employee downsizing

Employee Downsizing

DOWNSIZING

Reducing the number of employees on the operating payroll.

Reducing the total number of employees at a company through terminations, retirements, or spinoffs

Most preferred option of companies Important management venture

REASONS FOR DOWNSIZING Merging of two or more firms

Acquisition

Change in management

Economic crisis

Strategy changes

Excessive workforce

Increase in efficient work flow and computerized

services

Outsourcing practice

Loss of the company

Alternatives and

Separations

Voluntary Separatio

ns

Involuntary

Separations

Early Retirement

Buyouts

Employee Downsizing

Outplaceme

nt

Layoffs

VOLUNTARY SEPARATION…

Employee decides,

for personal or professional reasons,

to end the relationship with employer.

INVOLUNTARY SEPARATION…

Employer terminates relationship

with employee due to

economic necessity or poor fit

between employee and organization.

CHANGE IN EMPLOYMENT POLICIES

Reduction through attrition

Cut part-time employees

Cut internships or co-ops

Leave of absence

Reduce work hours

CHANGE IN JOB DESIGN

TransfersJob sharing Job rotations Job enlargement Demotions

CHANGES IN BENEFITS

Pay freeze Cut overtime pay Use vacation / leave daysProfit sharing or variable pay

GOALS OF OUTPLACEMENT

Reduce morale problems of employees about to be laid off Minimize litigation Assist separated employees in finding comparable jobs quickly

PURPOSES & RISK OF DOWNSIZING

PURPOSE = Improve financial performance through

Cost-cutting, while also achieving long-term effectiveness, efficiency, productivity, competitiveness

DILEMMA of Downsizing Short term cost cutting may lead to

negative psychological reactions that HARM the long term aim of increased competitiveness.

Mind shift

Culture Change

Lack of commitment

FAILURES OF DOWNSIZING Only between 25% and 50% of

downsizing companies meet their financial targets (improved productivity, higher returns on investment, higher profits, etc.)

Even these mediocre results do not consider psychological and behavioural reactions from survivors which are likely to be negative and further impair financial performance

POTENTIAL ADVERSE SURVIVOR REACTIONS TO DOWNSIZING

AngerAnxietyGuiltStress

InsecurityDissatisfactionLow moraleLow org commitment

Perceived unfairnessRemorseUncertainty

EMOTIONS, PSYCHOLOGICAL STATES & WORK ATTITUDES

AbsenteeismTurnover intentionRisk aversion

Resistance to changeLess effortPoor performance

BEHAVIOURAL REACTIONS

FIRST PHASE DOWNSIZING

Increase productivity & efficiency Optimize resources Survive competition Job cuts , redesign structure Implemented quality improvement

programs…

DOWNSIZED COMPANIES

GE & GM – 1990’s

Boeing

Deutsche Bank

Chemical and Drug companies

Negative Impacts…

Shortage of labor

Losing experienced and skilled workers

Cost of rehiring is high

Downsizing tax

Low rate of job creation

High rate of unemployment..

eg.. Delta airline…

EMPLOYEE DOWNSIZING

• 90% companies went in for a lay-off in mid 1980’s.

• Reason for lay-off slow economy

• Employee downsizing increase productivity & company’s effectiveness.

CHRYSLER’S DOWNSIZING

• Chrysler eliminated between 20,000 and 40,000 jobs at its North American Chrysler division.

• Permanently closed 1 of its 13 plants in the US and Canada huge financial losses.

• Deutsche Bank (a major owner of Chrysler) eliminate 38,000 salaried and hourly workers

REASONS

• The American company highly competitive.

• The crisis faced by Chrysler product of the slowdown of the US economy.

• Near brush with bankruptcy in 1980-81.

• Chrysler shrank from 160,000 workers to 79,000.

• Lee Iacocca bailed out Chrysler.

• Iacocca Stimulus Package from American Government.

• In 1991, Chrysler’s Productivity and sales improved.

• Chrysler brought in a lot of new models of Dodge.

In the mid of 1990s the emp. Downsizing is reduced across the globe

fall in inflation

increase in national income

high profit

stronger economic But in the late 1990s downsizing was

picked up againeconomic recession

increase in global competition

slump in IT industries

change in technologies

In the late 1990s & early 21st century The organizations hadspend less money on labor force

reduce wage

Many companies suffered of downsizing

Lost some of their best emp.

Due to loss of experienced workerslack of experienced workers

reduced productivity & fall in qualityincurred expenditure on overtime

AT&T Rehiring its former emp.

AOL 2000- increase in salary 2001-downsized 2400 emp.

FORD 2001-emp. Will forgo bonus

SECOND PHASE OF DOWNSIZING

• Mid 1990’S- downsizing reduced.- stronger economies- fall in inflation- high profit etc.,

• In late 1990’s- picked up.-world wide economic recession-global competition-slump in IT industry

*Soon criticism began on downsizing.

*Negative effects were faced by the companies.- loss of best employees- uneven distribution of employees- excess workload- reduced productivity

*Loss of experienced workers resulted in- expenditure on overtime pay- employment of temporary and contract workersl

*AT&T in 1998 downsized 18000 employees,- lacked experienced workers- not able to manage equipments- hired former employees- paid twice the salaries of laid off workers to bring back them

*Allegations raised- downsizing is adopted to increase S.E pay- 1996- remuneration of chairman doubled even downsizing 40000 employees.

* AOL faced same criticism.- increased 6 E.O pay by 8.9% to 25.2%.- remuneration of CEO exceeded $73 million- after this raise, downsized 2400 employees-2001.

* After the negative effects and demand by employees, some companies voluntarily announced to cut down top executives remuneration and bonus- while layoff.- Ford is one among them.

* Announced 6000 of its top executives would forgo bonus in 2001- including CEO.- AMR group, Delta, Continental and Southwest airlines.

Reasons: IT firms send the excess staff cost

which cost more than companys expenses

One-fourth of the companys work force comes around 10,000

Employees will be taken right back if there is any project right back……

SATYAM

Reasons: Because of the effect of economic crisis The company will layoff around 5% of

its total work force. Company asks senior manager to give

lowest performance rating About 50 sales executives have been

asked to quit

INFOSYS

Reasons: Reduction of 15% to 18% of the

companys global work force Because of markets shifted to closed-

source to open source technology Also because of the resources that are

captured

SUN MICROSYSTEMS

Reasons: Because of the loss of US air force

contract It announced a layoff of 750 workers The company blamed the longer

duration of the government contracts as a major factor for the downsizing.

BOEING

TACKLING THE EVILS OF DOWNSIZING

Flexible Working Arrangements:-

increases the morale of the employees and productivity decreases the absenteeism and employee turnover Reduces the stress Increases the ability to recruit and retain superior quality employees better use of equipment and space

Concept of Contingent Employment:-

No payment of unemployment taxes ,retirement or health benefits salaries less than permanent staffs No long term commitments

TACKLING THE EVILS OF DOWNSIZING

Allowing Legal Concerns to design the layoff:- As per the law-no discrimination

Give little notice as soon as possible

Severance pay:- Employer have to provide to employee include

layoffs, job elimination, and mutual agreement to part ways for whatever reason.

Severance package might include extended benefits and outplacement assistance.

LEARNINGS FROM DOWNSIZING

How can companies identify their critical talent and retain them through this crisis?

Growth perspective

Terms of risk

WHAT TALENT MANAGEMENT STRATEGIES ARE COMPANIES FOCUSING ON AS A RESULT OF THE ECONOMIC UPHEAVAL?

Managers must provoke strong commitment (loyalty) from employees and ensure that job satisfaction stays high.

HOW CAN MANAGERS AND EMPLOYEES RETHINK THEIR ORGANIZATIONS EVEN AS THEY CONFRONT THE NEED TO DOWNSIZE?

Expected economic advantages

Expected organizational advantages

Continuous improvement strategy

RESULTS

“DOING MORE WITH LESS.”

It is also about creating flexibility, innovation and better communication that lead to increased trust and empowerment between managers and employees.

CONCLUSION

Employment downsizing had very little effect on a company's return on assets.

On the other hand, asset downsizing increased the return on assets.

Downsizing initiatives must systematically consider both human resource and physical assets to maximize the impact of downsizing on return on assets and profitability.

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