The seeeeeeriously cool way out of a downturn

wimThe economy may be bad but Wim Roelandts isn’t really bothered much by that because, as he told me, this is his 8th recession so far.

Wim’s worst crisis as a leader came in 2000 when Xilinx, a computer chip manufacturer based in  Silicon Valley, got hit hard and fast by the dot-com crisis. In the December 2000 quarter their revenue was $450 million – 9 months later, their revenues for the September 2001 quarter was down to only $225 million.

Something had to be done, and fast, but what? Wim Roelandts, an affable Belgian who is usually seen with a smile on his face, was the CEO back then and was clearly facing some tough choices. And while Xilinx’ competitors wasted little time in laying off a large percentage of their staff to cut costs, Wim felt here had to be a better way.

He came up with a plan for his organization and the 2,800 people in it and called it “Share the pain”. The plan had three major components.

1: Cut salaries, not jobs

Wim felt strongly that if they laid off people now, they’d just need to rehire them 5 or 6 quarters later when business improved. Couldn’t there be a way that kept people on even during the crisis?

So they instituted a pay cut that was progressive and voluntary. Progressive meant that your pay cut depended on your salary – the higher your salary, the higher your pay cut. These were some typical pay cuts:

Job Pay cut
Production-level employees 0%

Junior-level engineers

6%
Senior engineers and middle managers 9%
Directors 12%
Vice Presidents 15%
CEOs (that’s Wim!) 20%

So while production employees were not affected at all, Wim himself took the largest pay cut – 20% of his salary.
They might have given everyone a 10% pay cut, but chose this way because it shares the pain – not the pay cut. When you’re a production-level employee with a salary of around $30.000-40.000 trying to live in the Silicon Valley area, a 5% or 10% pay cut could really damage your quality of life. When you’re a VP, 15% is entirely survivable.

Secondly the pay cut was voluntary. This wasn’t part of the original plan but it turned out that Xilinx employees in Europe would have to agree to take the pay cut voluntarily, so Wim decided to make it voluntary for everyone.

Amazingly, every one of the 2.800 employees chose to take the pay cut – except one. And no, that one person was not singled out for reprisals of any kind. Voluntary means voluntary. Thinking back to this entire time, the one thing that Wim is the most proud of, is that everyone agreed to the pay cut in order to save their co-worker’s jobs.

Later in the process, when the pay cuts turned out not to be enough to keep the company profitable, they introduced more measures, like closing the company for one day every other week and the option of taking a paid leave of absence to take an education.

Though Wim was very careful never to promise that there would be no lay-offs, this plan meant that Xilinx got through the crisis without laying off one single, solitary employee.

2: Communicate openly

Wim knew that honest communication was essential. His motto was to “keep communicating and force his management team to communicate.”

In practice, he organized meetings with his entire management staff and the managers below them as well. He knew, that when employees had questions, they wouldn’t come to him or the VP’s, they would come to the managers closest to them, so it was important that they knew what was happening and remained optimistic.

This is not easy, as Wim readily admits. “I didn’t know any more than anybody else what was coming and so the tendency is to close your office door and don’t talk to anybody because if you talk with someone, they can ask questions that you don’t know the answers to.

But that’s actually the wrong thing to do, you have to get out there. You have to talk with people and even more important you have to force your management to get out and talk, talk to people, tell them when you don’t know but also tell them all the things you know and good friend to give people some hope that things will get better soon.”

In these sessions with the managers, Wim would go over the company’s situation honestly and thoroughly and then they would discuss how to communicate this to the employees. Typical topics of discussion were:

  • What can we do as managers?
  • What do we say?
  • How do we act?

A key aspect of these meetings was also to listen to the middle managers, so they felt good about the company’s situation and could pass that feeling on to their people.

3: Involve employees in decisions

They involved people in all new initiatives by consulting focus groups of employees. They’d get 20 employees together, tell them about what they were planning to do and get their honest feedback.

One specific decision that came out of these focus groups concerned new employees. Originally, the company had planned not to include them in the pay cuts. When this was tested, the new employees protested – they wanted to be treated like everyone else and “share the pain” too.

An intended byproduct of the focus group sessions was that information about the crisis and how it was being handled spread quickly throughout the organization. When the initatives were announced to the employees, most people had heard about them already, which created more trust.

Wim himself

That was his plan for the organization, but there was another equally important aspect: Himself!

On a purely personal level, Wim did three things to handle the crisis. First, he did his best to be positive. Yes, the very survival of the company was at stake, but he still had to believe that there was a way out.

Wim put it like this:

“You have to be positive yourself. If you are negative and you come in the factory everybody’s going to be looking at you and getting depressed. So however bad it is, however sad you feel, however worried you are, you come to work in the morning and you put on a big smile and you feel optimistic and you exude optimism and positive thinking.

When you are the CEO and you see the numbers go down every week or every day, it’s very easy to become depressed yourself and you really have to find the inner strength.”

Secondly, he saw the crisis not only as a threat but also as an opportunity. This has become something of a stale and ridiculed cliché (the next time some tells me, “We don’t have problems, we have opportunities,” I may punch them) but Wim saw this crisis as a chance to get creative and try something new. To him, creativity and innovation shouldn’t just be applied to creating new and exciting products but also to leadership – to find new and exciting management solutions.

And thirdly, Wim saw this as a chance to prove that there is indeed a better way to handle a crisis than the tried-and-stale ones. He wanted to show the world, that this can be handled differently. “I’m gonna show them” may not be the noblest motivation, but it’s not uncommon. All the leaders I interviewed for this book expressed the same desire to “show them!”

Now make no mistake, Wim faced a lot of resistance to his approach. He had heated discussions with some board members, who wanted to know why he didn’t just lay off 10% of the employees when everyone else in the industry was doing it. The same arguments came from outside the organization from financial analysts, who also would have been much more comfortable with the traditional approach.

Time proved Wim right and the result of this creative approach to crisis leadership was amazing. The results were:

  • Profitability – Except for the second quarter of 2001, when there was an inventory write down, Xilinx was profitable every quarter of that recession.
  • Customer satisfaction – Xilinx kept the same people in sales so the customers saw the same people they were used to talking to.
  • Market share – Xilix gained 15 point of the market share during the crisis. Because they kept their people they could keep momentum.
  • Product development – They had time and people to keep developing new products – essential in their high-tech industry.
  • Recruitment and training savings – After three quarters the market started to improve. Because Xilinx had kept their people, they did not have to spend a ton of money hiring and training new people.
  • Motivation and happiness at work – This showed employees that they were truly valued. Not just on paper and in good times, but also in a down-turn.

At first employees were skeptical, seeing it as a cheap trick. “Yeah, you say you’re not doing lay-offs, but it’s just a matter of time,” was a common attitude. But as many other companies in the area had mass lay-offs and Xilinx employees saw friends losing their jobs and having to sell their houses they started to come around. During that time Xilinx participated in the Fortune Magazine 100 best places to work and came in the top 10 – in the middle of the company’s worst crisis ever.

The effect was also felt outside the company. One day, about two years after the crisis when Xilinx was back on track, Wim was just arriving at the office when he was approached by a female employee who happened to arrive at the same time.

She told him this story:

“My husband got laid off and so yesterday evening we had a family meeting with the children. We had to tell them that their father had been laid off and that they had to do some savings and we had to be very careful how we spend money, to make sure that we get through this tough time until our dad finds a job again.”

One of my children asked ‘but mom what is going to happen if you get laid off’. and I was so proud to say that I work at Xilinx and Xilinx doesn’t lay off people.”

Wim told me that this was his proudest moment in the whole process.

23 thoughts on “The seeeeeeriously cool way out of a downturn”

  1. This is great, thank you so much for sharing it. I have friends working for companies who’ve annouced 10% across the board cuts in salary. My first thought was that my middle level friends could survive this, but could those at the lower support levels. What a great company and leader.

  2. Great example of exactly what I have been promoting through my new website http://www.alternativestoredundancy.com. Thanks for the evidence that it does work! Most people have forgotten or don’t know that it was becaue the company didn’t lay off anybody during the Great Depression that IBM became the power house in its field that it did! Instead of laying off people it used the lean times to train and develop them! What a contrast to the modern business leaders whose major concern seems to be to justify their own bonuses and pensions!

    Definitely a lesson to be learned there.

  3. Thanks a lot Alexander!

    This is a very inspirational post about others ways to cut costs apart from firing people! I completely agree! The classic knee-jerk reflex of throwing out people just creates more fear and stress within the organization. This causes people to become less creative & less innovative. It negatively influences teamwork, trust and peoples immune system. I think that is something you really don’t need when you are trying to survive as a company!

    Keep up the good work and I am looking forward to your book!

    Best regards,

    Onno Hamburger
    Happiness coach

  4. Love this post! I think it’s easy to write off the idea of happiness at work as just touchy-feely stuff that can’t have any meaning in the real world. But this post provides real-world evidence of the value of happiness principles in the workplace. Kudos to Wim!

  5. The idea of paycuts is a tough one to accept! But I support it. Question is, do CEOs, VPs and senior managers?

    I wonder, it’s commonplace for people to live to their means. Even the top brass. Will a paycut not be perceived with the same angst and fear for the most senior people as it does for the production-level staff? I think it does.

    I’m not arguing against paycuts as the most appropriate response in many situations. I am questioning whether the approach will be adopted in more cases than jobcuts will.

    If it will be, why hasn’t it been the de facto intervention so far? It isn’t as if technology has changed the landscape.

  6. Businesses need your book NOW. Please consider how sabbaticals can be a low-cost alternative to lay-offs. http://tiny.cc/nAu41 A strategic sabbatical program can build morale and productivity and also position the company as a progressive workplace – a great place to work.

  7. Of course, right after Wim left, Xilinx let go of 250 people [1] (7%) followed by about 30 more. So much for touchy-feely. There are rumors of more layoffs as we speak. It should be noted that these layoffs happened *before* this article was written.

    [1]http://www.edn.com/article/CA6566989.html

  8. Blobert: Yeah, I knew about that. It’s sad, because it shows that this more creative way of handling a crisis is tied to one person, in this case Wim. Once a new CEO came in, it was back to the old ways – regardless of the fact that Wim’s solution worked incredibly well.

  9. Just witnessed the latest round of layoffs,

    http://www.eetimes.com/showArticle.jhtml;?articleID=216500963

    Pretty brutal. I do wonder how many of the firings were politically motivated. When the pond starts drying up….. it’s not always the most talented contributors that survive.

    But, as inspiring as Wim’s leadership during the last crisis, did he make the right decisions in the long run? Since then, Altera has gained market share, and startups have undercut once fat profit margins. Did the company’s strategic missteps have their root in Wim’s keeping people in their jobs? Who knows….. not me. But one thing’s for sure, a lot of the industry’s best will be somewhere other than Xilinx when this ‘Great Recession’ ends. That is, assuming the jobs don’t re-emerge in China and India, where an army of highly educated people are hungry to work for a fraction of the cost.

  10. It is very inspiring to see such leadership from top. Most of the time, the Management and Human Resource leaders choose the easy option out. They refuse to think out of the box to innovate. Seldom do they realize the impact of the layoff on the laid off employees and their families and surviving employees. At the first instance of market recovery the surviving employee would look for a better opportunity, because they realize the organization has no commitment towards them.

    It is very rare to find leaders like Wim, who are willing to take risk and standup to it.

  11. Hello Alex, Thanks for sharing this article.

    Truely inspirational of Wim to have strived against the popular norm and found an innovative yet balanced and rounded way to deal with such tough times! I guess such contributions of his, over the years, resulted in nurturing a truely wonderful work environment at Xilinx! Its an aspect of the age old legacy of the TATAs as was in India before! But guess, given business pressures, like that culture has changed so has that of Xilinx… Unfortunately, like another post above notes, we have had a second round of layoffs in less than a year. (And there are rumors of more?!). At least I have seen better days to be able to compare now… Thanks Wim! (would like to get in touch if you read this.)

    Unfortunately the Xilinx culture has changed since.. Wim, I guess thats the only gripe I have – maybe a better choice could do? Though I guess, any successor would have had a hard time to excel-beyond or even match-up to the legacy you left behind!

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