Layoff Or Payoff???

In his memoir ‘White House Years’, former secretary of state Henry Kissinger discussed the Sham Option Technique where the President Richard Nixon was given three options with two options being illusory and only one plausible choice:

“Here was the standard bureaucratic device of leaving the decision maker with only one real option, which for easy identification is placed in the middle. The classic case, I joked, would be to confront the policymaker with the choices of nuclear war, present policy, or surrender.”

In this unprecedented time where lockdowns have forced various companies to either temporarily or permanently layoff their workers let’s assume you are the CEO of a company and to survive, your board of members gave you following three options:

  • Close down the company.
  • Temporarily or Permanently lay off employees.
  • Surrender to circumstances and close your eyes to continuous loss.

With all eyes glued to you, looking and waiting for your decision, what will you decide??

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The year was 1994 when J. J. Irani – CEO of Tata Steel also faced a similar situation. With deregulation and as Indian borders were opened for International Trade, downsizing was the only best option left for Tata Steels. Right from the time of their establishment, having their goals much bigger than profits, mass firing somehow clashed with their values. However, to be competitive and to be fair with their employees Irani came up with a scheme that echoed their values as well as India’s expectations from their company.

Out of 78000 employees he selected the ones he wanted to fire and offered them an Early Separation Scheme(ESS) which had the following perks and benefits:

An employee under 40 was guaranteed full salary for the rest of their working lives until normal retirement age of 61. Older workers were guaranteed an amount greater than their current salary (20% to 50% depending on their age). If they died before reaching retirement age, their families would keep on receiving the full payment until the worker would have reached that age.

The ESS was so generous that one of the industrialist sent him a note saying: “You either have too much money or not enough brains.” ESS which looked so economically foolish at start, turned out to be the best cost cutting method by Tata Steel. ESS helped Tata Steel in following ways:

  • Salary given was constant until the age of 61 (no inflation was accounted for)
  • No retirement plan contributions from the company
  • No payroll taxes paid by the company

Within 10 years company’s work force came down from 78000 employees to 47000 employees and for more than 20 years company is known for its excellent performance. For their former employees Tata provided intensive counselling on how to get a new job and assisted them to get one with salaries better than what Tata was offering them.

People judge companies not by their profits but how they treat their employees. Irani did downsized his company but he kept the company values first. During this unprecedented time when the relationship between an employer and an employee is a pressing debate – when people are counting on you – it’s time not to fall victim to the tunnel vision and time to take some bold actions of your own. Remember you can’t go wrong doing the right thing. Now as a CEO of your company, let me ask you again – “What decision or option will you opt for?”


  • Decisive : How to make better choices in life and work.
  • The Greatest Business Decisions of all time.

Published by Harsh Pandey

A shapeless Pigmy searching for his own awakening. Otherwise, I am a master mariner, commanding merchant ships on international voyages.

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