Managing Downsizing in Organizations

What is Downsizing ?

Downsizing or layoffs is the term used to refer to the practice of firing employees for various reasons in organizations. These reasons can range from poor performance by the employees, the poor performance of the organizations in economic downturns that necessitates laying off employees to save costs, and for disciplinary reasons. There are other reasons as well which include the shuttering or the closing of the organization.

Whatever be the reason, downsizing is a painful process for both the employees and the organization and more for the former. Therefore, the Human Resources Function must handle downsizing with utmost care and caution and with sensitivity.

Payment of Compensation

For instance, when laying off employees, it is usually the case that the organization pays severance packages and some additional pay to compensate the employee for the sudden event or occurrence of losing his or her job. Of course, when employees are laid off for disciplinary reasons, there is usually no severance pay since the employee has violated the code of conduct and hence, is not liable for any compensation. Having said that, it must also be noted that the law mandates payment of compensation in the other forms of downsizing. However, the reality is that very few companies follow the law because in gloomy economic conditions, even the government which is eager to please the businesses does not really enforce the laws.

Policies and Procedures to Handle Downsizing

In addition, when the employee is informed that he or she is going to be laid off, most organizations have set policies and procedures to handle such occurrences. It is usually the case that the employee is called to a meeting with his or her immediate manager and the HR manager along with additional people depending on the rank and the role of the employee. This meeting is usually tricky for both the employee and the other attendees since breaking bad news is painful as well as traumatic for the employee.

Downsizings must be Handled with Care

Therefore, it is indeed the case that downsizings have to be handled with utmost sensitivity wherein the reasons for the layoffs are explained clearly and the employee is given a sympathetic hearing. Moreover, the organization must also take into account the fact that the employee can sue the company if the reasons are not convincing enough.

The history of Corporate America is littered with examples of how the HR botched up the downsizing process which led to the employee(s) taking the organizations to court and in some cases, if the evidence is strong, winning Multi-Million Dollar lawsuits against the organizations for wrongful termination.

Lack of Communication might Lead to Good Employees Leaving as Well

Now, let us see how downsizing can also lead to exceptional employees leaving the company in case the organization does not handle the process well. It is the fact that if layoffs are being announced or there are rumours circulating about them, many employees start to feel jittery and begin looking out for other jobs.

If the organization does not handle layoffs properly, it is at the risk of losing even those who are not likely to be downsized. This is because these employees who are good performers would decide that they would anyway get jobs elsewhere and instead of sticking around in an organization that is on the verge of economic debilitation, they might as well move jobs. Therefore, any organization that is planning to downsize must approach the same in a calculated and careful manner.

Downsizing due to Poor Performance of the Employee(s)

Turning to the downsizing related to poor performance of the employees, it must be mentioned that unless they are given sufficient notice that they have to pull up their socks and ramp up their performance, the organization might not have sufficient grounds for laying them off.

All organizations have something called a performance improvement plan wherein the employees whose performance is suspect are told about the same and their performance put on watch. During this period, they are monitored by their immediate managers along with the HR manager and if they do not improve even after the mandatory watch period is over, they are then let go with the reasons for the same being stated clearly and in writing.

Organizations have to be Humane but Firm

As mentioned in the introduction, downsizing is very painful to the employees since their source of livelihood is being taken away from them. Especially in these gloomy economic times when everyone wants job security and assured income, downsizing can be extremely traumatic to the employees. Therefore, it is indeed the case that a humane approach must be adopted so that the employees do not feel that they have been treated unfairly. Having said that, no organization exists for charity and hence, they too need to be firm on when to downsize and whom to downsize. These are complex challenges that need creative and humane approaches and this is where the personality of the HR manager comes into question since he or she must be responsible and balance the competing needs of the employee and the organization.


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Human Resource Management