Exit Management

Managing Employee Separations, Downsizing, and Outplacement

“Maintaining the fiscal health of an organization, particularly in difficult economic times, often means cutting costs.” (Gomez-Mejia, L.R., Balkin, D.B. and Cardy, R.L. , 209)

Firing people has been always the main tool organization use to reduce labor costs. In history, downsizing has become a common practice in all recessions like mid 80s, 2009 or 60s and 70s. The main objective was to improve productivity and the financial situation of firms. Nowadays technological advances have changed the rules, forcing many firms to become “increasingly productive with smaller workforces”.

That’s why managers must help employees through the proccesses of being fired or leaving the company voluntarily. If not, it can damage the firm’s reputation and therefore it can damage the way posible future employees visionate the company.

Employee Separations

Employee separation means the moment when an employee and a company end the contract. It can be decided by one of the parties or agreed between both. This situation always leads into costs for the organization.

The costs can be difficult to estimate since there are factors like geographic location or talent, or HR costs that vary from different companies.

Recruitment costs may go from advertising the vacancy in different social media or comunication channels, having an HR department or hiring another company to manage the proccess. Some companies charge up to 30% of the employee’s annual salary.

Inside the recruitment costs we could put the selection costs, this are associated with selecting, hiring and placing the person in the job, small costs like traveling to the interview, the hours used during it, the time used introducing the employee to the job etc.

Training costs can vary from putting the employee into a training course that will cost the company direct costs, or use other employees to help the new one get used to it infering in Indirect costs since this employees could be being productive with their own tasks instead of helping the new employee.

Exit costs, this are, for example, an exit interview to find out the reasons why the employee is leaving. Or giving the employee asistance to find another job or providing them with tools for it.

But despite the amount of different costs that a separation creates, there are some benefits a company gets.

It reduces labor costs, the salary savings can outweigh the separation pay and other expenditures associated with the layoff. It replaces poor performers. Having this employees in paycheck for longer is not worth it compared to hiring a new employee.

There is an increase in innovation since it creates opportunities for high-performing individuals and it creates the opportunity for greater diversity.

Types of Employee Separations

Voluntary separations occur when the employee decide by itself to end the contract or relationship with the employer, it can be for personal or professional reasons. Inside this group there are two ways of voluntary separations.

One of them is what we know as “to Quit” it can happen for many reasons. While the other one is retirements that occurs at the end of an employee’s career. A quit can occur any time while retirements it’s a age-related decision.

Involuntary separation happen when companies decide to terminate the contract due to economic necesity or because the employee is not the best fit acording to company’s vision.

For example, discharging is due to poor fit between an employee and the organization, missconduct, dishonesty etc usually leading in immediate termination of the contract.

Layoffs are a tool to cut costs, employees lose their jobs because the financial environment

When an employee decides to early retire, companies usually provide with two features, one is a package of financial incentives that make for the senior employees atractive to retire earlier than they had panned and an open window that restricts eligibility to choose this feature for a short time.

There are many alternatives when it comes to layoffs that are cost-effective. Like freezing employement, not renewing contract workers and encouraging employees to take a time off voluntarily. Also reduce working hours or giving voluntary leaves and absences. Transfers or relocation to other jobs, or helping employees find a suitable job for them.

Nokia closes plant in Germany and relocates in Romania.

Nokia decided to fire 4.000 employees in Germany without the slightest information or consultation. The German government begged Nokia to stay but they argued the factory was not competitive enough, that’s the main reason they gave to move to Romania where they could cut 2,3000 staff since it’s a lower cost area.

At that moment Nokia was the greatest cellphone maker. However, Germany government saw as an unfair movement the relocation to Romania since it’s included in the EU Regional aid that Romania joined in 2007 where Germany is the country that finances the most.

Is ironic because this means Germany is paying so Nokia can remove 4000 jobs from their country to a lower cost country financed by Germany.

This fast move from Nokia has set some alarms reviewing the European Work Councils since there was no prior notification to Germany and their employees that they were going to be fired in the next months.

Nokia cuts 3500 jobs “to ensure profitability”

4 years later of the later action, Nokia decides to close the plant constructed in Cluj, Romania. After the decay of Nokia as the top cellphone maker, they have decided to cut costs in Romania, and 300 employees are fired in Tampere, Finland. Reconsidering the full restructuration of the company, planning to reduce staff in units including Location & Commerce, making a total of 1300 employees being fired upon Germany and USA included.

This actions were made by Nokia to ensure the profitability of the company.

Hundreds of Nokia’s outsourced Symbian developers leaving Accenture

Employees from the consultancy firm Accenture are reportedly leaving voluntarily and claiming severance packages.

This started when Nokia transfered 1200 Symbian developers to Accenture. Being this company their new employer.

“workers have not exactly been pleased with their new employer, and they want to seek new challenges outside the company”, that’s why 400 employees have been given this severance packages that include up to 15months’ pay worth.

Unions crticised this outsourcing arrangement from the start because they forecasted that they would face a short career with their new employers.

Inditex decides to not layoff 25000 employees in Spain during COVID-19

Inditex, the company founded by Amancio Ortega, one of the richest men of the world. Announced in March they were layingoff 25000 employees. The spanish goverment financial aids would pay 75% of their salary during the duration of this epidemy.

The news rised a lot of criticism against the company since it’s the biggest company in Spain and has more than enough profits and reserves to cover all this employees salary even if all the shops and factories are temporarily closed.

Inditex ended 2019 with retained earnings of 3.639 millions€ having a total reserve of 8000 million€.

After a week, the company retracted and announced they weren’t going to fire anyone to cut loses and they would assume all the costs that this would incur. Instead of this, the company is going to reduce the anual dividend that their shareholders will receive.

References

Inditex descarta ahora presentar un ERTE en abril y seguirá pagando los salarios de su plantilla. Salvatierra J. 2020 URL: https://elpais.com/economia/2020-04-13/inditex-descarta-ahora-presentar-un-erte-en-abril-y-seguira-pagando-los-salarios-de-su-plantilla.html Accessed 21 April 2020

Nokia closes plant in Germany and relocates in Romania. 2008 URL: https://communicatinglabourrights.wordpress.com/2008/01/17/nokia-closes-plant-in-germany-and-relocates-in-romania/ Accessed 21 April 2020

Nokia cuts 3500 jobs “to ensure profitability” 2011 URL: https://yle.fi/uutiset/osasto/news/nokia_cuts_3500_jobs_to_ensure_profitability/5431070 Accessed 21 April 2020

Hundreds of Nokia’s outsourced Symbian developers leaving Accenture Yle.fi 2012 URL: https://yle.fi/uutiset/osasto/news/hundreds_of_nokias_outsourced_symbian_developers_leaving_accenture/5252177 Accessed 21 April 2020