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The Unfortunate Need To Conduct A Salaried Reduction

HR MATTERS JACK BUCALO[su_dropcap style=”flat”]W[/su_dropcap]HEN THE Chief HR Officer (CHRO) learns that a salaried reduction-in-force is a business necessity, his or her first reaction might understandably be a negative one for a wide variety of legitimate reasons. Though this situation is extremely unfortunate, the responsibility for properly administering the reduction rests with the CHRO. Rather than approaching this difficult task with apprehension, he or she should seize this unique opportunity for HR to demonstrate its business value to the company while simultaneously demonstrating its people value to the reduced and remaining employees.

When viewing the reduction from the employee’s perspective, THE most important aspect is the degree to which top management has thoroughly examined all other avenues of cost reduction before deciding that the reduction of salaried employees is necessary. In this regard, top management should examine such items as facility consolidation, direct and capital expense reduction, product cost reduction, elimination or reduction of less profitable product lines, and so on.

If the company’s internal cost reduction efforts to eliminate or minimize the need for the reduction have been insufficient, there is a natural tendency to implement the reduction as soon as possible to reduce expenses. At this point, the CHRO must assert the necessary influence to resist the urge to do so because of the financial risks associated with wrongful termination suits, class action suits, discrimination charges, increased turnover and poor employee morale may far exceed the dollars saved in the implementing the reduction a few weeks sooner.

microscope-leaders-selection-focusWhen a reduction occurs, the central question employees typically ask is: “Will there be any additional reductions after this initial one?” Unfortunately, this is a question that top management cannot directly answer at this time because it is totally dependent on the company’s future financial performance. Accordingly, management should take the conservative approach of issuing a written statement that states: “There are no future reductions planned at this time. However, if the company’s financial performance does not improve, we may have to consider other cost reduction efforts, including the reduction of additional employees.” Here, some top management people might be reluctant to make such a written statement because some employees might misinterpret it as a commitment that no further reductions will occur. However, making no statement at all is far worse than taking the risk that some employees might misinterpret the statement itself.

If appropriate, the company should strongly consider offering an early retirement package to ALL company employees before any reduction is implemented. In doing so, HR should ensure that no employee is encouraged by management, either directly or indirectly, to take advantage of the package.

HR will gain the respect of their management and employees if the reduction is implemented in an objective, fair, and compassionate and empathetic manner. To do so, they must administer the reduction with the following key points in mind.

To implement the reduction in an OBJECTIVE manner, HR should ensure that: (1) the following relevant data from your HRIS system over the last two years is prepared on the initial list of reduced employees recommended by line management – performance ratings, salary increases, bonuses, current job/technical skills, other critical technical skills, (2) the above data is compared to the same data from any retained employee in the same position, (3) challenge any inappropriately-recommended reduced employee while recommending any appropriate swops or filling any current job opening with the department’s management, recognizing the potential legal risks and costs associated with an inappropriate selection, and (4) identifying any reduced employee for special out-processing treatment who has had access to any company confidential or proprietary information or may be considered disgruntled due to past disciplinary or employee relations matters, to be out-processed separately at the end of the out-processing day.

To implement the reduction in a FAIR manner, HR should ensure that: (1) there is a representative number of poor performing supervisory and management employees are either reduced or demoted, (2) a statistical analysis is conducted so that there is no adverse effect on any protected group of employees [females, minorities and employees over age 40], as well as long service employees who have not accepted an early retirement package, (3) there is a top management review of the statistical analyses and the recommended reduced employees list, including any remaining unresolved issues, (4) that all reduced employees are given a more-than-usual opportunity to fill any current and near-future job openings with some appropriate job retraining and (5) since all reduction decisions should be able to withstand any subsequent legal scrutiny, all relevant data should be reviewed by legal counsel beforehand.

To implement the reduction in a COMPASSIONATE and EMPATHETIC manner, HR should ensure that: (1) the total dollar amount of the company’s cost reduction effort should be published in writing in the CEO’s announcement notice confirming the need for the employee reduction, (2) the managers who will be personally notifying the reduced employees should be given supervisory training a day or two before the actual notification that includes written instructions on what should be said and what should not be said, along with how to respond to different employee reactions [weeping, being argumentative, claiming discrimination, etc.]through the use of videotaped illustrations, (3) within reason, have the reduced employee notified by the supervisor, out-processed through HR and leaving the premises on the same day, while emphasizing the dollar amount of any early retirement package, severance and unused vacation pay, unemployment compensation and outplacement assistance, (4) the reduced employees commence out-placement efforts [venting, resume preparation, interview training, networking, reviewing job openings from other local employers] as soon as possible after the day they leave the premises. (5) regular status reports are issued to the remaining employees regarding the progress that the reduced employees are making in their out-placement efforts without referring to any one employee by name. The specific number of reduced employees who have found new employment [e.g. after five weeks of out-placement assistance, 40% of the reduced employees have found new employment] is extremely valuable information for all remaining employees to hear.

When the above reduction key points are followed and top management has had a direct and highly visible involvement in all aspects of the reduction, after a reasonable period of time, all remaining employees will view that the reduction-in-force was an unfortunate but necessary top management action that was implemented by HR in the best objective, fair, and compassionate and empathic manner to the eventual betterment of most parties concerned. Additionally, top management will recognize the business value that HR has provided to the company and be given appropriate credit for it.

Jack Bucalo
JACK has led the Global HR function for a Fortune 500 and 1000 international company and several other large international companies. With four years of line experience complementing his HR experience, he believes that the CHRO or HR Leader should play a more direct role in helping the CEO to achieve the company's business objectives and strategic goals, while effectively implementing its administrative duties. In doing so successfully, the CHRO or HR Leader can become an equal business partner with his/her line management peers while becoming more directly involved in the company's operational mainstream, rather than being just an administrative afterthought. As a pragmatic practitioner, Jack publishes detailed and actionable articles on a wide variety on critically-important HR issues on BIZCATALYST 360°. He is also on the advisory board for other web sites. Jack's over 20 years of executive-level HR experience for which he was responsible for company, executive and Board-related matters, form the basis for most of viewpoints.

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