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Human Resources Management T.11. Downsizing and Redundancy

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Human Resources Management T.11. Downsizing and Redundancy D. Borisova Contents Reasons for Redundancy and Downsizing Essence of Downsizing and Redundancy Different ... – PowerPoint PPT presentation

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Title: Human Resources Management T.11. Downsizing and Redundancy


1
Human Resources ManagementT.11. Downsizing and
Redundancy
  • D. Borisova

2
Contents
  1. Reasons for Redundancy and Downsizing
  2. Essence of Downsizing and Redundancy
  3. Different methods, by which downsizing is done
  4. Potential problems if downsizing is mismanaged
  5. The redundancy process
  6. Consultations
  7. Redundancy selection
  8. Support for both fired and survivors
  9. Financial and human implications of downsizing on
    organisations

3
Termination of Employment Why?
  • Voluntary Resignation
  • Retirement
  • Expiry of contract
  • Dismissal (disciplinary)
  • Downsizing
  • Redundancy

4
Redundancy and Downsizing
  • Redundancy
  • any dismissal for a reason not related to the
    individual concerned, or for a number of reasons
    which are not so related
  • 1993 Trade Union Reform and Employment Rights Act
  • Downsizing
  • planned elimination of positions or jobs
  • - Delayering managerial downsizing
  • Cascio, 1993 cited in Redman Wilkinson, p 279

5
Downsizing Enigma
  • Insufficient attention in HRM books as if
    downsizing was something dirty or malicious
  • Use of overly euphemistic jargon when describing
    it
  • Most pervasive, yet understudied phenomenon in
    the business world Cameron, 1994
  • An isolated and unpleasant element of HRM
    practice that is hurriedly carried out and
    quickly forgotten

6
Reasons for Downsizing
  • Structural decline
  • Privatization
  • Outsourcing
  • Decreased activity
  • New technology
  • Reorganization and reengineering
  • Bankruptcy
  • Poor financial performance

7
Implications of Downsizing
  • Reduction of security
  • Threat to poor performers
  • Greater pressure for hard work, higher
    productivity and beating out fellow workers
  • Decline in opportunities for advancement
  • Promotion and salary rise are not sure or
    predictable

8
Methods of Downsizing
  1. Natural wastage
  2. Compulsory redundancy
  3. Voluntary redundancy
  4. Early retirement
  5. Redeployment

9
Proportion of change in total number of employees
in Bulgarian organizations during the last 3
years (Cranet, 2003)
10
Methods, used for downsizing in Bulgarian
organizations (, CRANET, 2003)
11
Natural Wastage (Attrition)
  • Giving the individuals a free choice weather to
    leave or stay
  • Relatively easy to implement via a recruitment
    freeze
  • Uses the increase of labor turnover in
    retrenchment situations
  • Problems
  • Unplanned
  • Unpredictable and uncontrollable by management
  • May have avalanche effect
  • Depresses workforce morale

12
Voluntary Redundancy
  • Expensive and offering limited control over the
    process, but still preferred by most employers
  • Targets marginal performers, who fear to be
    dismissed without any financial cushion at a
    later stage
  • Usually refers to those likely to re-enter the
    labour market
  • Could be forced by managers by threatening
    tactics encouraging redundancies

13
Compulsory Redundancy
  • A last resort strategy for employers
  • Gives employers the opportunity to design and
    implement criteria based on business needs
  • Used where downsizing is large-scale or where
    companys resources are depleted
  • Much more common for private sector

14
Early Retirement
  • Used in combination with other methods
  • retired is much more socially acceptable r
    than redundant
  • Usually applied to those unlikely to seek further
    full-time jobs
  • Facilitated by expansion of occupational pension
    schemes and private pension funds
  • Provoked by the nature of some payment systems
    where is more cost-efficient to hire young
    employees
  • Workers must be given such opportunity by the
    legislation

15
Redeployment
  • Easier for lower-level grades of employees and
    difficult for managers
  • Requires considerable coordination between
    departments
  • Need for retraining and acquisition of new skills
  • Need for degree of pay protection for employees
  • Problems with adaptation and socialization in the
    new working environment

16
Three Approaches to Downsizing (Cameron, 1998)
  1. Workforce reduction strategies focused primarily
    on reducing headcount and usually implemented
    from the top downwards short-term risky outcome
  2. Work redesign strategies aiming to redesign
    tasks, units, structures, work, not jobs
    mid-term
  3. Systematic strategies focused on changing
    culture, attitude and values, not just reduce
    jobs on-going process based on continuous
    improvement theory long-term

17
Redundancy Management Issues
  • Avoidance of redundancy
  • Measures short of compulsory job losses
  • Need for formal written redundancy procedure
  • Consultation requirements
  • Selection for redundancy
  • Redundancy/severance processes
  • Compensation and redundancy pay
  • The survivor syndrome

18
Avoidance of Redundancy
  • Work re-organisation and other business
    solutions
  • Freezing recruitment
  • Reduced use of temporary workers, contractors and
    flexible staff
  • Elimination of overtime
  • Shortened working hours, introduction of
    part-time, job sharing and other forms of FWAs
  • Wage reduction
  • Retraining, relocation
  • Temporary lay-offs
  • Redeployment

19
Statutory Consultation
  • Collective Redundancy and Transfer of
    Undertakings (Protection of Employment)
    regulations, 1999
  • Requires consultation if gt 20 workers affected
  • Trade Union must be consulted if recognized
  • If no TU, employee representatives must be
    elected for consultation
  • 20-99 redundancies 30 days prior to dismissals
  • 100 redundancies 90 days prior to dismissals
  • Consultation, not negotiation about ways of
    avoiding dismissal

20
Benefits from Involving Staff
  1. Achieving a smooth run-down
  2. Reduced stress levels
  3. Avoidance of industrial actions (strikes)
  4. Transfer and retention of key managerial,
    professional and skilled staff
  5. Maintenance of good will towards the company from
    leavers, survivors and the community

21
Selection for Redundancy
  • Move from seniority (LIFO) to selection based on
    assessment of skills and performance
  • Enables managerial control
  • Fair methods and selection criteria
  • No discrimination in terms of
  • TU membership
  • Age
  • Sex or maternity related
  • Racial or Disability grounds

22
Selection Criteria
  • Request for voluntary redundancy
  • Skill levels
  • Personal specifications
  • Performance assessments competency-based,
    assessment centers, selection committees, etc.
  • Job ability or attendance records
  • Sole basis of managerial judgment too
    subjective and manipulative

23
The redundancy processadapted from Corbridge and
Pilbeam, p.482
Potential redundancy
Measures short of compulsory redundancy
Informing workforce
Consultation
Redundancies announced
Training and enabling managers
Selection Payments Support
Re-balancing
24
Post-Redundancy Assistance
  • Redeployment centers
  • Business start-up advice
  • Training and counseling
  • Financial advice and loans
  • Outplacement support
  • Pre-retirement education
  • Job search help and references
  • Stress management, etc.

25
Benefits in Use of External Outplacement
Consultants
  • Provide special skills
  • Seen as credible, professional, objective and
    independent of the employer
  • Expensive about 15 of the total cost of
    redundancy

26
Severance pay (UK)
  • Compensatory financial support paid as a lump sum
    to dismissed employees
  • Statutory minimum redundancy payment entitlements
    in UK
  • Under 18 no entitlements
  • 18-21 0.5 weeks pay per complete year of
    service
  • 21-40 1 weeks pay per c.y.s.
  • 41-63 1.5 weeks pay per c.y.s.
  • 64 overall entitlements are reduced slightly
  • Statutory maximum for a weeks pay 290
  • Statutory maximum years service 20
  • Statutory maximum redundancy pay 8,700 (but
    employer may offer more than statutory limit)

27
Importance of Proper Management of the Process
  • If mismanaged, downsizing could cause major
    damage to both organisations potential and
    image
  • It affects organisations selection
    attractiveness and may produce hire and fire
    image
  • Customers may worry that it may go out of
    business or about the quality of supplies or
    services

28
Benefits from Downsizing
  • Savings in labor costs
  • Speedier decision-making
  • Better communication
  • Reduced product development time
  • Enhanced involvement of employees
  • Greater responsiveness to customers demands

29
Threat of Post-Downsized Anorexic Organization
  • Damaging effect on corporate performance and
    culture
  • Greater employee turnover
  • Poor performance and lack of loyalty
  • Adverse effect on innovation
  • No financial improvement resulting from the
    lay-offs

30
Survivor Syndrome (Brockner, 1992)
  • Limited support for the lucky ones
  • Shock, guilt and low morale
  • High levels of skepticism
  • Fear for their future
  • Increased stress and pressure
  • Intensified work and jobs they may be
    ill-qualified to do
  • Increased quit levels
  • Decreased productivity
  • Need for training, communication and counseling

31
Downsizing or Dumbsizing?
  • Downsizing may cut labor costs in the short run,
    but it can erode both employee and eventually
    customer loyalty in the long term Pfeffer, 1990
  • Little evidence that downsizing improves
    long-term profitability and financial performance
  • For new work arrangements to pay off, employment
    needs to be reasonably stable
  • As far as economic effectiveness is concerned,
    downsizing is far from rightsizing

32
  • If you compete by building you have a future
    if you compete by cutting you dont
  • Stephen Roach,
  • Chief Economist at Morgan Stanley
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