We’ve all seen it, and too many of us have experienced it firsthand. The quarter closes, financial results fall short of projections, and suddenly the positive hum in the office—fueled by talk of growth, change, and exciting market trends—grows quieter.

Then come the whispers. After the shareholder call, you hear unsettling news: a well-respected executive assistant, who’s been the backbone of their department for years, is being asked to retire early. A couple of open positions quietly go unfilled. It’s not shocking, not in a year when over 150,000 tech industry layoffs have dominated headlines, but it still doesn’t feel real—not here, not in this office… but here we are.

When budgets get tight, the natural reflex for many organizations is to tighten the purse strings. Hiring at lower salaries, reducing headcount, and limiting raises are seen as practical solutions to rein in expenses. On paper, it makes sense—fewer expenses mean more financial stability, right?

But these decisions often create ripple effects that undermine the very stability they aim to preserve. Every exit of a skilled employee triggers costs that don’t show up neatly in a budget: the expense of finding and training a replacement, the productivity lost during the transition, and the toll on the morale of those who shoulder the extra workload (and worry that they may be next).

Are we saving money—or are we setting the stage for hidden expenses that drain far more than we realize?

Recommended Listening:

The Business Case for Cost-Cutting: Practical or Short-Sighted?

From the boardroom, cost-cutting measures often look like logical, data-driven decisions. A spreadsheet analysis might show clear gains from reducing headcount, freezing hiring, or offering smaller raises. The savings can be tallied immediately, reported to shareholders, and presented as a sign of proactive management. After all, isn’t it a leader’s job to ensure the company stays lean and competitive?

But here’s the challenge: these decisions are often made from an abstract vantage point, far removed from the day-to-day realities of the people impacted. While the numbers might align perfectly in theory, the ripple effects on morale, engagement, and trust don’t show up on those same spreadsheets. For the business, it’s worth noting that replacing an employee can cost anywhere from 50% to 200% of their annual salary, depending on the position and industry (source). For employees, these cuts aren’t just about numbers—they’re about their lives, their workloads, and their sense of stability.

Consider the perspective gap. The team making these decisions may not see the cascading effect of unfilled roles or understand the strain placed on remaining employees. It’s one thing to note that a department can “absorb the responsibilities” of a cut position; it’s another to witness firsthand the burnout, frustration, and eventual turnover that often follows. What feels efficient on paper can quickly become a ticking time bomb of hidden costs in reality.

This disconnect between abstract decision-making and real-world consequences is where many organizations stumble. Instead of driving stability and growth, these cost-cutting measures can erode the foundation they’re meant to protect.

The Ripple Effects: Individuals, Teams, and Productivity

When an employee leaves—voluntarily or otherwise—the impact isn’t confined to their role alone. For the individual, the decision to move on often comes after a period of mounting frustration. Perhaps they’ve taken on too much work after colleagues were let go, or maybe they’ve grown disheartened by the lack of recognition or advancement. Maybe, however, they’ve realized that their stagnant compensation is losing ground to inflation, making every paycheck feel smaller and every expense feel larger. No matter how engaging the culture or appealing the perks, a dwindling savings balance will quickly tip the scales.

For the team, the effects are immediate and palpable. Remaining employees are often tasked with picking up the slack, whether that means covering for unfilled roles or training new hires. Over time, this can lead to burnout and disengagement, creating a feedback loop where more employees consider leaving. Team dynamics also suffer as morale dips and collaboration falters, making it harder to achieve shared goals.

At the organizational level, these departures ripple outwards, slowing productivity and increasing costs (Research indicates that each percentage point increase in weekly turnover rate for workers leads to a 0.74-0.79% increase in product failure; source) . Vacancies mean delayed projects, missed deadlines, and lost opportunities. And while new hires bring fresh perspectives, they also require onboarding and time to ramp up—time that teams may not have to spare. The result? A workforce that feels stretched thin and a company that struggles to maintain its competitive edge.

These impacts are far-reaching, yet they’re often overlooked in favor of short-term financial metrics. By focusing solely on immediate savings, organizations risk losing sight of the bigger picture: the true cost of undermining their most valuable asset—their people.

While these ripple effects highlight the challenges of short-sighted decisions, they also underscore an opportunity: managers have the power to reshape outcomes by advocating for their teams and prioritizing sustainable strategies.

A Call to Action for Managers: Advocacy, Value, and Balance

For managers, navigating the tension between cost control and team well-being is a defining challenge. Your role is not just to execute directives but to advocate for your team and translate their value to senior leadership in terms that align with organizational goals.

Start by reframing the conversation around value rather than cost. Highlight the contributions of your team—not just what they produce, but how their work drives outcomes that matter to the business. When discussing budgetary concerns, emphasize the risks associated with undervaluing your team, including the hidden costs of turnover, lost productivity, and diminished morale.

Encourage a culture of balance, where financially impactful results are achieved without sacrificing the people who deliver them. This means pushing for competitive compensation, ensuring workloads are sustainable, and championing professional development opportunities. These investments pay dividends not only in retention but also in engagement and innovation. Consider the case of IKEA, which faced a high staff turnover rate of 41% in the UK. By increasing pay, implementing a buddy system for new hires, and offering more flexible shift schedules, they significantly increased employee retention (source).

Lastly, foster transparency and trust within your team. When cost-cutting measures are unavoidable, involve your employees in the conversation. Explain the rationale, listen to their concerns, and work collaboratively to mitigate the impact. People are far more likely to stay engaged and committed when they feel valued and heard, even during challenging times.

Managers have a unique vantage point to bridge the gap between leadership and employees. By advocating for your team and emphasizing long-term value over short-term savings, you can help create an environment where both people and profits thrive.

I recently had a friend get laid off after a private equity company acquired her employer. She’s a brilliant woman, had seen it coming for a while, and has excellent prospects with her background and breadth of experience, but reflecting on the situation made me think about the wider environment. With the market currently set to roller-coaster mode, and the layoffs in the headlines, I was reminded of a similar experience from my early days in management. 

I’ll never forget the time when, as a member of management, I was one of the few people standing in a room of a few hundred while the facility director and HR manager read out the terms of a WARN notice. The situation was primarily driven by a cascade of issues leading to a contract with a major client being lost for our site, and the fact that the writing had been on the walls for months didn’t make the quiet panic I saw in some faces any easier to deal with.

This case was shaped by challenges that are often seen in industries like the BPO call center sector. We offered relatively low wages, minimal advancement opportunities, and suffered constantly with the costs of high employee turnover, rapid hiring, and constant new hire training. If you were motivated and did more than what was required, you could stay, learn, and grow, but the chances were that you’d be one of the few who had been there for more than a year.

While my team back then was amazing, and I still occasionally hear from them, the experience of feeling like decisions I couldn’t control were harming the team I was supposed to support is one of the reasons I’ve avoided positions where I would have direct reports in the years since. It was a stark reminder of how systemic issues can amplify the human cost of cost-cutting strategies.

~Dom

Conclusion: Building a Future That Values People

It’s estimated that turnover costs U.S. businesses an astounding $1 trillion annually, considering both direct and indirect costs. This highlights the critical importance of investing in employee retention strategies (source); as a result, it only becomes more clear that the decisions we make as leaders ripple far beyond the confines of quarterly budgets and balance sheets. Cost-cutting measures may provide temporary relief, but they often sow the seeds of deeper challenges—turnover, disengagement, and lost productivity. Conversely, investing in people—through fair compensation, opportunities for growth, and a culture of support—lays the foundation for enduring success.

As you reflect on your own organization, ask yourself: are we creating an environment where employees feel valued and empowered to contribute their best? Are we prioritizing the well-being of our teams as much as our financial metrics?

The choice is ours. We can continue chasing short-term gains at the expense of long-term health, or we can build a workplace where people and profits thrive together. The smartest strategy is clear: when we invest in our people, we’re investing in a stronger, more resilient future.