Corporate Downsizing – What to consider ?

Corporate downsizing is never an easy task for any organization, whether a private company or a large corporation, and it is particularly hard on employees, not just those who have to leave, but even those who stay. Here, from an HR point of view, are some of the key considerations with regard to dealing with your employees when going through a corporate downsizing in your organisation. For each of them I have also provided what are considered to be best practice: since the best ex-employee is the one who is willing to rejoin your organization should the opportunity arise, and recommend it to others.

It would be easy for me to recommend doing just about anything every HR manual speaks of, but in my over 14 years of experience in HR field and handling over 30 such situations or tasks, I have come to the conclusion that these are the five essential considerations that every organization has to bear in mind.

1.     COMMUNICATION CHANNELS

Consideration:

i.   Retaining Corporate Reputation:

The announcement of divestment's can have consequences upon the local community, and the customer and supplier, that can be profound. It is, therefore, essential that the company communicates clearly the reasons for making such a decision, to the affected people and groups, before rumour and innuendo increase the barriers of acceptance of the need for such a decision. Closure or downsizing is a balancing act. It’s important to evaluate the impact that such a decision will have upon the local community and carefully consider all the ramifications of its effect upon the corporate brand and reputation.

Best Practice :

ii.    Manage Communications:

Maintain total transparency with the employees, and have, if at all possible, open forums/townhall meetings to communicate the divestment plans, before commencing the actual closure process. This will help greatly to prevent rumours from spreading. It would also be ideal for the company to have a fixed FAQ’s document.

2.     FINANCIAL AND LEGAL IMPLICATIONS:

Financial Considerations:

As per best Industry practices, a company is best advised to include the following “retrenchment package”

i .     Notice period pay : As per appointment letter (this will be different for employees under probation and those who are already confirmed).

ii.     Severance pay: Of 2 months gross pay or 15 days for every completed year, for long tenured employees. However, it’s important to refer employees’ appointment letters for other terms and conditions on severance pay to prevent any legal action or turmoil for the company. Though the law in India is not stringent, if a worker files a case in court for termination without cause then it can be a long run case for both parties.

iii.     Gratuity : Consider payment for employees who have been associated with the organization less than 5yrs, on pro-rata as well, to be fair.

iv.     Bonus payout : Consider a payout for the appropriate calendar year as applicable

v.     Leave Encashment : For the appropriate calendar year and for the period the employee is with the organization

vi.     Mediclaim coverage / Health Insurance: For 6 months from commencement of notice period

Legal Considerations:

Note :

a.      Garden Leave is a process whereby, for whatever reasons, the employer leaves the employee on the payroll for the severance period, but the employee is not allowed to conduct any business on behalf of the organization, which usually includes no longer entering the office , having access to company’s equipment’s or file. Most commonly garden leave applies to senior employees and sales people, and allows them the opportunity to use the severance period to seek alternative employment without showing any break in employment. The terms of garden leave can be varied by mutual agreement to include such provisions as allowing the employee to terminate their employment earlier should they have a new job opportunity, with final pay out adjusted pro rata.

b.       Many organizations apply “garden-leave” during the notice period. i.e when an employee is communicated about their exit, they are still shown on the company payroll to show continuity of employment throughout their notice period. During “garden leave” the employee is not permitted to access office premises or engage in any business related responsibilities for the organisation. This helps the employee to be on the rolls of the organisation and look for another job-opportunity. Some organisations also convert the whole monetary benefit applicable to time and the employee is shown in the rolls of organisation for that said period or until they find a job, whichever is shorter.

c.      Due Diligence on Local Union rules and Legal implications: If the workforce or part of the impacted workforce is unionized, it is advisable to consult with the local union representative, and also local employment law practitioner, to ensure that any downsizing rules in the union agreement are to be followed.

Best Practice:

In case the number of employees to be laid off exceeds 10 it is best to take a legal opinion in order to be compliant on the local regulations and procedures, which can vary from state to state, and from case to case. 

3.     INTERNAL JOB OPPORTUNITIES

It is best practice for an organization to place as many of the affected employees as possible in alternative job within the organization itself. These internal vacancies and postings should be advertised within the organization and priority should be given for any vacant post, to employees who are affected by the downsizing. Openness in communicating and implementing this is what helps boost general employee confidence in the organization and its commitment to them. 

4.     OUTPLACEMENT SERVICES / CAREER TRANSITION SERVICES:

I would recommend any organization engaging in this project to set up outplacement services for the affected employees. Employees can be routed to this service provider who will help them with building resumes to preparing them for interviews (if required), and also provide assistance for job search. This service provider can also work on behalf of the organization as a coach to minimize the emotional impact of the employee concerned, by acting as a sounding board/ sympathetic ear to them whilst simultaneously helping them move their thoughts in more positive direction.

In every case in which I have engaged in setting up outplacement support for the affected employees, the entire experience was viewed more positively not just by those employees but also by those employees who stayed with the organization, because it gave them confidence in the organization’s commitment to their wellbeing as people not just resources

5.     PERSONAL TOUCH :

Consideration:

We need to understand the emotional impact upon employees of a downsizing or closure decision, otherwise it can prove to be both a difficult and a very costly process to implement.

For instance, even the employees who continue with their employment after such decisions should also be offered counselling or mentoring to ensure the rebuilding of their commitment to the company and their motivation to continue as one of the company’s employees to avoid loss of productivity and curb attrition.

Best Practice :

It is important to have one to one meetings with managers (or leadership team member) and affected employees, along with HR (or in absence of HR, with senior staff members) as the downsizing will have a blow on the employee, and it is important to hear it out. In addition, it is better to be show empathy to the employees while keeping within professional, legal and financial boundaries. This also can again prevent rumours and bad mouthing to a great extent. It is better to avoid redundancies during times with emotional connotations, i.e. Easter, Christmas, Diwali, New Year or other such seasonal breaks. It shows a lack of feeling – and also a lack of professionalism and empathy on the part of company.

Some of the ways of approaching that were helpful for me, when beginning such conversations are :

"The current position you hold has been made redundant, it's a business decision due to various factors and is nothing personal"

"I know it's hard for you to take this , take a deep breath and let it move on as new greener pastures await you"

"There's something better out there waiting for you to take on "

If an organization does not treat its people with respect, it cannot expect them to treat it with respect in return. That’s why I always firmly believe that in my profession much more important than the ‘Resource’ is ‘Human’!

If you have questions or queries on that I have discussed here, please do not hesitate to comment on this article. I will do my best to explain! And happy to know what are your views on this topic as well !

Just as a disclaimer, it is important for me to say, that none of the above mentioned is related to any specific organization I have worked for or consulted with, nor to any person I have worked with in any of the organization. This represents the distillation of my experiences in the field and are meant as a guide, but please remember to take your own legal advice whenever engaging in such a project because situations can vary and no one essay of this length can cover all of them.