DOWNSIZING APPROACHES

Downsizing has inspired various innovative ways of removing people from the

payroll, sometimes on a massive scale. Several alternatives can be used when

downsizing must occur: Attrition, early retirement buyouts, and layoffs are the

most common.

ATTRITION AND HIRING FREEZES Attrition occurs when individuals who quit, die, or retire are not replaced. With this approach, no one is cut out of a job, but those who remain must handle the same workload with fewer people. Unless turnover is high, attrition will eliminate only a relatively small number of employees.

Therefore, employers may use a method that combines attrition with a freeze on hiring. This method is usually received with better employee understanding than many of the other methods.

EARLY RETIREMENT BUYOUTS Early retirement is a means of encouraging more senior workers to leave the organization early. As an incentive, employers make additional payments to employees so that they will not be penalized too much economically until their pensions and Social Security benefits take effect. Such voluntary termination programs, or buyouts, entice employees to quit with financial incentives. They are widely viewed as ways to accomplish workforce reduction without resorting to layoffs and individual firings.

Buyouts appeal to employers because they can reduce payroll costs significantly over time. Although there are some up-front costs, the organization does not incur the continuing payroll costs. One hospital saved $2 for every $1 spent on early retirees. As noted, early retirement buyouts are viewed as a more humane way to reduce staff than terminating long-service, loyal employees. In addition, as long as buyouts are truly voluntary, the organization is less exposed to age discrimination suits. Employees whom the company wishes would stay as well as those it wishes would leave can take advantage of the buyout. Consequently, some individuals whom the employer would rather retain often are among those who take a buyout.

LAYOFFS Layoffs occur when employees are put on unpaid leaves of absence. If business improves for the employer, then employees can be called back to work. Layoffs may be an appropriate downsizing strategy if there is a temporary downturn in an industry. Nevertheless, careful planning of layoffs is essential. Managers must consider the following questions:

-How are decisions made about whom to lay off, using seniority or performance

records?

-How will call-backs be made if all workers cannot be recalled at the same time?

-Will any benefits coverage be given workers who are laid off?

-If workers take other jobs, do they forfeit their call-back rights?

Companies have no legal obligation to provide a financial cushion to laid-off

employees; however, many do. When a provision exists for severance pay, the

most common formula is one week’s pay for every year of employment. Larger

companies tend to be more generous. Loss of medical benefits is a major problem for laid-off employees. But under a federal law (COBRA), displaced workers can retain their medical group coverage for up to 18 months, and up to 36 months for dependents, if they pay the premiums themselves.