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Managing Employee Separations, Downsizing, and Outplacement

Chapter 6: Managing Human Resources

Managing Employee Separations, Downsizing, and Outplacement

    • Maintaining the fiscal health of an organization, particularly in difficult economic times, often means cutting costs. Managing employee separations, downsizing, and outplacement can be critical to an organization’s strategic goals. We’ll look at these concepts more closely.

Chapter Challenges

  • Global competition and technological advances have changed the rules of competition, forcing many firms to become increasingly productive with smaller workforces.  This chapter deals with the sometimes unpleasant task of managing an organization’s outflow of human resources. 
1.Understand employee separations
2.Gain mastery in identifying types of employee separations
3.Have familiarity with managing early retirements
4. Learn practices for managing layoffs
5. Recognize the role of outplacement
What Are Employee Separations?
  • Employee separation is the termination of an employee’s membership in an organization.
  • Turnover rate is the measure at which employees leave the firm.
  • Well-managed firms will monitor employee turnover rates and identify and manage causes for turnover.
  • We’ll now look at the costs associated with employee separations.
Costs of Employee Separations
  • The costs of turnover can differ across organizations, and some costs associated with turnover can be difficult to estimate. For example, a firm’s geographic location may necessitate a particularly high cost of recruiting new employees, which will cause turnover costs to be unusually high. The effect of lost talent on sales, productivity, research and development, etc., may be tremendous and difficult to estimate.
  • This table lists just some of the costs associated with employee separations. A conservative estimate of turnover costs is from 25% to 300% of the lost employee’s annual compensation. Costs can include replacement costs from many aspects and lost opportunity (or vacancy) costs.
Benefits of Employee Separation
  • Reduced Labor Costs
  • Replacement of Poor Performers
  • Increased Innovation
  • Opportunity for Diversity

Although there are plenty of negative associations with employee separations, there actually can be several benefits. When turnover rates are too low, few new employees will be hired and opportunities for promotion are sharply decreased.

    1. Reduced labor costs—The will affect the bottom line. Not only are the salary savings earned, but also all costs associated with providing benefits and other processing of that employee.
    2. Replacement of poor performers—An integral part of management is identifying poor performers. If poor-performing employees do not turn around performance, it may be best to terminate.
    3. Increased innovation—Separations create advancement opportunities for high-performing individuals and also open up entry-level positions. New hires can fill those open positions and offer a fresh perspective.
    4. Opportunity for diversity—Separations can offer opportunities to hire diverse employees with varied backgrounds, knowledge, skills, and abilities.
Types of Employee Separation

Voluntary

  • Quits
  • Retirements

Involuntary

  • Discharges
  • Layoffs

The two categories of separations are voluntary and involuntary separations. Whereas voluntary separations are initiated by the employee, involuntary separations are initiated by the company.

Voluntary separations occur when an employee decides, for personal or professional reasons, to end the relationship with the company. Unavoidable voluntary separations result from an employee’s life decision that extends beyond his or her control. Avoidable voluntary separations pertain to the company’s perspective of losing an employee to a more attractive position. The two types of voluntary separations include:

Quits—employee leaves the company for either a more attractive job alternative or is dissatisfied with job.

Retirement—differs from quits in that it usually occurs at the end of the employee’s work life. Currently, in order to receive Medicare benefits, retirement age is 65. Note that may Fortune 500 companies have successfully offered early retirement incentives.

Involuntary separations occur when management decides to terminate its relationship with an employee due to (1) economic necessity or (2) a poor fit between the employee and organization. There are two basic types of involuntary separations. The first is discharges, which take place when management decides that there is a poor fit between employee and the organization. Much care is needed to avoid legal issues when handling terminations. It’s best to seek HR professionals and legal advice, especially for protected-class employees, in ensuring the right processes and procedures are done correctly. Layoffs are a means for organizations to cut costs. Layoffs are usually due to economic downturn circumstances or restructuring of the organization with need to change or eliminate positions.

Managing Early Retirement
  • Financial Package Incentives
  • Short Eligibility Window
  • Reduce the Size of the Organization
  • Must Be Managed Carefully

When a company decides to downsize its operations, its first task is to examine alternatives to layoffs, and early retirements are one alternative considered.

Early retirement consists of two features: (1) a package of financial incentives that makes it attractive for senior employees to retire earlier than planned and (2) an open window that restricts eligibility to a fairly short period of time (incentives not available after window).

Early retirement policies can reduce the size of the company significantly. Additionally, great care must be taken to manage early retirement carefully, especially legally.

Avoiding Problems with Early Retirement
  • Too many employees take retirement option
  • Desired employees may leave
  • Perception of forced leave
  • Age discrimination complaints

When not properly managed, early retirement policies can cause a host of problems. Too many employees may take early retirement, the wrong employees may leave, and employees may perceive that they are being forced to leave. Additionally, age discrimination lawsuits may arise if negative perceptions of forced leave are present.

One way to avoid too many leaving is to restrict the eligibility. A way to avoid desired employees leaving is to offer a hire-back policy within the leave policy as consultants to help train and replace their positions.

To avoid the negative perceptions, the organization must treat all employees the same and treat all employees in the early retirement process the same.  To avoid lawsuits, it’s best to have legal counsel overlook the whole early retirement process and contracts.

Managing Layoffs

Typically, an organization will institute a layoff when it cannot reduce its labor costs by any other means. The figure above represents a model of the layoff decision and its alternatives. Organizations should first try to reduce labor costs by using alternatives to layoffs such as early retirements. After the organization makes the decision to implement a layoff, it can consider outplacement service benefits to those exiting employees. 

Alternatives to Early Layoffs

Most organizations search for alternative cost-reduction methods before turning to layoffs. Attrition is a common strategy. Other approaches include the many listed in this table.

Managers can use these alternatives both to reduce labor costs and to protect the jobs of full-time employees.

Implementing Layoffs
•Notifying Employees
oWARN Act—60 -ay notice
•Developing Layoff Criteria
oSeniority or Employee Performance
•Communicating to Laid-Off Employees
•Coordinating Media Relations
•Maintaining Security
•Reassuring Survivors

Once the layoff decision has been made, managers must implement it carefully. A layoff can be a traumatic event that affects the lives of thousands of people. The key issues that managers must settle are notifying employees, developing layoff criteria, communicating to laid-off employees, coordinating media relations, maintaining security, and reassuring survivors of the layoff. 

Worker Adjustment and Retraining Notification (WARN) Act: Requires U.S. employers with 100 or more employees to give a 60-day advance notice to employees who will be laid off.

Developing a Layoff Criteria: Decision should be made of the criteria, whether layoff will be based on seniority or employee performance. Caution and careful management of this strategy is necessary.

Communicating to laid-off employees: Layoffs should be done face to face and during the middle of the week. It is crucial to communicate with exiting employees in the most professional, humane, and sensitive way.

Coordinating media relations: A good plan for communication to employees is important, but also the message to the outside community because the company’s image in how it handles this situation is under scrutiny.

Maintaining security: Company property, including virtual information, is important to secure before layoff plans. Password deactivation and key protection of property are extremely important because sometimes people react very negatively toward layoff situations. Additionally, cautions are taken to protect remaining employees.

We’ll next look at the issues and protocols regarding reassuring survivors.

Effects of Layoffs on Survivors
  • Increased absenteeism and turnover
  • Lower productivity and poorer job satisfaction
  • Increased sabotage

Those workers who survive a layoff might be considered the lucky ones, but according to research, there are a number of negative consequences found after a layoff event has transpired. Some of the negative effects include:

increased absenteeism and turnover, lower productivity and poorer job satisfaction, and increased sabotage in the workplace. Therefore, managers need to take precautions when a layoff event occurs to ensure these negative consequences are diminished. Many experience anxiety and have guilt over surviving the layoff. After a layoff, it’s very important for the organization to display an upbeat and positive atmosphere and to clearly communicate with employees as a way of building trust.

Outplacement

Goals of Outplacement:

•Reduce morale problems
•Minimize litigation
•Assist laid-off employees

Outplacement Services:

•Emotional support
•Job-search assistance

Outplacement is a program created to help separated employees deal with the emotional stress of job loss and to provide assistance in finding a new job. Outplacement activities are normally handled by an outside firm. The goals of the outplacement process are to reduce morale problems, minimize litigation, and assist laid-off employees.

The types of outplacement services are emotional support and job-search assistance. Emotional support can mean providing counseling to exiting employees as a way to mitigate anxiety cause by the job loss. The job-search assistance is there to help employees find comparable jobs, typically outside the organization.

Summary and Conclusions
•What Are Employee Separations?
•Types of Employee Separations
•Managing Early Retirements
•Managing Layoffs
•Outplacement

To summarize, employee separations are a difficult, but  natural component of the way of doing business at some point in an organization’s lifespan. Separations can be both voluntary and involuntary, but often both have a big impact on the organization. Layoffs should be used as a last resort, as layoffs can have negative long-term consequences on the remaining employees and the organizational culture and morale. As we have learned, there are many alternatives to layoffs, and a few helpful outplacement services can be offered to exiting employees.


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