From an economic perspective, the last few years have been tough in South Africa. VAT has increased, GDP hovers around the 1% mark and retrenchments have continued across several industries including mining, construction, engineering, manufacturing, banking and finance, as well as state-owned enterprises such as Eskom, SAA and SABC.
What causes companies to retrench employees? There are many reasons why organisations reduce their number of employees. In general, retrenchment is related to poor economic conditions requiring lowering of costs and/or investment in other areas.
Financial losses resulting from reduced productivity due to faulty or archaic equipment/technology
Bankruptcy or losses caused by mismanagement or misappropriation of funds
Strikes and lockouts that weaken your company and chase customers and work away
Financial losses due to a decline in sales in response to economic factors
Rationalisation of surplus employees resulting from buyouts or mergers
Corporate restructuring in order to increase profit, i.e. so-called “streamlining”.
All these scenarios are likely to continue in our economy with more and more jobs being threatened by factors relating to the Fourth Industrial Revolution, such as automation and artificial intelligence.
There is no denying that the world of work and employment is in constant flux and there seems to be little indication of that changing. If you’re a manager, this state of affairs often requires that difficult and stressful decisions be made in terms of aligning work forces and staffing levels with the current needs of your organisation.
Downsizing and retrenchment are realities in both large and small organisations. Learning how to handle this and what solutions are available can influence your daily activities, as well as stress levels, of course.
What are the negative effects of downsizing on your organisation?
Whilst downsizing affects everyone in your organisation, the most significant effect is on the employees that have to leave, find alternative employment and whose finances will be adversely affected.
Your organisation’s culture is also affected by lay-offs due to feelings of unease and discomfort and the feelings of loss of co-workers.
Retrenchment comes with financial costs in the form of severance packages and payments.
Lay-offs affect employee morale as employees worry about their own jobs and how the company will function once they are gone. Downsizing often means remaining employees face greater work responsibilities without extra pay.
Productivity and creativity drop-in times of retrenchment and could affect your company’s competitive edge.
Your company loses valuable knowledge and skills when employees exit.
Lost trust in management resulting in less engagement and loyalty.
Even if your reasons for downsizing are ethical and valid, you face the potential for expensive legal repercussions if employees feel they were treated unfairly.
Retrenchment alone can affect your company’s reputation in the market. If the process is poorly managed, it can further negatively affect your company’s name and brand.
What are the positive effects of retrenchment?
The most apparent benefit is that it helps cut costs.
For some employees, the loss of a job can be a positive step to re-inventing themselves.
It gives you a chance to scale your business down to a more realistic and manageable size.
It forces a company to re-evaluate its business processes and review the business plan so it reflects the current business status.
It forces a company to prioritise and focus on business critical, which after a growth spurt, may have been neglected for a while.
What should you consider when downsizing?
Downsizing is extremely difficult, burdening all of a management team’s resources, including both business acumen and humanity. (https://www.wikihow.com/Downsize-Your-Company).
No one looks forward to, nor likes, laying off employees. This is probably why management can often ignore the signs pointing to a need to retrench until it’s too late to plan properly and action must be taken immediately to reduce costs and expenses, salaries usually being the biggest financial burden in a company.
Many decisions need to be made when retrenchment has been chosen as a way of reducing costs, addressing a merger or saving a company’s financial status:
Who must be laid off?
How much notice they will be given?
How much they will be paid?
How much help will they receive to find new jobs?
What legal issues need to be managed?
How to protect morale and intellectual property? More often than not, and since the signs have been ignored until it’s a bit too late, downsizing occurs in a flurry of stress and inefficiency. The effects of a poorly managed retrenchment process can be far-reaching and can take an organisation a long time to recover from.
Is retrenchment the only option or can companies offer other alternatives? Before downsizing your workforce or closing offices and branches, there are other options that an organisation can consider, in order to reduce costs. These include:
Offering severance packages, i.e. voluntary unemployment. Obviously, this lowers staff numbers.
Shortening the workweek. This will also reduce expenditure.
In consultation with employees, changing their employment contracts from permanent to part-time, so that they aren’t retrenched, but become contract workers.
Negotiating pay.
Lowering benefits.
Offering unpaid holidays.
Offering early retirement.
Freezing the recruitment of new employees.
When a layoff is still deemed necessary, no matter the scale, people's lives are upturned. A great severance package that includes an Outplacement programme is the best way to ensure you’re doing all you can to support affected employees whilst at the same time acting in the best interests of the company and the remaining employees.
What does South African law say about retrenchments? What are employees’ legal rights? Outplacement is common practice in many countries where unions are strong and where companies feel an obligation to act humanely and responsibly. Being a “responsible” and “fair” company in terms of corporate social responsibility, gender and race equality, ethical standards, not harming the environment and doing good are increasingly becoming the reasons employees stay and leave.
Another aspect in this new wave of social consciousness is also the way a company behaves during times of retrenchment. South African companies have been slow in the uptake of Outplacement practices, but this is shifting, especially amongst global companies influenced by outside trends.
To avoid legal repercussions, the most important aspect of retrenchment is the reason for it. Procedurally, it’s difficult to make mistakes, because the procedures are clearly documented in the South African government’s Labour Relations Act under “Section 189 - Dismissals based on operational requirements”.
The reason for retrenchment, however, is often subjective and is another matter altogether. In terms of South African law, it is very important. The reason for retrenchment must be fair, lawful, reasonable, able to be proven and based on sound business rationale. The company may have many reasons to retrench employees, but it definitely pays to make these decisions carefully and thoughtfully to avoid the time and expense of Labour Court. Seek assistance from a labour specialist to avoid pitfalls and unnecessary expense and frustration of an already difficult situation.
What are Outplacement services and what do they include? The effective and speedy transition of a separated employee to a new job depends on many things. Well-defined goals and realistic objectives are essential and their achievement is largely dependent upon the approach of the individual and his/her interaction with our trained consultant.
The overriding concept of Outplacement programmes is that being unemployed or retrenched is not the end of the road but, a “Bend in the Road” - the beginning of a new and exciting journey towards New Beginnings.
Outplacement service providers usually tailor-make programmes to an organization’s needs, size and budget. Services are aimed at helping displaced employees to move on and find alternative work roles, start their own businesses or identify courses or degrees for further study. Outplacement focuses on making a smooth transition from one role to another and helping affected employees manage the psychological aspects of change.
A well designed and executive programme will offer both practical and emotional support to those leaving their current roles.
Programmes typically offer a range of modules in groups and on an individual basis, including:
Coping with change
Career coaching
Career planning
CV writing
Managing digital platforms
Interview and negotiation skills
Assistance in applying for jobs
How does Outplacement work? Retrenchment support services come in the form of packages both for groups and for individuals that include presentations, meetings, one-on-one sessions as well as reading material. These are usually available for a period of time. These services can be delivered from the supplier’s offices, offsite or remotely using online tools.
How do you choose an Outplacement partner?
25 useful questions to guide you through the process Choosing an Outplacement partner can be complex especially if it’s the first time you’re investigating this option. As an HR manager, you’ll need to assess what kind of support you’re looking for:
Is it only CV writing?
Do you want individual coaching?
What kind of support would be relevant to the staff level being retrenched?
What is the culture of the company?
Do you want to include the whole company or only those being laid off?
Do you want face-to-face meetings or online meetings?
Here are some ideas on what to think of when interviewing a prospective supplier:
Checklist on how to choose an Outplacement supplier Does the provider have partners in countries that interest you? Does the provider supply courses and material in other languages? Does the provider have a track record with companies in the same industry? Does the supplier provide individual coaching? Does the firm make use of technology to provide the service? Can they provide references? Do they offer services for remaining employees? Can the supplier assist with the legal aspects of retrenchment? Can their programmes be customized for you? Can the supplier help to source jobs for retrenched employees? Do they only supply career coaching and planning? Does the firm provide networking groups? Is there a time limit to their services? Do you feel comfortable with the service provider? Do they understand your needs? Will you have the same coach throughout the process? Does the supplier provide a free initial meeting? Does the supplier have experience of working at higher management level? Does the supplier have documented coaching qualifications? Do you understand the supplier’s costing structure? Does the supplier provide access to recruiters? Does the supplier deliver job leads? Does the firm provide an expert job “sourcer”? Does the supplier provide a professionally written CV? Does the company supply individual coaches to each participant in the programme?
What do Outplacement programmes cost?
No two businesses are run alike and therefore the offering can differ drastically. The best way to get a price is to look and see what specific services are most important to you and work with the company to come up with both an affordable and valuable product. A good rule of thumb is to look for value, and not cost.
The price of Outplacement programmes is usually based on:
The number of people affected by the retrenchment
The services offered - more or less coaching, writing CV’s, length of time of service
Extra services and programmes like additional workshops, online meetings, career development, programmes for remaining employees.
Some companies will charge a fixed fee per person. This may however only include coaching to write a good CV, applying for jobs and setting job alerts on job sites. To get more services like one-on-one consulting and career planning, you will need to pay a bit more. Some companies may require a retainer, meaning that you could end up paying for the service even if no one uses it.
Due to advances in technology, the more technologically advanced suppliers can offer more affordable services. Costs vary per company and per package as well as on the organisational level of the staff being retrenched. C-Suite executive career transition packages usually cost more but this can also vary between companies.
There’s no law that requires companies to help retrenched employees find a new job, so Outplacement does not have to be offered. However, it’s good to weigh up the costs of offering and not offering Outplacement services and make sure you understand the consequences of both.
Does anyone benefit from an Outplacement programme, really? When the decision has been made to retrench, no matter what the reason, Outplacement programmes give specialized and objective assistance to both the company and the individual or groups of individuals that are being laid off.
The benefits of this assistance to the company are considerable:
Since retrenchment is a tough decision to make, it is often made too late and occurs hurriedly with the added risk of making mistakes. Outplacement services help you to plan your staffing levels and do what needs to be done for your business to continue being profitable. The decision to retrench is thus made in a timely and effective manner
Management is able to concentrate on the business instead of being involved in what sometimes can be very long retrenchment processes.
Laying off employees is stressful as it is and can be emotionally draining for all parties. Knowing that your company is offering an Outplacement programme releases the psychological pressure of retrenchment.
Promotion/succession planning complications can be resolved.
The treatment of departing employees is carefully monitored by those remaining and can result in the retention of key employees. The first 48 hours after an employee is let go is the make-or-break time for any Outplacement programme.
The risk of legal problems is minimized by good treatment of terminated employees, also a very time-consuming and expensive activity.
A humane and supportive approach to retrenchment is good for the future reputation of the company and the recruitment of new talent when the situation changes.
Support for outgoing employees helps maintain good relationships with individuals who may well become competitors, important industry contacts or even potential alliance partners in the future.
A well-managed Outplacement programme preserves organisational focus, promotes trust and sends an important message to all about the organisation’s sense of responsibility.
Outplacement programmes are best practice in companies that believe in sustainable HR management.
The benefits of Outplacement programmes to the individual are:
The employee receives professional assistance at a time when he/she may be unprepared or ill-equipped.
At this vulnerable time, Outplacement programmes help reinforce an employee’s motivations and maintain his/her self-image and self-respect.
Outplacement programmes encourage laid-off employees to take stock of their qualifications and skills and practice marketing themselves. These skills can be applied for life.
The skills and support obtained lead to more time efficient job search campaigns.
There is improved success rate in being short listed for target roles.
Support in the interviewing and negotiation processes help displaced employees to win the job offer.
Handled properly, the termination of staff need not be the end of their careers, but a new beginning, often in more suitable position at better salaries. For the company, this also means a quicker move to greater productivity.
Outplacement services are changing and expanding rapidly in response to a growing need for companies to act responsibly and thus be seen as a good company to work for.