CASE 7: Exit Management

There are several ways an employment can come to an end. Managing so-called employee separation is crucial for a company in order to avoid not only costly lawsuits but also to keep employee morale and engagement at a high level. Naturally, employees, who feel their job at the company is constantly threatened, are not likely to give their best performance.

One specific of today's job market is a relatively high turnover rate (the portion of employees that leave the company). I see that the generation of my parents is not very willing to change their jobs. Most of the people have worked for 2-3 companies at the maximum and there is even a large portion of people, who have worked for a single company for their whole life. I think it is due to that my parents' generation values job security much more than the access to new experience a challenge. On the other hand, the 'young' workforce wants to learn new things, try different tasks. 

Those turnovers are very costly for companies, even though it is not easy to measure the precise price. With some areas (such as sales, research & development) or simply productivity, it is very hard to calculate the amount of money the company has lost due to employees leaving. 

The other costs are those that the company has to pay to find a new person for as a replacement. Those are: 

Recruitment costs (advertising the job on various platforms, salary of the recruiters, and especially recruiting executives is usually very expensive) 

Selection costs (all costs related to the selection process- interviewing, testing, employees who spend time on socializing the new employees)

Training costs (making the employee a valuable part of the organization, making him/her familiar with organizational values and culture, direct training costs like for example instruction books, instructors,...)

Separation costs (financial compensation and benefits for the leaving employee, administration of the separation- there has to be some kind of an interview, where the company finds out, what were the causes of the separation so that they can avoid those situations in the future)

We can see that the process of replacing a leaving employee is not only expensive but also very complex and thus very long. And since people are very unique and everybody has a different personality and a unique set of skills, it is common that the company simply will not find an exact match for the available position. 

Turnovers, however, do not have to be viewed only as negative, there are also significant benefits. From the employees' point of view, without a turnover, there would be a very limited chance for promotion or a different job within the same organization. Further, through turnover, employees have an opportunity to be exposed to working with people from diverse cultures and backgrounds, which can have multiple positive impacts.

From the employer's perspective, turnover allows managers to reduce the labor costs (through an elimination of unnecessary jobs), replace poor performers, who harm the organization and to increase innovation in the company as new people usually come up with new ideas. 

We can divide the separation based on whether they are voluntary (employee's decision) or involuntary (management's decision) and whether the employee moves within the company or starts working for a different company. 

Voluntary separations can have a variety of reasons. Croner-i divides the reasons into two groups- push and pull factors. This theory means that there are reasons that 'push' an employee out of his current occupation, those include limited career opportunities, lack of authority among managers, stress, huge workload, low rewards and a lack of personal recognition and respect). There are also so-called 'pull' factors, i.e. factors that attract an employee to a position at a different company. Those are among others: better compensation offered, following a dream or desire, new situation in one's family- the necessity to work less to take care of children, etc. In most cases, employees leave due to a combination of these factors- the most common combination being unsatisfaction with the current job and an offer with a higher compensation from other company. 

The company should be aware of those factors that are avoidable (80% of separations mainly due to poor staffing), but also be prepared that some factors are unavoidable (family reasons).

The two most common types of voluntary separation are quits and retirements, which differ by nature, time, reason,...)

A special case is early retirements which allow the company to 'have more space' for younger, possibly more creative employees. Managers have to be very careful when offering early retirements so that the targeted employees don't feel discriminated based on their age.

On the other hand, Involuntary separations happen mostly due to economic necessity and staffing mistakes (an employee is a poor fit for the position). Those separations come from management's decision and are also often conducted by management, however, they should be always supervised by HR staff. On an individual scale, there are so-called discharges, where an individual employee is terminated because of poor performance or a serious misconduct. As we discussed in the topic dealing with managing discipline, an employee has to be made aware that his or her behavior is unacceptable and has to have a chance to correct this behavior.
On a larger scale, there are Layoffs. Those happen for reasons that the employees themselves cannot influence- such as the economic situation, company's situation, changing technologies or products portfolio, etc.)
When it comes to adjusting to the current market situation and improving financial performance, the company can practice downsizing (reducing the whole scale of business- can but does no have to involve layoffs) or rightsizing (reorganizing company's employees to improve overall efficiency, usually used when the company becomes too bureaucratic with surplus of management levels).

Talking now about the layoffs in a greater detail, as there are many negative impacts on redundant individuals as well as the whole organization, this step should only be taken after there is no other cost reduction possible.
There are several alternatives to layoffs: attrition (not filling jobs that have become vacant), hiring freeze or lowering the overall working hours. If a company practices those steps, it is called  rings of defense (protecting full-time core employees from termination). Further, the company can adjust the job design, additionally relocate employees to different locations, units, or if necessary- to lower positions. Not all employees will probably be willing to accept those steps and might voluntarily leave. Commonly, the company also adjusts the pay and benefits policies in order to avoid layoffs. Apart from more severe pay cuts that also cause demoralization among the employees (they feel unfairly punished for their performance), there are pay freeze or cuts in overtime pay (the company provides time off instead of pay for overtime). In any case, the company has to make sure these policies are applied across the board to avoid discrimination.

When I used to teach at Siemens, I often heard the employees complaining that they no longer get paid for overtime. Many people had intentionally taken too much time to do tasks so that they get extra money. Siemens thus had to change their policy and started offering time off to compensate overtime. The problem was then, that the employees were forced to stay home at the end of the month so that the amount of hours worked is legal. This caused that others couldn't do their job properly because they needed to cooperate with those who stayed home.

As we discussed regarding training and development of employees, this can also be applied to this case and can help the company to avoid layoffs.

If all of the options above have been considered, the layoffs can also become an option. There are several steps the management has to take in order for the layoffs to be legally defensible.

• The employees, who will be made redundant have to be notified of this situation. As our book says, this period is 60 days in the US, however, according to europa.eu in the EU countries, this period is only 30 days. In the table below, there are the legally required numbers of staff.

• The criteria based on which the laid-off employees will be chosen. The most common and accepted criterion is seniority because it is easily applicable and generally those who have stayed with the company for the longest have made the largest contribution to the company. Another possible criterion is performance, however, for this case, the company has to have a carefully developed performance measuring systems.
• Humanly and sensitive communication with redundant employees the situations, the reasons and the benefits while appreciating the employee's contribution to the organization.
• Coordinating the way the layoffs are communicated within the organization as well as with the public. Layoffs do not have to mean that the company is on the way to bankruptcy.
• Maintaining security of the employer as some employees will feel the need to revenge in their eyes 'unfair' termination. This might result in sabotages, thefts or employees purposely giving out bad publicity of the company.
• Maintaining the unavoidable negative effects of layoffs. Managers should be aware of those effects and try to eliminate them.

The employees, who get separated do not always have to be alone in this situation. An increasing amount of companies (especially those that are socially responsible) offers outplacement services.  It basically means that the company develops an HR program that supports employees mentally, minimizes the negative impacts both, the individual employee and overall morale and also helps the terminated employee to find a job comparable to his or her current one. I think it is a really good idea for a company to spend money on outplacement services.

The first case we have available represents a situation, where a huge amount of employees would be made redundant simply because of a company training to get the most profitable conditions. I think this is a common practice in the EU and many jobs are being relocated from western to the central and eastern EU countries.

An even more drastic situation is the second case, since clearly the relocation did not ensure the company enough profitability. I've heard that Nokia is quite famous for its regular cuts in staff and constant attempts to make the staff efficient.

Sources

Communicating Labour Rights. Nokia closes plant in Germany and relocates in Romania
Available from: https://communicatinglabourrights.wordpress.com/2008/01/17/nokia-closes-plant-in-germany-and-relocates-in-romania/. Accessed: 12.4.2018.

Croner-i. Push-pull factors in employment. Available from: https://app.croneri.co.uk/feature-articles/push-pull-factors-employment?product=31. Accessed: 12.4.2018.

Europa.eu. Redundancies. Available from: https://europa.eu/youreurope/business/staff/redundancy/index_en.htm. Accessed: 12.4.2018.

Gómez-Mejia, L. & Balkin, D. & Cardy, R. Managing Human Resources. Pearson Global Edition. 8th edition.

YLE Uutiset. Nokia cuts 3500 jobs "to ensure profitability". Accessed from: https://yle.fi/uutiset/osasto/news/nokia_cuts_3500_jobs_to_ensure_profitability/5431070. Accessed: 12.4.2018.