Chapter 6 Managing Employee Separations, Downsizing, and Outplacement As we go through economic changes there are significant impacts on the workforce. Managing employee separations, downsizing and outplacement can be critical to the firm’s strategic goals.

Chapter 6 Overview Costs and benefits associated with employee separations. Differences between voluntary and involuntary separations. Issues in the design of early retirement policies. Conducting a termination or layoff is one of the most sensitive and difficult things that a manager will ever have to do. There are a number of factors to consider when conducting this process, and the manner in which the termination or layoff is performed and managed has impact on not only the affected employee but also those that remain with the organization in its aftermath. Additionally, many separations (voluntary or involuntary) can be avoided through good management practices. The cost of separations to the organization are much higher than many people realize, making good management practices even more important.

Chapter 6 Tactical Issues Alternatives to layoffs Layoffs that are effective and fair to all stakeholders. Significance/value of outplacement programs. Designing effective policies for downsizing and layoffs is important to ensure that the organization is as fair as possible to all of their stakeholders. Chapter 6 will provide an overview on how to handle this process. It is also important when changes are made in the employment structure to understand how outplacement programs can help employees transition well.

What Are Employee Separations? Separation—termination of an employee’s membership in an organization for whatever reason Turnover rate—rate of employee separations/year in an organization An employee separation is defined as termination of an employee’s membership in an organization. The turnover rate is determined by looking at the number of employees leaving the firm and dividing that by the average number of employees in the firm. It describes the rate at which employees are separating from the organization.

Costs of Employee Separations Employee turnover affects the bottom line. Estimates of costs associated with employee separations range from 25 – 300% of the lost employee’s annual salary. When an employee leaves there is a lot of valuable information you can get from that employee. One way to do that is to conduct an exit interview. This is an employee’s final interview following separation. The purpose of the interview is to find out the reasons why the employee is leaving (if the separation is voluntary) or to provide counseling and/or assistance in finding a new job. When employees leave it is helpful to provide outplacement services to help them transition. This is a program in which companies help departing employees find jobs more rapidly by providing them with training in job-search skills.

Possible Benefits of Employee Separations Reduced labor costs Replacement of poor performers Increased innovation Opportunity for greater diversity For the organization there are some benefits of employee separations. One benefit is reduced labor costs, these costs obviously decrease as the labor force shrinks. This includes costs such as salary and benefits. Another benefit is that you can replace poor performers who are not responding to coaching or feedback Increased innovation often occurs during tough times and separation can create advancement opportunities for high-performing individuals. Finally, there can be an opportunity for greater diversity as separations create opportunities to hire new employees with diverse backgrounds.

Types of Employee Separations Voluntary separation—the employee ends the relationship with the employer Quits vs. Retirements Avoidable vs. Unavoidable Functional vs. Dysfunctional Replaceability issues There are two main types of separations, voluntary and involuntary. Voluntary separations occur when the employee terminates the employment relationship. These can be either avoidable or unavoidable (life circumstances, beyond employer’s control). Voluntary separations are normally either when the employee quits or retires. Voluntary separations are increasing as job hopping is becoming more common and acceptable. Involuntary Separation are when the employer ends the employment relationship. This can be due to economic necessity or a poor fit between the employee and the organization. When an employee is discharged it is very important to follow established procedures. Layoffs are a reduction in work force to cut costs and they can have powerful impact on organization. More and more of the layoffs are happening in the small business sector given the recent economic downturn. Downsizing is reducing the size & scope of the business or a systematic change in the way the organization is structured. Rightsizing is when there is a reorganizing of the company to improve efficiency. Involuntary separation—the employer terminates the employment relationship Discharges [firing] Layoffs, downsizing, and rightsizing

Managing Early Retirements Features of early retirement offers: Financial incentives package usually based on org. level and/or time with org. S/b carefully restricted to target group Must be managed carefully [e.g., w/ OWBPA releases drafted by outside legal counsel!] Often early retirement policies are used to encourage separations when a reduction in force is needed. There are a few key features of early retirement policies that should be kept in mind when managing this tool. The first is the package of financial incentives. This package can make it attractive for senior employees to retire earlier than they planned. The second feature is the open window. This restricts eligibility to a fairly short period and when the window is closed, the incentives no longer available. This strategy can substantially reduce the size of the workforce but it must be managed carefully. When would early retirement be a better option than straight layoffs?

Managing Layoffs Typically, an organization will institute a layoff when it cannot reduce its labor costs by any other means. The figure above presents a model of the layoff decision and its alternatives. Managers should first try to reduce their labor costs by using alternatives to layoffs, such as early retirements and other voluntary workforce reductions. After managers make the decision to implement a layoff, they must concern themselves with the outplacement of the former employees. An important influence on the likelihood of a layoff is the business’s HR strategy (see Chapter 1). For example, companies with a lifelong employment HR strategy are less likely to lay off employees because they have developed alternative policies to protect their employees’ job security.

Alternatives to Layoffs Attrition Hiring freeze Not renewing contract workers Encourage voluntary time off Redesign jobs Transfers and Relocations Job sharing Freeze or cut pay Retrain/reassign workers There are many alternative methods of reducing labor costs that management should explore before deciding to conduct a layoff. These alternatives include things such as early retirements, employment policies (attrition and hiring freeze), job redesign (job sharing), pay and benefits policies (pay freezes and cuts), training, and other voluntary workforce reductions.

Implementing a Layoff Notify employees Develop Layoff Criteria Worker Adjustment and Retraining Notification Act (WARN)—60 days notice or pay in lieu of notice Develop Layoff Criteria Seniority vs. Pay vs. Performance [hybrid?] Communicate to laid-off employees Face-to-face [but don’t argue] S/b scripted by HR and/or legal counsel Middle of the week [?!] When laying off employees any employer with 100 or more employees must adhere to WARN which requires 60 days notice of layoffs. Developing layoff criteria is an important aspect of the process. Some employers use seniority in their decision making process and others use performance. Again, it is important to align this with organizational strategies. When communicating layoffs to employees it should be done face-to-face and the middle of the week is normally the best time.

Implementing a Layoff Coordinate media relations Maintain security Reassure survivors of the layoffs Listen to survivors’ concerns Show you appreciate their work [consider retention bonuses to key staff] Reassign to new projects ASAP When layoffs are necessary it is important to communicate effectively with the media and with employees. Miscommunication and rumors can be very damaging to the organization. Layoffs often encourage heightened emotional responses and in rare cases there may be a need for an escort when employees are leaving. This is not the norm but happens with enough frequency that it must be considered and planned for. Those who remain after the layoffs are called survivors and they may experience survivors anxiety where they have concern because they have more work, there are numerous changes, they are worried about their jobs, they have guilt over still being with the organization and they question the value of their contribution to the organization. An organization can help survivors by creating an upbeat and energetic climate and by showing employees that their work is appreciated. How can an organization use layoffs to achieve their strategic objectives?

Outplacement Program for separated employees: Provide job search/transitional assistance S/b offsite for security and psychological purposes Assist separated employees in finding comparable jobs as quickly as possible Minimize litigation/workplace violence by separated employees When an employee leaves either involuntarily it is helpful to provide outplacement services to help provide emotional support and job search assistance. Most of the time this is handled by consulting firm. It often includes counseling & retraining. The goal of providing outsourcing is to reduce morale problems with surviving employees, to minimize litigation by the separated employees and to assist separated employees in finding another job quickly.

Concluding Comments: Develop a written plan w/ layoff criteria Make sure PAs are valid and up-to-date Scrutinize policies, train supervisors to avoid discriminatory terms or implications Screen interim results for adverse impact Exit interviews: Explain outplacement/COBRA benefits Remind re: NDAs & proprietary information [ongoing duty not to disclose]