not what is being proposed here). They’re also provided only when an employee feels like providing it. I’m proposing an objective count of layoffs (and firings) based on objective, reported payroll data.
This obviously shouldn’t be the only metric employees should use to evaluate a company, but it should be part of the mix. Companies pay very little reputational penalty for layoffs-–when was the last time you looked up the layoff history of a company prior to considering a job there? Just as the display of restaurant grades made it more accessible and more widely used by diners, resulting in better sanitary conditions, so does providing a layoff score make it easier for potential employees to access layoff risk, presumably resulting in more conscientious hiring decisions.
It’s critical to learn about corporate culture before you accept a job offer but it can be awkward to raise such questions. Learn what to ask and how to ask it to avoid landing yourself in a bad situation.
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