On October 15, 2012, Citigroup CEO Vikram Pandit walked into the office of the bank’s chairman, Michael E. O’Neill, expecting a routine meeting and perhaps some words of praise. The day before, Citigroup had released a favorable earnings report that suggested the bank was beginning to rebound from the financial crisis. Citi had received a $45 billion bailout from the federal government in 2008, but taxpayers had since made a $12 billion profit on the investment. Pandit, who voluntarily took a one-dollar annual salary while the bank was struggling, was widely credited with moving the bank toward recovery.
But O’Neill opened the meeting by informing Pandit that three news releases had been prepared: one stating that Pandit had resigned from Citigroup, effective immediately; a second saying he would resign at the end of the year; and a third saying he had been fired without cause. Telling Pandit to take his pick, O’Neill added, “The board has lost confidence in you,” as reported by Jessica Silver-Greenberg and Susanne Craig in the New York Times.
Shocked, Pandit chose to resign immediately. Board members then asked for and received the resignation of his chief operating officer and right-hand man, John Havens. Michael L. Corbat, a Citigroup veteran, was named Pandit’s successor.
Pandit claimed publicly that the decision to leave was his own, but Silver-Greenberg and Craig report that O’Neill had been engineering Pandit’s ouster since taking over as board chair earlier in 2012. In March, some Citi board members blamed Pandit for the Federal Reserve’s rejection of the bank’s proposal to buy back shares and increase its dividend payments. Board members were also angered by a $2.9 billion write-down of Citi’s wealth management unit, which is jointly owned with Morgan Stanley, in the third quarter of 2012. Moreover, Citi shares had fallen 89% during Pandit’s tenure.
Citi senior executives were rattled by the boardroom coup, which some felt was “needlessly ruthless,” according to the Times. A week after the shake-up, top bank officials felt the need to convene a group of executives to try to put them at ease and prevent a mass exodus. Employees reportedly wondered aloud why they should remain at a bank that would treat its top executive so poorly.
As a manager of employees, sooner or later you will probably have to fire or lay off someone—whether due to disappointing performance, workplace conflict, a need to cut costs, or another reason—if you haven’t already. The task of letting someone go is fraught with anxiety and uncertainty. How should such conversations unfold? Should they be decisive and swift, as Pandit’s firing was, or should you engage the employee in a dialogue? Who needs to be involved in termination decisions, and what benefits, if any, should outgoing employees receive?
We tend to look at job terminations as unilateral decisions that supervisors reach about their employees. Moreover, organizations often issue dismissals abruptly to reassure customers, competitors, shareholders, or the public that they have made a clean break and are moving forward.
When terminations are swift and unilateral, individuals often exit their jobs feeling humiliated and disrespected. As a result, such dismissals have the potential to upset not only the affected employees but also your organization. Former employees who feel mistreated may be more likely to file wrongful-termination lawsuits that, whether warranted or not, will cost an organization time and money. And news of poorly managed dismissals can threaten morale within a firm and damage its broader reputation, as Pandit’s firing seems to have done at Citigroup.
“A termination is too often something that happens to an employee, without his input and with no clear dialogue about what is taking place,” writes Harvard Law School graduate David Zins in the Spring 2012 issue of the Harvard Negotiation Law Review. By contrast, Zins recommends viewing termination as an opportunity for negotiation. Even when an employee is on her way out, it is possible and even advisable for your organization to engage her in an in-depth discussion of a variety of issues. By looking at job dismissals as negotiations, you can reduce repercussions to the organization in addition to helping the outgoing employee make a fresh start.
A mandate to terminate
Sometimes you’ll need to make and carry out termination decisions quickly, as when you learn that an employee has been behaving unethically or criminally. More typically, however, managers reach such decisions gradually. They may even put off the final decision, dreading the conversations that it will entail.
Regardless of whether you must rush through a termination or can proceed more methodically, there are certain steps you should take to ensure that you are reaching a sound and fair decision that your organization fully supports.
Imagine that one of your team members, Jim, has failed to meet your expectations since you hired him nearly a year ago. You have had numerous conversations with him and provided him with extra training, to no avail. Jim tries hard, but his work just isn’t good enough. The time has come to let him go.
You know better than to simply usher Jim into your office and close the door. Firings and layoffs rarely occur in a vacuum; even the chairman of Citigroup needed to slowly cultivate the support of other board members for his plan to fire Pandit. Before letting an employee go, you typically need to discuss your intentions with your immediate supervisor (who may need to go to her boss), a human resources (HR) manager, and your organization’s legal counsel. That is, you need to actively work to secure a mandate for the termination from others in your office.
In his article “Great Deal—But How Will It Play at the Office?” for our October 2006 issue of Negotiation Briefings, Tufts University professor Jeswald W. Salacuse describes the importance of securing bargaining authority from key constituents in your organization for your negotiations with others. By doing so, you can increase internal acceptance of your plans and gain latitude to negotiate the terms of separation with an employee.
Negotiations with coworkers over a job termination can be exceptionally difficult, writes Zins, because the parties involved are likely to reach their own strong conclusions about the employee under discussion that may not mesh with your own. You may have lost faith in Jim’s abilities and believe he will never be able to meet your standards. As for your supervisor, she may marginally support your decision but have concerns about your leadership abilities. Meanwhile, the HR department and your firm’s legal counsel may fear that Jim will sue the firm for wrongful termination.
Building a mandate for Jim’s termination might involve presenting these parties with written reviews and other relevant documents that clearly demonstrate his poor performance—that is, strong grounds for dismissal. (Ideally, your supervisor and HR contact will already be aware of the problem, thanks to frequent discussions and careful record keeping.) You will also want to talk about what, if anything, you are empowered to offer Jim when and if he is terminated, such as a severance package.
It’s important to approach these parties in the right order. You might begin by securing your boss’s support for Jim’s termination. Then, together or separately, you and your boss could approach HR, the legal department, and any high-level personnel who need to be consulted. Your boss’s support will give you leverage in conversations with those who are less familiar with the specific situation and may have questions about how the termination could affect the organization.
Don’t fear their emotions
After securing the support of key parties within your organization, you are faced with the most difficult task: informing the employee that you won’t require his services any longer. Most of us dread such meetings. You are likely to feel upset about having to let the employee go, even if you believe that the termination is necessary and know that you will be relieved by his departure. And you probably fear the employee’s reaction: Will he lash out at you, become upset, or otherwise make you feel guiltier than you already do?
To minimize displays of emotion and lessen their odds of “saying the wrong thing,” managers typically try to keep these conversations brief and businesslike. In the case of Citigroup’s firing of Pandit, for instance, O’Neill appears to have given Pandit mere moments to digest the fact that he was being fired and decide how his termination would be announced.
That’s generally a mistake. As we noted above, employees who are not given an opportunity to speak their piece are likely to feel disrespected and rebuffed. Even those who feel relief about leaving may decide to bad-mouth the organization, share internal secrets, or file a lawsuit if they feel that you have treated them coldly and without respect for the time and effort they devoted to the company. A swift dismissal can backfire, increasing the possibility of a drawn-out, conflict-ridden separation.
By contrast, when you encourage a departing employee to air her thoughts and feelings about her departure, you demonstrate that you care about her and believe she is capable of engaging in a meaningful conversation even amid the stress of termination. Simply launching such a discussion can go a long way toward restoring the employee’s shaken sense of dignity.
Through the hallmarks of active listening—empathic inquiry, sincere acknowledgment, and expressions of concern—you can help outgoing employees “separate their sense of self-worth from their performance struggles,” writes Zins. That’s an admirable goal in itself, but it also makes the overall termination discussion easier and more productive for both sides.
Allow them to negotiate
When you give an employee a chance to discuss his feelings regarding his termination, you are likely to uncover underlying concerns that you can draw on to promote a smoother transition for both him and the organization. In this manner, a discussion about feelings can turn into a negotiation in which both parties look for tradeoffs to meet the other’s interests.
Whenever possible, schedule such substantive talks for another day. You can demonstrate goodwill and promote more constructive negotiations by giving the employee time to get over her initial shock and prepare to negotiate rationally. If you do have a draft severance agreement or other documents ready, encourage the employee to look them over, consult with an attorney, and meet with you again to discuss the details. It would be unfair and even unethical to ask her to sign a binding contract on the spot.
When you meet again to negotiate, your goal should be to look for ways to improve both sides’ outcomes while continuing to discuss feelings. Suppose that an employee who had personality conflicts with coworkers reveals that he is terrified of trying to find a new job in a tough economy. You might offer to write him a letter of recommendation that focuses on his strengths, something that would cost you little. In return, you might ask him to sign a nondisparagement agreement to keep him from bad-
mouthing your company.
We offer negotiation advice to newly terminated employees in the two sidebars to this article. Here are possible concessions an organization might seek from an employee:
■ A release from future liability (for charges of discrimination, wrongful discharge, and so on).
■ A nondisparagement agreement in which the employee promises not to speak negatively about the organization and its employees.
■ Assistance in wrapping up the employee’s work for the company.
A final note: Zins warns of the danger of setting bad precedents in negotiations with departing employees. Suppose, for example, that you are thinking about offering someone a generous severance package as a means of “settling” her accusations of discrimination. If this deal became public, it could encourage other employees to file similar charges in pursuit of a payout. To ward against this possibility, discuss the pros and cons of such offers in advance with HR, your supervisor, and your organization’s legal counsel.
Originally published in the January 2013 issue of Negotiation Briefings.