Employee Downsizing

DOWNSIZING
 Reducing the number of employees on the
operating payroll.
 Reducing the total number of employees at a
company through terminations, retirements, or
spinoffs
 Most preferred option of companies
 Important management venture
REASONS FOR DOWNSIZING
 Merging of two or more firms
 Acquisition
 Change in management
 Economic crisis
 Strategy changes
 Excessive workforce
 Increase in efficient work flow and computerized services
 Outsourcing practice
 Loss of the company
 Employee Downsizing

Alternatives
and Voluntary Involuntary
Separations Separations Separations

Early Retirement Buyouts

Layoffs

Outplacement
 VOLUNTARY
SEPARATION…

Employee decides,
for personal or professional reasons,
to end the relationship with employer.
 INVOLUNTARY
SEPARATION…

Employer terminates relationship

with employee due to
economic necessity or poor fit
between employee and organization.
CHANGE IN EMPLOYMENT POLICIES

 Reduction through attrition

 Cut part-time employees

 Cut internships or co-ops

Leave of absence

 Reduce work hours

CHANGE IN JOB DESIGN


Transfers
Job sharing
 Job rotations
 Job enlargement
 Demotions
 CHANGES IN BENEFITS

Pay freeze
 Cut overtime pay
 Use vacation / leave days
Profit sharing or variable
pay
GOALS OF OUTPLACEMENT

 Reduce morale problems of

employees about to be laid off
 Minimize litigation
 Assist separated employees in
finding comparable jobs quickly
PURPOSES & RISK OF DOWNSIZING
PURPOSE = Improve financial performance
through
 Cost-cutting, while also achieving long-term

effectiveness, efficiency, productivity,

competitiveness
DILEMMA of Downsizing
 Short term cost cutting may lead to negative

psychological reactions that HARM the long

term aim of increased competitiveness.
 Mind shift

 Culture Change

 Lack of commitment
 FAILURES OF DOWNSIZING
 Only between 25% and 50% of
downsizing companies meet their
financial targets (improved productivity,
higher returns on investment, higher
profits, etc.)
 Even these mediocre results do not
consider psychological and behavioural
reactions from survivors which are likely
to be negative and further impair
financial performance
 POTENTIAL ADVERSE SURVIVOR
REACTIONS TO DOWNSIZING

EMOTIONS, PSYCHOLOGICAL STATES &

WORK ATTITUDES
Anger Insecurity
Perceived unfairness
Anxiety Dissatisfaction
Remorse
Guilt Low morale
Uncertainty
Stress Low org commitment

BEHAVIOURAL REACTIONS
Absenteeism Resistance to change
Turnover intention Less effort
Risk aversion Poor performance
FIRST PHASE DOWNSIZING
 Increase productivity & efficiency
 Optimize resources
 Survive competition
 Job cuts , redesign structure
 Implemented quality improvement programs…
DOWNSIZED COMPANIES

 GE & GM – 1990’s

 Boeing

 Deutsche Bank

 Chemical and Drug companies

 Negative Impacts…

Shortage of labor

Losing experienced and skilled workers

Cost of rehiring is high

Downsizing tax

Low rate of job creation

High rate of unemployment..

eg.. Delta airline…

 EMPLOYEE DOWNSIZING

• 90% companies went in for a lay-off in mid 1980’s.

• Reason for lay-off slow economy

•Employee downsizing increase productivity & company’s

effectiveness.
 CHRYSLER’S DOWNSIZING

•Chrysler eliminated between 20,000 and 40,000 jobs at its North

American Chrysler division.

•Permanently closed 1 of its 13 plants in the US and Canada 

huge financial losses.

• Deutsche Bank (a major owner of Chrysler) eliminate 38,000

salaried and hourly workers
 REASONS

• The American company highly competitive.

• The crisis faced by Chrysler product of the slowdown of the US

economy.

• Near brush with bankruptcy in 1980-81.

• Chrysler shrank from 160,000 workers to 79,000.

• Lee Iacocca bailed out Chrysler.

• Iacocca Stimulus Package from American Government.

• In 1991, Chrysler’s Productivity and sales improved.

• Chrysler brought in a lot of new models of Dodge.

 In the mid of 1990s the emp. Downsizing is reduced
across the globe
fall in inflation
increase in national income
high profit
stronger economic
 But in the late 1990s downsizing was picked up again
economic recession
increase in global competition
slump in IT industries
change in technologies
 In the late 1990s & early 21 century st

The organizations had

spend less money on labor force
reduce wage

 Many companies suffered of downsizing

 Lost some of their best emp.

 Due to loss of experienced workers

lack of experienced workers
reduced productivity & fall in quality
incurred expenditure on overtime
 AT&T
 Rehiring its former emp.

AOL
 2000- increase in salary
 2001-downsized 2400 emp.

FORD
 2001-emp. Will forgo bonus
 SECOND PHASE OF DOWNSIZING
• Mid 1990’S- downsizing reduced.
- stronger economies
- fall in inflation
- high profit etc.,

• In late 1990’s- picked up.

-world wide economic recession
-global competition
-slump in IT industry
*Soon criticism began on downsizing.

*Negative effects were faced by the companies.

- loss of best employees
- uneven distribution of employees
- excess workload
- reduced productivity

*Loss of experienced workers resulted in

- expenditure on overtime pay
- employment of temporary and contract workersl
*AT&T in 1998 downsized 18000 employees,
- lacked experienced workers
- not able to manage equipments
- hired former employees
- paid twice the salaries of laid off workers to bring back them

*Allegations raised
- downsizing is adopted to increase S.E pay
- 1996- remuneration of chairman doubled even downsizing
40000 employees.
* AOL faced same criticism.
- increased 6 E.O pay by 8.9% to 25.2%.
- remuneration of CEO exceeded $73 million
- after this raise, downsized 2400 employees-2001.

* After the negative effects and demand by employees, some companies

voluntarily announced to cut down top executives remuneration and
bonus- while layoff.
- Ford is one among them.

* Announced 6000 of its top executives would forgo bonus in 2001-

including CEO.
- AMR group, Delta, Continental and Southwest airlines.
SATYAM
 Reasons:
 IT firms send the excess staff cost which cost
more than companys expenses
 One-fourth of the companys work force comes
around 10,000
 Employees will be taken right back if there is any
project right back……
INFOSYS
 Reasons:
 Because of the effect of economic crisis
 The company will layoff around 5% of its total
work force.
 Company asks senior manager to give lowest
performance rating
 About 50 sales executives have been asked to
quit
SUN MICROSYSTEMS
 Reasons:
 Reduction of 15% to 18% of the companys global
work force
 Because of markets shifted to closed-source to
open source technology
 Also because of the resources that are captured
BOEING
 Reasons:
 Because of the loss of US air force contract
 It announced a layoff of 750 workers
 The company blamed the longer duration of the
government contracts as a major factor for the
downsizing.
 TACKLING THE EVILS OF DOWNSIZING
 Flexible Working Arrangements:-

increases the morale of the employees and productivity

decreases the absenteeism and employee turnover
Reduces the stress
Increases the ability to recruit and retain superior quality
employees
better use of equipment and space

 Concept of Contingent Employment:-

No payment of unemployment taxes ,retirement or

health benefits
salaries less than permanent staffs
No long term commitments
 TACKLING THE EVILS OF DOWNSIZING

 Allowing Legal Concerns to design the layoff:-

As per the law-no discrimination

 Give little notice as soon as possible

 Severance pay:-
Employer have to provide to employee include layoffs, job elimination, and
mutual agreement to part ways for whatever reason.

 Severance package might include extended benefits and outplacement

assistance.
LEARNINGS
FROM
DOWNSIZING
How can companies identify their
critical talent and retain them through
this crisis?

 Growth perspective

 Terms of risk
WHAT TALENT MANAGEMENT STRATEGIES
ARE COMPANIES FOCUSING ON AS A
RESULT OF THE ECONOMIC UPHEAVAL?

 Managers must provoke strong

commitment (loyalty) from
employees and ensure that job
satisfaction stays high.
HOW CAN MANAGERS AND EMPLOYEES
RETHINK THEIR ORGANIZATIONS EVEN AS
THEY CONFRONT THE NEED TO DOWNSIZE?
 RESULTS
 Expected economic advantages

 Expected organizational advantages

 Continuous improvement strategy

“DOING MORE WITH LESS.”

 It is also about creating flexibility, innovation and better

communication that lead to increased trust and empowerment
between managers and employees.
CONCLUSION
 Employment downsizing had very little effect on a company's
return on assets.

 On the other hand, asset downsizing increased the return on

assets.

 Downsizing initiatives must systematically consider both

human resource and physical assets to maximize the impact of
downsizing on return on assets and profitability.
THANK YOU