In one case, a manager passed a worker in the hallway and said, "By the way, this is your last day. Go down to personnel." In another, a disgruntled employee pointed a gun at a manager's head. And in yet another, employees were all contained for hours in a giant room to feed off each other's anxiety until all had been told whether their jobs would be terminated.

At a time when mutual fund companies are increasingly scaling back their operations, nearly 50 executives gathered at the National Investment Company Service Association's East Coast Regional Meeting Wednesday to discuss the best--and worst strategies--for laying off workers.

Nearly every person in the room said their companies had issued directives to cut or limit spending in the past six months. Another half said their firms had frozen hiring. About a half-dozen said their companies would downsize in the next six months.

"We've seen it all," said Catherine Carlisi, a human resources consultant who spoke at the seminar. She issued a chilling warning to executives for when things go wrong: Know where the nearest hospital is and, perhaps, keep plain clothes security on hand.

Slashing Staff the Efficient Way

But cases where those measures are necessary are, of course, rare. Carlisi and Barbara Folb, also a consultant, said that when firms move to eliminate staff, they need to remember to be respectful of soon-to-be-former employees. And even if emotions run high, they are more likely to defuse the situation with a few steps.

"I tell them this is tough for me, too," Carlisi said. She also asks: "What can we do to stay in touch with them and what can we do to help them in their job search?" And she encourages employees on the outs to talk about how they're feeling. If employees feel like they are being listened to, she said, they're less likely to become so upset that they lose their tempers or take more drastic measures, such as bad-mouthing the company on their way out the door or sabotaging company projects.

Folb recommends that companies plan for layoffs and time them appropriately. Fridays are bad for firing staff because they have the entire weekend to wallow in the bad news--and they are helpless to do anything about it. Tuesdays and Wednesdays are best because employees have time to start looking for new jobs before the weekend, Folb said.

Protecting Against Lawsuits

But there are other sticking points in the process that are more difficult to address. Downsizing can be a legal and emotional minefield where missteps result in lawsuits or worse. The consultants said parting with staff on good terms makes good business sense because happier former-employees, or at least those who feel they were treated fairly, have proved less likely to sue.

One mutual fund executive said his firm was planning to reduce staff in the wake of a recent performance review. He suggested the company could cut the worst performers first. Would that be a good idea? he asked. Carlisi said it was a viable option, but "don't tell the surviving staff that." She said a poorly worded announcement might torpedo morale. Instead, she recommended management tell staff members: "People most central to the company's success were kept."

In addition, some companies have opted to let individuals or entire departments continue to work, knowing they will be laid off at a certain date, in an effort to give them time to find other jobs. The strategy works, attendees and consultants agreed, when an employee and management both understand that the job isn't working out. Perhaps a worker is unhappy in his position. Or perhaps a worker would like to spend the next two months trying to find a different job in the company.

Otherwise, an employee who knows she will be fired in a few weeks or months obviously won't give her work much effort, the consultants said. And, when more than one person knows they will leave a company soon, Carlisi said, "a whole department can be like the walking dead--for six or nine months or however long it could go on."

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