Dismissal and retrenchment effects

Dismissals tend to result in deleterious psychological and physical health outcomes for employees who lose their jobs as well as for the survivors who, witnessing the layoffs of their coworkers and friends face uncertainty and discomfort.

Furthermore it is not just the victims and survivors who suffer negative effects. Researchers collected data form 410 managers who either had or had not been in the position of having to inform subordinates about expected mass layoffs. None of the managers were layoff targets. The researchers found that the more managers were personally responsible for handing out warning notices to employees , regardless of their age, gender, and marital status, the more likely they were to report physical health problems to seek treatment for these problems and to complain of disturbed sleep.

The rigid law regarding retrenchment / closure particularly the clause requiring approval of the appropriate government is cited as the example of the restrictive and inflexible nature of Indian labor legislation. The trade unions oppose moves to change the existing situation since they fear job losses. Voluntary Retirement Schemes (VRS) which provides better compensation and benefits are negotiated by the trade unions. VRS schemes allow firms to be more flexible though at a higher cost. Companies in the public sector (the state bank of India , IOCL, Maruti Udyog Ltd) and private sector (Tata steel, Hindustan Unilever Limited) have negotiate VRS schemes to reduce the number of employees.

Layoff and Downsizing alternatives

Layoffs and (especially) downsizing are usually painful for all involved and have the added disadvantage of stripping the company of well trained personnel. Employers therefore often try to find alternatives to wholesale dismissals, where possible. Suggestions include finding volunteers who are interested in reducing hours or part time work; using attrition and networking with local employers concerning temporary or permanent redeployment.

There are also other alternative. With the voluntary reduction in pay plan, all employees agree to reductions in pay to keep everyone working. Other employers arrange for all or most employees to concentrate their vacations during slow periods. They don’t have to hire temporary help for vacationing employees during peak periods and staffing automatically declines when business declines. For example, Sun (as well as many Silicon Valley employers) had all employees stay home for a week when the economy slowed. Other employees agree to take voluntary time off, which again has the effect of reducing the employer’s pay roll and avoiding layoffs.

Many employers hire temporary employees often as independent contractors, with the understanding their work is temporary. When layoffs are required they are the first to leave. Some seek volunteers as an alternative to dismissing large numbers of employees. For example GM and Ford recently offered early retirement buyout packages to many of their employees.

Adjusting to downsizings and mergers

Firms usually downsize to improve their financial positions. Yet many firms discover profits don’t rise after major personnel cuts. Low morale among remaining is often part of the problem.

It therefore makes sense to think through how the firm is going to reduce the surviving employees’ uncertainty and boost their morale. When Duracell Inc (now a part of Dow), downsized their program included post downsizing announcements activities. Including a full staff meeting at the facility; an immediate follow up in which remaining employees were split into grounds with senior managers to express their concerns and have their questions answered and long term support, for instance by encouraging supervisors to meet with employees frequently and informally to encourage an open door atmosphere . The Diner Club subsidiary of Citigroup used attitude surveys to help management monitor how post downsizing efforts are progressing.