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It can be the most difficult decision in business. Letting staff go after what may have been years of service represents a loss to both the worker and the employer. While the employee and their family lose a major source of income, there can often be even bigger issues at play. In today's society, much of a person's identity and self esteem can also be tied up in their job. With such heavy financial and emotional investment in a position, losing it can be a traumatic experience.
Employers also have to accept losses. They invest time, money and resources in their staff so that they are constantly improving; delivering more productivity against total spending the longer the employment relationship lasts. Letting staff go in order to save on immediate wage costs is an expensive, if sometimes necessary, decision.
Most employers are therefore heeding calls from governments and unions to ensure retrenchments only take place as a last resort. In Singapore, they are employing a wide range of strategies to cut wage-related costs, but not actual jobs. These include imposing salary cuts, reducing the working week, and encouraging leave without pay options. Local organisations are also taking advantage of Government subsidies for training opportunities in the downturn.
But there are cases where even these efforts will not be enough. Short-term cash saving will not help if there are long-term problems in the target market. Take the US car industry for example. It has seen a tremendous reduction in domestic demand as environmental concerns weigh heavily on consumer's purchasing decisions. That, coupled with the grave financial problems of the three largest car makers, means the current decline is not simply a short-term hiccup.
The Singapore economy is also experiencing certain changes. That's why many unions and training organisations are encouraging workers to shift away from stagnant or shrinking industries, toward new-economy sectors - such as healthcare and integrated resorts. Businesses that grew too quickly during the boom years that preceded this current downturn may also be feeling long-term pressure to "right-size" their headcounts.
Lim Swee Say, Secretary-General of Singapore's National Trades Union Congress, says he expects more job losses before the end of the year. "If we're not going to see a strong rebound for global consumption for this year, (then) the global manufacturing sector may take some time before we see a full recovery," he told journalists recently. "We should not rule out the possibility of a second wave of retrenchments."
Protecting the brand
It may be a fast-acting immediate solution, but that doesn't mean a retrenchment strategy should ignore long-term goals. There are certainly good and bad ways to go about the task. At most risk whenever staff are let go is the lasting employer brand of the organisation involved. This not only affects future hiring plans, but also the retention of those talents remaining after the retrenchment.
Employer brands matter more today than ever before. That's because the internet and new media options mean current, former and potential employees are all just a mouse-click away from each other. When poor downsizing practices are put forth, the commentary that takes shape on internet blogs and social networking sites is immediate and often damning.
"There are blogs specifically devoted to retrenchment and this is where your brand and reputation are made or lost," says John Read of Hudson's Talent Management division.
HR professionals know this only too well.
"People are watching," a head of HR at a US investment bank told HRM. "The high achievers or high potential employees will also observe the execution strategy of the firm. This is something the banking industry in particular can learn to do with a bit more flair and grace."
Keeping the law onside
It's also important to ensure the legal side is taken care of. The requirements will be different depending on the jurisdiction the employment takes place in, but it is always up to employers to be across their responsibilities.
Susan de Silva, head of the commercial and corporate group at ATMD Bird and Bird, reminds employers that retrenchment should always be a last resort exercise.
In Singapore, while there are no statutory requirements to pay redundancy benefits, she says it is vital for organisations to clear any contracted payments. "Employers must ensure that employees are paid all their contractual entitlements such as salary in lieu of notice (if notice is not given), encashment of annual leave and other contractual benefits," she says.
In addition, de Silva advises clients to follow the recently-released Tripartite Guidelines on Managing Excess Manpower. These call for severance payments for workers who are retrenched after at least three years' service. She says employers should consider paying two to four weeks' salary for every year of service.
In the same way, firms are not legally required to consult with unions or the Government before heading down the retrenchment path. But employers will put their brand and reputation at risk if they avoid the tripartite call to notify the Ministry of Manpower well in advance, de Silva says.
Recent experience
"Treat people the way you would want to be treated in similar circumstances," says Philip Morgan, Chief Operating Officer of Muvee Technologies, a Singapore-based firm creating automatic video-editing software. "Use good internal communications and the maturity of the staff as the foundations on which to approach the retrenchment."
He is speaking with some experience. Muvee was forced to retrench one fifth of its payroll in August last year. Having failed to make the planned impact on key new markets, Morgan says the company was left with little option but to return to basics. "It was a scenario of either we risk losing the entire business or a few employees and we wanted to do it sooner rather than later so that our staff would be able to find (new) employment."
That genuine desire to see staff land on their feet was a key part of the small business's overall retrenchment strategy. Morgan says the leadership was flexible with the timing of staff departures. When one staff member received a job offer early, he was given grace and assistance to finish up before the end of the notice period. Even more flexibly, one retrenched worker was given a small amount of extra time in the job to cover the gap before his new appointment.
The firm also went to great lengths to help staff find new employment. All managers were told to milk every industry contact to ensure retrenched staff had as many as options as possible. "Our CEO generously reached a business contact he didn't personally know when one of our staff said she wanted to work for a particular gaming company," Morgan says. "She has since been hired by them."
Effective separation
- Most restructuring decisions are about jobs and roles, rather than performance. So it's important to ensure staff and employer separate on the best possible terms. Experts say it's never easy, but the following tips will help to create a smooth transition:
- Ensure you understand the legal rights and responsibilities of both parties;
- Plan where, when and how you are going to deliver the message; avoid the phone and avoid scheduling meetings for Monday mornings, Friday evenings or before a public holiday;
- Document the separation package details in writing;
- Be consistent in all messages;
- Prepare responses to possible staff reactions.
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