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One of the biggest problems with economic downturns is they can arrive so quickly after a season of plenty. If organisations were given a few months' warning they could adjust much more seamlessly to the new economic environment. But situations of excess manpower are much more common. And the way employers deal with this predicament can make or break their future employment brand.
The first instinct is to let go of any manpower that is no longer needed. But retrenchments aren't free. Businesses can spend a great deal of time and money reducing their headcounts and that's before any consideration is given to the future requirements of the organisation. Employers may need to factor in, for example, the costs of rehiring staff if and when business expectations look more positive.
Inez Chan, Senior Consultant with TMS Asia Pacific, says employers should make decisions with the eventual upswing in mind. "Hastily implemented 'knee-jerk' reactions such as downsizing and hiring freezes will certainly have an immediately perceivable impact on reducing business costs. But these companies are likely to encounter staffing problems when the economy starts to pick up again," she says.
"Organisations forced to restructure also face the dilemma of needing new talent to fuel their businesses on the one hand, but (being) unable to replace or justify an increase in headcount on the other."
Other hard-to-measure costs that can come from painful restructures include the impact on remaining staff morale, potential damage to the organisation's employer and consumer brands and the loss of institutional memory. Chan says companies should also consider the emotional impact on those managers and executives who are making the decision.
"More seasoned executives are quite experienced in conducting retrenchment. However, it can be a traumatic experience for the younger generation of managers as they may not be equipped with the skills or confidence to deal with the exercise."
Alternatives to retrenchment
Singapore has some of the most flexible employment laws in the world. This gives employers a number of options when it comes to reducing payroll costs in the midst of a downturn. Salary reductions are one of the most effective tools and local employers have the ability to reduce variable parts of their wage packages in line with the economic climate. Creating part-time work opportunities and offering retraining are other valid alternatives that many organisations are already taking advantage of.
George Cooper, Practice Leader for Workplace Law, Freehills, says local organisations have a great advantage in this respect. "Singapore is a leader in flexible remuneration arrangements as a tool for avoiding retrenchments," he says. While other economies will count on some flexibility at higher-end wage levels, Singapore employers are also able to look at adjusting the remuneration of rank and file staff. "That's very unusual but obviously a desirable outcome for employers." Cooper says Singapore is also well known for its consultative and collaborative approach to workplace relations - where three tripartite viewpoints (employers, unions and Government) are generally given an opportunity for input before any final decisions are taken.
But if it must be done...
While employers appreciate having alternatives, sometimes even these are not enough to stall the need for retrenchments. Cooper says he is already advising a number of Asian organisations on the legalities of forcibly reducing their headcounts. "We are seeing a lot of interest in this at the moment," he says. "Many are closing down whole operations (or) smaller outpost offices."
While Singapore has already seen plenty of retrenchment activity, he says his work has focused on smaller markets, with Indonesia, Philippines and China all likely to see job cuts this year. "A lot of companies are closing down their representative and branch offices," he says. There are also larger organisations preparing to make across-the-board cuts.
Cooper advises companies to seek expert legal and administrative advice at the first possible moment. This not only ensures all avenues are able to be thoughtfully considered, it ensures any retrenchment is done appropriately and in line with the law. This gets more difficult as more jurisdictions become involved.
"There's a lot of diversity in the employment law regimes across Asia - particularly when it comes to retrenchments," he says. "It can be a real challenge for senior executives of multi-national companies trying to apply some consistency to a cost-reduction programme."
Chan also advises employers to consider outside advice. As well as legal and managerial consultation, they should look at hiring someone to help laid-off staff cope and adjust to the situation. "Organisations can consider outplacement services provided by third party consultancies to help their redundant employees through the redundancy transition," she says. "This is achieved through practical and psychological support and re-orientates them to the job market."
While this extra expense may not be vital to the short-term needs of a restructure, it can go a long way in reducing those hard-to-measure and longer-term impacts on an employer's standing in the community. "As the economy recovers, organisations that have parted with employees respectfully will emerge with a stronger employment brand intact in the market place."