Zeiss founder made layoffs costly by writing severance into the charter

In 1890s German manufacturing, as everywhere else, the standard response to a demand downturn was to lay off workers immediately — severance, when paid at all, was a one-time discretionary gratuity with no binding formula, and it stopped the moment a firm decided to stop offering it. Germany's own state unemployment insurance did not exist until 1927, so a laid-off worker had no institutional backstop at all; the entire cost of the firm's demand swing landed on the person who had no say in causing it.

The available answers were the same two options every era offers: trust employers to be decent, which any successor owner can quietly stop honoring since a goodwill gratuity binds nobody, or wait for the state to eventually mandate protection, which was decades away. Both left the layoff decision costless to the one actually making it — nothing internal to the firm pushed against treating a trained, tenured workforce as a disposable buffer for absorbing demand swings.

Wrote a scaling severance formula into the company's founding constitution, making layoffs a real balance-sheet cost that no future owner could revise away.

The charter was legally binding and not easily amended by future owners.

The severance scaled with tenure, so dismissing long-term workers was expensive.

The obligation was audited and actually paid, proving it was not symbolic.

The cost deterred dismissals, as the company's own account noted.

To make a costly decision a last resort, embed a formulaic penalty in a document you cannot easily change, so the decision-maker bears the cost.

84 Marks. Real annual exposure varied directly with layoff volume — in 1902/3, when 60 to 70 opticians had to be let go, Zeiss disbursed 28,675 Marks under this clause alone, against 2,150 to 13,900 Marks in other recorded years — audited, checkable money the firm had bound itself in advance to pay. against dismissals as such," decades before Germany's 1927 unemployment insurance or any modern jurisdiction's statutory severance law existed.