Managing employee separations, downsizing and outplacement Flashcards
What is a turnover rate?
It is a measure of the rate at which employees leave the firm. Well-managed companies try to monitor their turnover rate and try to manage the causes for turnover. The goal is to minimise turnover and the costs of replacing employees. An excessively high turnover rate is a symptom of problems in the organisation.
What are the costs of employee separations?
- Separation pay
- Benefits
- Unemployment insurance cost
- Exit interview
- Outplacement
- Vacant position
What are the costs of recruitment?
- Advertising the job vacancy
- Using a professional recruiter to travel to various locations
What are the costs of selection?
- Costs associated with travel to the interview site and the productivity lost in organising the interviews and arranging meetings to make selection decisions
- Testing the applicant and conducting reference checks
What are the training costs?
- Costs associated with an orientation to the company’s values and culture
- Direct training costs
What are the benefits of employee separations?
- Reduced labor costs: an organisation can reduce its total labor costs by reducing the size of its workforce; although separation costs in a layoff can be considerable, the salary savings resulting from the elimination of some jobs can easily outweigh the separation pay and other expenditures associated with the layoff
- Replacement of poor performers: an integral part of management is identifying poor performances and helping them to improve their performance
- Increased innovation: separations create advancement opportunities for high-performing individuals; they also can encourage promotions from within
- Opportunity for greater diversity: separations create opportunities to hire employees from diverse backgrounds and redistribute cultural and gender composition of the workforce
What are the types of employee separations?
There are two types of separations: voluntary and involuntary.
What types of voluntary separations are there?
Voluntary separations: occur when an employee decides for personal or professional reasons to end the relationship with the employer
The two types of voluntary separations are:
1. Quits: the decision to quit depends on the employee’s:
level of dissatisfaction with the job, the number of attractive alternatives the employee has outside the organisation
2. Retirements: a retirement differs from a quit as it usually occurs at the end of an employee’s career while a quit can occur at any time, retirements usually result in the individual receiving retirement benefits from the organisation, the organisation normally plans retirements in advance, most employees postpone retirement until they are at the age at which they can receive benefits from the government
What types of involuntary separations are there?
Involuntary separations: occurs when management decides to terminate its relationship with an employee
- Discharges: takes place when management decides there is a poor fit between an employee and the organisation; it is either the result of the employee’s poor performance or the failure to change some unacceptable behaviour that management has tried repeatedly to correct
- Layoffs: a means for an organisation to cut costs; a layoff differs from a discharge in several ways: With a layoff, employees lose their job because a change in the company’s environment or strategy forces it to reduce its workforce, Global competition, reductions in product demand, changing technologies that reduce the need for workers, and mergers and acquisitions are the primary factors behind most layoffs.
- Downsizing and rightsizing: A company that adopts a downsizing strategy reduces the scale and scope of its business to improve its financial performance. Rightsizing means reorganising a company’s employees to improve their efficiency. An organisation needs to rightsize when it becomes bloated with too many management layers
How do you manage early retirements?
When a company decides to downsize its operation, its first task is to examine alternatives to layoffs.
- The features of early retirement policies: early retirement policies consist of 2 features:
1.a. A package of financial incentives that makes it attractive for senior employees to retire earlier than they had planned
1.b. An open window that restricts eligibility to a fairly short period of time
The financial incentives are usually based on a formula that accelerates senior employees’ retirement eligibility and increase their retirement income
It is not unusual for companies to provide a lump-sum payment as an incentive to leave
- Avoiding problems with early retirements:
When not properly managed, early retirements can cause a host of problems. One way to avoid excess resignations is to restrict eligibility to divisions that have redundant employees with high levels of seniority.
Early retirement programs must be managed so that eligible employees do not perceive that they are being forced to retire and consequently file age discrimination charges. Situations that could be interpreted as coercive include the following:
1.a. A longtime employee who has performed satisfactorily over many years suddenly receives an unsatisfactory performance evaluation
1.b. A manager indicates that senior employees who do not take early retirement may lose their jobs anyway because a layoff is likely to occur in the future
1.c. Senior employees notice that their most recent pay raises are quite a bit lower than those of other, younger workers
What are the alternatives to layoffs?
Alternatives to layoffs: Most organisations search for alternative cost-reduction methods before turning to layoffs
1. Attrition: not refilling job vacancies that are created by turnover
2. Hiring freeze: not hiring any new employees into the company
Other employment policies aim to decrease the number of hours worked and therefore the number of hours for which the company must pay its employees. Workers may be encouraged to take voluntary (unpaid) time off or leaves of absence.
3. Changes in job design: changing job designs and transferring people to different units of the company or relocating people to jobs in different parts of the country where the cost of living and salaries are lower.
4. Pay freeze: enforcing a pay freeze during which no wages or salaries are increased. (Current Covid-19 situation). A more radical policy aiming to reduce labor costs is a pay cut.
5. Training: By retraining employees whose skills have become obsolete, a company may be able to match newly skilled workers with available job vacancies. Without retraining the workers may have been laid off.
What are the steps to implementing a layoff?
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. Steps: 1. Notifying employees 2. Developing a layoff criteria 3. Communicating to laid-off employees 4. Coordinating media relations 5. Maintaining security 6. Reassuring survivors of the layoff
In the context of layoff implementation, what happens during the step of notifying employees?
It is socially and professionally correct to extend employees the courtesy of at least several weeks’ notice before a layoff. But there are also arguments in favour of giving no notification.
In the context of layoff implementation, what happens during the step of developing a layoff criteria?
The criteria for dismissal must be clear so that managers responsible for terminations can make consistent & fair decisions. The most important criteria are seniority (the amount of time an employee has been with the firm) and employee performance.
Seniority “first in, first out method”: It has 2 main advantages: managers cannot play favourites by use of this criterion & the most senior employees have the greatest investment in the company in terms of job rights and privileges. Disadvantages: the firm may lose top performers.
Performance: Allows the company to keep its top performers in every work unit and eliminate the weakest performers. However, performance levels are not always clearly documented.
In the context of layoff implementation, what happens during the step of communication to laid off employees?
It is crucial to communicate with the employees who will be laid off as humanely and sensitively as possible. The way a manager handles this unpleasant task can affect how the employee and others in the organisation accept the decision.
Laid-off employees should first learn of their fate from their supervisor in a face-to-face private discussion. Employees who learn about their dismissal through a less personal form of communication are likely to be hurt and angry. The information session between employee and supervisor should be brief and to the point. The manager should express appreciation for what the employee has contributed, if appropriate, and explain how much severance pay and what benefits will be provided and for how long.
