Employee Downsizing
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The Downsizing Phenomenon Worldwide
Downsizing as a management tool was first introduced in the US during the mid-20th century. It refers to the process of reducing the number of employees on the operating payroll by way of terminations, retirements or spin-offs. The process essentially involves the dismissal of a large portion of a company's workforce within a very short span of time. From the management's point of view, downsizing can be defined as 'a set of organizational activities undertaken by the management, designed to improve organizational efficiency, productivity, and/or competitiveness.'
This definition places downsizing in the category of management tools such as reengineering and rightsizing. Downsizing is not the same as traditional layoffs. In traditional layoffs, employees are asked to leave temporarily and return when the market situation improves. But in downsizing, employees are asked to leave permanently.
Both strategies share one common feature: employees are dismissed not for incompetence but because management decided to reduce the overall work force. In late 1990s and early 2000s, different organizations adopted different kinds of downsizing techniques and strategies (Refer Table II).
TABLE II
MAJOR TECHNIQUES AND STRATEGIES OF DOWNSIZING
- Attrition: Natural reduction of workforce that occurs when employees leave the organization due to retirement, death or resignation. It is a normal Human Resources (HR) practice of a downsizing company to freeze hiring totally/partially.
- Voluntary retirement and buyout benefits: Voluntary retirement benefits encourage employees to retire early with full or reduced pension benefits before the stipulated retirement age. Buyout is a similar technique that includes offering lumpsum payment to encourage employees (eligible/not eligible for voluntary retirement or regular retirement) to voluntarily leave the organization. Both of these are considered to be very effective downsizing techniques and are used across the world.
- Involuntary Separation/Layoff: A layoff may be defined as the separation of an employee from service for involuntary reasons other than resignation, not reflecting any discredit on the employee. It was also defined as termination of an employee's employment for reasons beyond the control of an employee and which do not reflect discredit on the employee.
- Leave without pay: Leave without pay is granted to employees with reduced benefits, but with the guarantee of job when they return at the end of their leave period. This strategy was useful for firms, which downsized to cut costs rather than to reduce the workforce by a certain number. |
Source: www.govinfo.library.unt.edu
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