Employee Downsizing | Layoff | Labor

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
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REASONS FOR DOWNSIZING
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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

Employee Downsizing
Alternatives and Separations

Voluntary Separations Buyouts

Involuntary Separations

Early Retirement

Layoffs

Outplacement

VOLUNTARY EPARATION«

Employee decides, for personal or professional reasons, to end the relationship with employer.

INVOLUNTARY EPARATION«

Employer terminates relationship with employee due to economic necessity or poor fit between employee and organization.

CHANGE IN EMPLOYMENT POLICIE 
 

Reduction through attrition Cut part-time employees Cut internships or co-ops of absence 

Leave 

Reduce work hours

CHANGE IN JOB

E IGN

Transfers Job sharing  Job rotations  Job enlargement  emotions 

CHANGE IN BENE ITS

Pay freeze  Cut overtime pay  Use vacation / leave days Profit 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

PURPOSE = Improve financial performance through ´ Cost-cutting, while also achieving long-term effectiveness, efficiency, productivity, competitiveness ILEMMA of ownsizing ´ Short term cost cutting may lead to negative psychological reactions that HARM the long term aim of increased competitiveness.

PURPOSES & RISK OF OWNSI ING

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Mind shift Culture Change Lack of commitment

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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
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POTENTIAL ADVERSE SURVIVOR REACTIONS TO DOWNSIZING
EMOTIONS, PSYCHOLOGICAL STATES & WORK ATTITUDES Anger Anxiety Guilt Stress Insecurity Perceived unfairness Dissatisfaction Remorse Low morale Uncertainty Low org commitment

BEHAVIOURAL REACTIONS Absenteeism Resistance to change Turnover intention Less effort Risk aversion Poor performance

FIRST PHASE DOWNSIZING
Increase productivity & efficiency ´ Optimize resources ´ Survive competition ´ Job cuts , redesign structure ´ Implemented quality improvement programs«
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DOWNSIZED COMPANIES 

E& Boeing

M ± 1990¶s  

Deutsche Bank Chemical and Drug companies 

Negative Impacts« 
hortage of labor Losing experienced and skilled workers  ost of rehiring is high  ownsizing tax Low rate of job creation  igh rate of unemployment.. eg.. elta airline«

EMPLOYEE
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OWNSI ING

90% companies went in for a lay-off in mid 1980¶s. Reason for lay-off slow economy

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Employee downsizing increase productivity & company¶s effectiveness.

CHRYSLER¶S

OWNSI ING

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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.

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

REASONS
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The American company highly competitive.

The crisis faced by Chrysler product of the slowdown of the US economy.
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Near brush with bankruptcy in 1980-81. Chrysler shrank from 160,000 workers to 79,000.

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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.

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In the mid of 1990s the emp. ownsizing 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 again
economic recession increase in global competition slump in IT industries change in technologies 

In the late 1990s & early 21st century The organizations had
spend less money on labor force reduce wage 

 

Many companies suffered of downsizing Lost some of their best emp. ue to loss of experienced workers
lack of experienced workers reduced productivity & fall in quality incurred expenditure on overtime

AT&T 

Rehiring its former emp.

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

FOR 

2001-emp. Will forgo bonus

SECOND PHASE OF DOWNSI ING ‡ Mid 1990¶S- downsizing reduced.
- stronger economies - fall in inflation - high profit etc.,
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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.

SATYAM
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««
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INFOSYS
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
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SUN MICROSYSTEMS
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
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BOEING
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.
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TACKLING THE EVILS OF DOWNSIZING
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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

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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
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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.

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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?

RESULTS 

Expected economic advantages Expected organizational advantages Continuous improvement strategy  

³DOING 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
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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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THANK YOU

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