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Firings Fuel a Boom In Outplacement

Companies increasingly pay to help former employees find new jobs.
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Job losses in 2008 were worse than any year since 1945, according to the U.S. Department of Labor. Now an industry formed in response to unemployment after World War II is booming again. Outplacement—career counseling for laid-off workers—began to help the wave of GI's returning to the U.S. labor market. Today, outplacement firms are again doing a brisk business, hired by companies to help laid-off employees find new work.

"Whether it's by number of clients, revenue, anyway you want to measure, (business has) doubled since last year," said Kate Wendleton, founder and president of the 5 O'Clock Club, a New York-based company whose clients include Blackrock Financial, Ernst & Young and Time Warner. "We've been in business since 1986, and this is by far the largest number of people that we're servicing."

Wendleton, who uses career counselor consultants rather than staff, estimated she had 80 counselors a year ago, and now has 200, with 30 more in training. Her business offers career coaching to laid-off workers, individually and in small groups. The coaching and support last for a year at a cost ranging from $1,000 to $25,000 paid for by employers.

Outplacement business in the United States was up 57 percent in the last quarter of 2008 compared with a year earlier, according to Insala, an outplacement software company. Insala measures growth by the number of users of its flagship product, EmploymentTalk, which currently has about 240,000 users.

"In the fall, things started to change very rapidly and the career transition part of our business has started to skyrocket," said Insala CEO Phillip Roark. Insala normally sells between five and eight software systems to large companies every year. Now, Roark said, "We've sold that many in the last 60 days."

Roark said many recruiting firms are venturing into outplacement as their traditional business shrinks.

That doesn't concern Barbara Barra, executive vice president of Lee Hecht Harrison, which is one of the two biggest outsourcing firms in the world with 243 offices.

"It's very easy to say, 'We now do career transitions," Barra said of her new competition. Although it's easy to join the field, Barra said it's harder to succeed: "There's not a lot of barrier to entry. There might be barriers to outcome, but not to entry."

She said Lee Hecht Harrison's clients are large clients who appreciate the company's breadth. Often Lee Hecht Harrison will open a career center on-site if a client fires large numbers of employees, like a plant closing.

Businesses have a number of reasons to spend valuable cash on employees walking out the door. The length of a former employees' job search can determine costs for unemployment insurance. Other motivations include lawsuit prevention and preserving business relationships. Then there's the morale of the remaining employees.

"The departing employee may join a competitor, and if they are angry at how they were treated, they might not treat information as confidential," Barra said. "They could badmouth the company. They could be hired by a customer."

In recent years morale has become more of a motivation, according to Thomas Serleth, the CEO of Power Transitions, a San Francisco-based outplacement company. Power Transitions serves a range of clients, from small non-profits to the Federal Reserve Bank of San Francisco.

Serleth said that when he first entered the business in the 1980's, companies hired outplacement help mostly to avoid lawsuits from disgruntled ex-employees. That has changed.

"It's kind of a message to the people that remain behind," Serleth said. "Especially the repeat customers, they're worried they're going to go through it again …morale is probably as big a reason as any."

On a chilly January morning in New York, Wendleton pitched the worker relations angle to several hundred HR managers at a breakfast seminar. "You'll never hear a [5 O'Clock Club] job-hunter say 'This is what my employer did to me," Wendleton said. "We're focused on the future."

But Wendleton's company doesn't aim to brainwash the laid-off. She just doesn't want negativity in group sessions. Her larger point: "When people do need to vent, they're allowed to vent to their private coaches."

Some job-seekers will have plenty to vent about. Job hunting is more difficult for workers whose industry is declining with no end in sight.

But mass layoffs are a situation that Wendleton's 5 O'Clock Club has seen before.

"When PanAm folded, the question was, 'What will all these stewardesses do?" Wendleton said. "When Newsday had to let off hundreds of journalists, each person had to decide what's right for them."

Wendelton's program asks laid-off workers to think about what position they'd like to work towards 15 years in the future. Fifty-eight percent of those in the program change careers—and that statistic is from before the current crisis.

"These Wall-Streeters, maybe they can go into the surburban markets, but that's only going to work for a fraction of those people," Wendleton said. "Instead they're going to have to say, 'What is it I wanted to be in high school?"

No one wants to be laid off, but career changes can be positive, according to Ken Goldstein, Labor Economist for the Conference Board. He made that point at Wendleton's HR seminar by reciting a laundry list of extinct jobs from an old copy of the Dictionary of Occupational Titles, a government publication.

"Half the jobs in it didn't exist twenty years ago," Goldstein said. "Half of them in it in 2020 and 2030 won't be there now."

Goldstein believes that despite the current tough times, jobs are getting better and will continue to do so. As time goes by, he said, "You get a few people less doing something they hate, but you'll also get a few more people doing something they like."

So what does a labor economist pick as the winning fields to look into? Outplacement is certainly one:

"I would think three people are doing booming business right now, Goldstein said. "The repo man, outplacement, and duct tape—because nobody's throwing anything out."

Last updated: Feb 9, 2009




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