'Termination' means never having to say 'you're fired'

You are a hi-tech company whose business model has just been wiped out along with 80 per cent of the value of your stock price.

You are a hi-tech company whose business model has just been wiped out along with 80 per cent of the value of your stock price. On your books are hundreds of highly paid employees whose pay you can no longer afford. What to do? The uncomfortable, but honest, approach is to decide how many workers you can keep and lay off the others, giving them whatever severance benefits their contracts entitle them to.

The easier, if legally hazardous, route is to pick on a number of workers you don't happen to like and find some excuse to fire them. No tears, no severance payments.

According to labour lawyers and various company employees familiar with the habits of their personnel departments, it is this second route that is growing in popularity as the dot.com meltdown continues apace. And the lawsuits ­ or at least the threat of them ­ are beginning to fly. Last week, a major software firm in New York State, Computer Associates, announced it was considering offering severance payments to some of the 240 people "terminated" in January on the grounds of poor performance.

The announcement came after several complaints, in some instances corroborated by the managers involved, that the firings were really a mass lay-off disguised to save the company money. One former executive with the company, Henry Crouse, told The New York Times last week how he was told to fire pre-selected members of his sales team whose lacklustre revenue figures, he believed, had far more to do with the slowdown in the economy than with any personal shortcomings.

Mr Crouse said he was told: "Just tell them they're being terminated for poor performance. Get up and walk out and let HR [human resources ie, personnel] handle it." Another former senior executive, speaking to the newspaper anonymously, added: "We were told, be careful. Do not say this is a layoff." The allegations against Computer Associates, which the company rejects, are far from isolated. On the West Coast, where the brunt of the dot.com disaster is being felt, one increasingly popular managerial technique is to chart employees on a bell curve graph, with the top 10 per cent and the bottom 10 per cent highlighted and the rest wedged into the middle.

The theory is that the bottom 10 per cent can become fodder for future firings if necessary. This bell curve technique has actually been in place at several major corporations for years. As Jack Welch, the chief executive of General Electric, told shareholders last month: "A company that bets its future on its people must remove that lower 10 per cent, and keep removing it every year ­ always raising the bar of performance and increasing the quality of its leadership."

The technique has become increasingly controversial, however, with small companies coming under fire for creating arbitrary distinctions between workers based on personal friendship more than performance, and large companies being accused of discrimination against women, minority groups and older workers. The system is commonly known as "rank and yank".

Over the past year, discrimination suits of different kinds have been filed against Microsoft, Ford and Conoco ­ the latter over its employment prac- tices on North Sea oil rigs.

Nobody has accused these companies of illegally dismissing an employee ­ the suits focus more on patterns of promotion and lay-off selection ­ but bell curve rankings are also common at dot.coms where the borderline between compensated and uncompensated dismissal can be fine indeed.

At one Los Angeles area company, employees who have left, for whatever reason, tend to have their computer hard drives searched by personnel. It seems the purpose is to search for compromising information in email queues ­ evidence of breaches of confidentiality, for example ­ which can then be used against other employees.