There was a time when the primary reason an employee lost their job was simple: poor performance.
Organizations like IBM once embodied a different psychological contract with their workforce. The idea of being “hired for life” was not just a slogan, it reflected a philosophy. Employees who showed up, contributed, and believed in the mission were valued. Companies, in turn, found creative ways to retain talent, even during challenging times. Employment was not purely transactional; it was relational.
Then something shifted.
In the late 1980s and early 1990s, organizations began redefining performance expectations. The era of accountability has intensified. Employees who merely “checked the box” or operated at minimum standards increasingly found themselves on the outside looking in. In many ways, this was not a bad thing. Raising the performance bar can strengthen organizations, drive innovation, and reward excellence.
But the story did not end there.
Once organizations removed the low performers, something unexpected happened, they kept going. What began as a necessary effort to improve performance evolved into a systemic approach to cost management. Downsizing, rightsizing, restructuring, regardless of the label, became normalized as a business strategy. Initially, it was about trimming excess. But over time, organizations moved beyond cutting fat and began cutting into bone.
And that is where the real problem begins.
When the so called “excess” is gone, what remains are the very people organizations claim to value most: committed, capable, high-performing employees. However, they are no longer safe. The rules have changed, but not always transparently. Employees are frustrated because there is no real pattern as to who gets laid off or who has their role impacted which is the most disturbing aspect of this process.
This is where leadership psychology becomes critical. When employees realize that performance alone no longer guarantees stability, the psychological contract between employer and employee begins to fracture. Trust erodes. Predictability disappears. And in its place, uncertainty takes hold. The impact is not subtle.
Employees begin to ask silent questions:
- “If high performance isn’t enough, what is?”
- “Am I next?”
- “Does loyalty even matter anymore?”
- Should I just start looking and not wait?
- Why should I do anything extra,
These are not just operational concerns; they are deeply psychological ones. In environments where downsizing becomes routine and unpredictable, fear begins to replace trust as the primary motivator. And while fear can drive short-term compliance, it is a poor substitute for long-term engagement, creativity, and discretionary effort. Even more concerning is how some leaders respond within these environments.
Rather than buffering their teams from instability, some leaders unintentionally, or in some cases, consciously, weaponize it. Job insecurity becomes a management tool. Subtle (and sometimes not-so-subtle) messages emerge. I have heard leaders make the following comments.
- “You should feel lucky to be here.”
- “There are plenty of people who would take your job.”
- “If you can’t keep up, we’ll find someone who can.”
This is not leadership. This is fear-based control. From a leadership psychology perspective, this behavior often reflects the leader’s own internal state of anxiety about performance, pressure from above, or a lack of confidence in their ability to lead through influence rather than intimidation. What is happening inside the leader begins to shape what is happening around the leader. And the consequences are predictable.
Psychological safety deteriorates. I have shared in other articles that employees become less willing to speak up, they are not willing to challenge ideas or take risks. Collaboration turns into competition among coworkers. Information is guarded rather than shared. Innovation slows. Engagement drops or in some cases comes to a screeching halt. In a “pay for performance culture employees see their peers as competition not partners. This creates an unsustainable level of productivity.
Ironically, the very behaviors organizations need to remain competitive such as creativity, ownership, and bold thinking, are the first casualties of a fear-based environment. In these environments, work becomes less about contribution and more about survival. And survival is not a high-performance strategy.
It is important to be clear: organizations must evolve. Markets shift. Economic realities demand difficult decisions. Downsizing, in some cases, may be necessary. But when it becomes the default lever, used repeatedly without regard for its psychological impact, it stops being a strategy and starts becoming a cultural toxin.
So, what is the alternative?
Leaders must begin by recognizing that every workforce decision sends a psychological signal. Transparency, consistency, and fairness matter. How decisions are made, and how they are communicated, can either reinforce trust or destroy it. More importantly, leaders must look inward.
If you are leading in an environment shaped by uncertainty, your role is not to amplify fear, it is to stabilize it. Your self-awareness, emotional regulation, and ability to create clarity in ambiguity are not “soft skills.” You all know I hate that term. These are leadership imperatives. Because in the end, employees are not just responding to organizational decisions, they are responding to how leaders show up in those moments.
And that is where culture is either protected or permanently broken and it will become the identity of your company. The louder this brand becomes the more difficulty you will have attracting and retaining top talent.
Downsizing is not just a business decision; it is a leadership moment. The difference between a toxic culture and a resilient one is not whether cuts are made, but how leaders choose to show up when they are. I have created a table as a job aid to give leaders something reflects on. If you would like a copy of the table, send an email to ogbarnesphil413@outlook.com
About Dr. Ollie G. Barnes III
Dr. Ollie G. Barnes III is an organizational performance consultant, keynote speaker, and author of Diagnosing Toxic Leadership: Understanding the Connection Between Personality Disorders and Toxic Leader Behaviors. As the founder of Impact Performance Consultants, he brings over 25 years of experience helping organizations transform workplace culture, improve leadership effectiveness, and build psychologically safe environments. Learn more at ImpactPerformanceConsultants.com