Managing Workforce Reductions
Everyone who enters an organization will, at some point, leave. And yet most future leaders spend significantly more effort learning about recruiting than departures, despite the sensitivity and challenges associated with the latter. This text has an objective to help address that imbalance. Indeed, many employees, whether they are the ones departing or the ones overseeing someone else´s departure, discover too late that their reputations may be defined more by how they leave an organization than by how they joined or even how they performed for the entire duration they were there.
Employee departures can take many forms. Organizations often distinguish between voluntary and involuntary, transitions and retirements, and personal and professional rationales. Some general advice to all, its primary focus will be on large-scale involuntary separations, typically referred to interchangeably as “layoffs” or “downsizing”.
This text provides a roadmap for managers and employees to follow when instating or facing layoffs. It aims to help managers consider the broader implications that should be considered when conducting layoffs, including how to structure and execute them effectively; how to minimize the negative impact on laid-off employees, “surviving” employees, the firm´s reputation, and the community; and what alternatives any firm contemplating layoffs should consider.
Different Forms of Workforce Reductions: The Full Landscape
Employee departures happen for a wide variety of reasons. Since the “formal” reason is not always the real reason, it is worth having a view of the full landscape before diving deep into just one of them, as there is always some spillover between the categories.
Workforce reduction could happen in two different ways, voluntary or involuntary.
Some examples of voluntary actions:
- Retirement: Retirement is the process of leaving employment due to reaching a certain age or completing a certain number of years of service. It is typically a voluntary decision made by the employee, and it may be accompanied by benefits such as a pension or retirement savings plan.
- Off-ramps: An off-ramp, also known as a phased retirement, is a program that allows employees to gradually transition into retirement by working reduced hours or on a part-time basis. This can help employees ease into retirement and provide a smooth transition for the company as well. Off-ramps can be beneficial for both employees and employers as it allows the employee to stay engaged and maintain their earning power while also giving the employer a chance to plan for their replacement.
- Job abandonment occurs when an employee stops showing up for work without giving notice or providing a valid reason for their absence. This can include not showing up for scheduled shifts, not responding to calls or messages from their employer, and not providing any explanation for their absence. Employers may also have certain policies in place to address job abandonment and the process of terminating an employee for this reason. It is important to note that, in some cases, job abandonment can be considered constructive dismissal and the employee may have legal rights to claim for it.
Some examples of involuntary actions
- Individual Firings – At times, organizations find the need to force the departure of an individual employee. These can stem from a wide variety of official and unofficial reasons, ranging from performance concerns to ethical or legal violations. Although the full story behind involuntary firing is rarely public, the process through which they are accomplished typically falls into one of several patterns.
- Layoffs are a reduction in the number of employees in an organization due to environmental or financial reasons. It can occur when a company downsizes or eliminates positions due to financial hardship, or when reorganizing or restructuring of the business occurs. Layoffs usually involve the termination of employees, but in some cases, employees may be offered the option to take a voluntary exit or retirement package instead.
Deeping Dive on Layoffs and Downsizing
As evidenced by thelayoff.com, which crowdsources data about active and rumoured layoffs, layoffs are widespread amongst many of our largest and most well-known companies. While the term layoff technically refers to “a period during which a worker is temporarily dismissed or allowed to leave work”, most layoffs are indefinite, with no specific return date promised.
Cut Costs – Are one of the objectives to start layoffs. Firms often carry out layoffs due to a need or desire to cut costs, as payroll can account for a large share of an organization´s costs or at least a large share of the costs an organization can cut quickly. Some companies eliminate positions in response to increased cost competition, evolving customer demand, and needs, shortened product lifecycles, or an increase in the cost of employees. Some companies adopt new technology innovations that reduce the number of workers needed to cost-effectively perform tasks.
Improve Agility, Decision-making speed, and efficiency – In 2015, Hewlett-Packard announced nearly 30,000 layoffs as the company prepared to split into two businesses: an enterprise business that sold data center equipment and a consumer-facing business that sold PCs and printers. HP leadership believed that a lower headcount would make the company nimbler.
Increasing Productivity and Shareholder Value – Organizational life sometimes feels “bloated” by the presence of too many employees – members begin to feel as though the red tape that keeps them from getting innovative