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CHAPTER 6 Managing Employee Separations, Downsizing, and Outplacement

CHALLENGES

After reading this chapter, you should be able to deal more effectively with the following challenges:

1 Understand employee separations.
2 Gain mastery in identifying types of employee separations.
3 Have familiarity with managing early retirements.
4 Learn practices for managing layoffs.
5 Recognize the role of outplacement.

Maintaining the fiscal health of an organization, particularly in difficult economic times, often means cutting costs. In most organizations, a significant portion of the cost of doing business is the cost of labor. Layoffs are one tool organizations use to reduce labor costs.

The reduced employment level due to a downsizing is typically meant to improve productivity and the financial situation of the firm. However, there can be difficulties in using layoffs as a means to improve organizational performance. Below are some points to consider regarding layoffs.

Employee separations need to be handled fairly.

Source:David De Lossy/Thinkstock.

▪ Downsizing became a common practice and familiar term by the mid-1980s. The number of layoffs peaked in the 1990s and again in the recent recession during 2007 through 2009. The layoff numbers declined in 2010, but the practice continues.1
▪ In the 1960s and 1970s, job cuts tended to affect blue-collar workers. Although the initial focus of layoffs was elimination of lower-skilled and hourly workers, that is no longer true. For example, Zynga, an online gaming pioneer, has eliminated hundreds of employees from its workforce.2
▪ Until the early 2000s, layoffs were largely seen as a means to get a boost in stock price. Large, publicly traded firms would get noticed for their layoff announcements, and there was a belief that investors rewarded the cost-cutting measures with an increase in the stock prices. Recent research, however, indicates that layoff announcements are generally associated with a negative stock price response.3
▪ Layoffs have been associated with a number of negative outcomes. Internal to the organization, morale can decline and concerns over job security can become a focus for surviving workers.4 External to the organization, the reputation of the organization may suffer. For example, a former employee may post negative comments about their former employer, particularly if he or she feels that the layoff was unfair.5 More broadly, a major layoff can have a negative effect on an entire community. If a company is a major employer in town, a layoff could affect the livelihood of many people and the economic health of families in the community.

Overall, layoffs, as with any kind of employee separation, can have negative or positive consequences. An important factor is how well the employee separation process is managed.

The Managerial Perspective

Global competition and technological advances have changed the rules of competition, forcing many firms to become increasingly productive with smaller workforces. In addition, voluntary turnover—people choosing to leave their jobs—can be an issue for companies. People can choose to leave their jobs for a variety of reasons, including job opportunities that can arise, even in tight economic times.

Managers must not only develop skills to help an employee who leaves the company voluntarily, but they must also aid employees who have been fired for cause or are being let go for economic reasons. A badly managed ending to the employment relationship can damage a firm’s reputation in its industry or community and limit its ability to attract the scarce, talented employees that it may need in the future.

This chapter deals with the sometimes unpleasant task of managing an organization’s outflow of human resources. We explore the process leading up to an employee’s exit from the firm and how to manage that process effectively.

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Table of Contents for CHAPTER 6 Managing Employee Separations, Downsizing, and Outplacement

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Table of Contents for
CHAPTER 6 Managing Employee Separations, Downsizing, and Outplacement