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A small-business layoff and outplacement guide

Poor performance should not be a factor in restructuring. Outplacement services hed: Cutting the cord dek: dek: by

It seemed like any other Monday morning for Steve until the water-cooler rumormongers began to spread their infectious intimations. Steve, an IT sales professional for a New England-based technology component brokerage, rarely gave credence to their wagging tongues, but this time he took notice.

The word around the cubicles was layoffs, and the effect on Steve and his co-workers was immediate and crippling.

“There was speculation that layoffs would occur by the end of the week,” says Steve. “Productivity literally dropped down to nothing as everyone’s focus shifted from work to questions of who and why.”

By Wednesday, the layoff scuttlebutt had reached every employee in every department as Steve and his coworkers struggled to cope in an environment pervaded with scarce facts and rampant misinformation. Later that day, an e-mail from the top served to fuel their angst: A company-wide meeting had been scheduled for the following morning at 9 a.m.

Steve knew that something official was afoot on Thursday morning when he went to his workstation and found that he could not access his e-mail. He did not have to wait long for the answer. At nine o’clock sharp the company brass marched in and announced that “due to economic conditions,” they would be forced to lay off 60 employees.

“They told us to sit at our desks and to wait for a phone call,” said Steve. “If we got a call, it meant we had been laid off.” After an agonizing wait, at 2:30 p.m. Steve was escorted out of the building with his personal items in a box under one arm, and a severance package under the other. Steve had become the latest victim of the sour tech economy.

Sixty jobs may seem like a drop in the bucket when compared to the rash of layoffs sweeping across the technology industry. Just last fall, it was announced that BellSouth would be cutting 3,000 jobs, Hewlett-Packard more than 6,000, and its new bedfellow Compaq an additional 8,500–and there’s more where they came from.

These companies are all singing the same tune: Poor economic conditions have constricted the flow of customer dollars, while increased competition has caused a radical drop in revenues and profit margins. The result is an industry-wide move to cut costs in order to boost profitability, and in some cases, sustainability. Unfortunately, the expense related to personnel often makes them one of the initial targets in cost-cutting strategies.

Whether it’s 60 or 6,000, the unfortunate necessity of job cuts is not only traumatic to employees, it is enormously disruptive to the productivity and workflow of the company. In addition, if carried out improperly, layoffs can have disastrous litigious consequences, particularly to small businesses.

Step one: voluntary or involuntary?

Involuntary separation should be the last resort. No one likes being forced to leave, and the aftershock felt by the remaining employees may cause an inexorable downward spiral in productivity and worker loyalty.

According to Bill Hollett, an expert in organizational restructuring strategies with the New York-based outplacement consulting firm Drake Beam Morin (DBM), a company primarily has three methods to consider when reducing its workforce:

voluntary early retirement, in which employees nearing the age of retirement are offered incentives to retire early voluntary separation, in which employees of any age or level can be offered incentives to leave (those eligible to volunteer are determined in advance by the company); and involuntary separation, in which positions are eliminated, forcing employees to depart at the company’s discretion.

“Unfortunately, most companies today–because they’re financially pressured to cut quickly–are reluctant to offer voluntary programs,” Hollett says. “Voluntary separation is generally more time-consuming and expensive, as employees need to be given more than a month to decide if they want to volunteer.”

Hollett goes on to say that the key to successful voluntary separations are incentives and support. Incentives may include an enhanced severance package with a healthy outplacement component; support may include a company-sponsored career-decision workshop designed to help the employee make a voluntary-separation decision.

Joe Gray, a managing consultant with DBM, recalls hearing of a particularly innovative method for downsizing.

“I worked with a company that, instead of involuntary layoffs, offered its employees the opportunity to volunteer for a nonprofit firm of their choice for one year and receive a portion of their salary,” says Gray. “The company saved money, the employees were able to keep their jobs, and a nonprofit firm benefited from the help.”

If involuntary separation becomes the only remaining option, then it’s critical for company execs to stick closely to an accepted process.

Sharon Gadberry, Ph.D., a managing partner with San Francisco-based Transitions Management Group, says small businesses often make the mistake of initiating an involuntary layoff without the support of a professional outplacement firm.

Not surprisingly, Gadberry recommends calling an outplacement service when considering a layoff. “Not only will this give the outplacement firm enough time to prepare for the transition consultations, but it can also help the business with the entire layoff process, including compliance issues,” she says.

Gadberry adds that once the decision is made to implement layoffs, a business should do everything in its power to avoid terminating people in waves. Instead, she suggests, the layoff cycle should be planned effectively enough so that it occurs only once.

“Otherwise,” says Gadberry, “each wave will create fear, kill morale, and depress the remaining workers.”

Step two: selection and notification

Choosing who to lay off is a critical decision. Picking the wrong people can result in the impairment of a business’s operations, poor employee morale, and even legal problems. Gadberry suggests that businesses refrain from basing layoff decisions on existing job descriptions; they are most likely out of date and a poor indication of what employees really do. Instead, each employee should be interviewed and a skill-set analysis conducted to determine how crucial each employee’s position is within the company.

According to the DBM workplace information center, do not use your existing performance appraisal system to evaluate employees unless you plan to establish a new system after the cutbacks.

“Once an appraisal system is used to determine who should be let go, it’s basically tainted,” Hollett explains. “To prevent employees from feeling as if their jobs are on the line every time they are evaluated for raises and promotions, it’s best to use separate selection criteria during a cutback.”

“Forced ranking” is often used to determine involuntary cutbacks, says Hollett. Using this process, managers determine a list of the skills most needed to increase profitability. Employees are then evaluated according to the critical-skills criteria.

“Focusing on skill as opposed to performance helps cutbacks remain directly in line with a company’s restructuring goals,” Hollett added. “Poor performance should not be a selection factor in restructuring; it’s a separate issue that managers should address on a daily basis to ensure their workforce is always operating at the highest level.”

Once the selection is made, the business should follow a clear, scripted notification process (see sidebar below). Execution of such a process is not only essential in preventing litigation, it is also key to preserving the confidence and productivity in the workers who remain.

“Every action you take is viewed under a microscope by the workers who remain,” says Gray. “Don’t just focus on the people who are leaving.”

Step three: the outplacement benefits

Outplacement support for employees should begin immediately upon termination. Having outplacement support personnel on site can initiate the transition process and help ease some of the stress and worry associated with the layoff.

In Steve’s case, he was immediately ushered from his senior manager’s office into a room where an outplacement specialist explained his benefits to him. The meeting was brief and to the point, and was designed to fill him in on the exact nature of his outplacement benefits, including scope, duration, and support.

“It is important that the severance package includes outplacement service,” says DBM’s Gray. “The outplacement package should be tailored to the job functions of the employee and should preferably provide follow-up services including one-on-one meetings.”

According to Gadberry, a good outplacement package should include a group workshop, individual counseling, and a program customized to the specific job functions of the departing employee. Typically, outplacement services include résumé writing, interview strategies, job resources, and networking. The last is perhaps the most important outplacement skill.

Gadberry adds that the duration of the outplacement package should coincide with job position and employee skills.

“Outplacement services for executive-level management should be six to nine months, whereas for a software engineer, one to three months should be OK,” says Gadberry. “That’s usually the norm.”

Gray asserts that there are many variables to consider before determining the duration of an outplacement program. “We need to determine what’s happening in the market, the geographic location of the employee, and his willingness to relocate,” he says. “Is he in San Jose or Idaho? Every case is different.”

Steve availed himself of company-provided outplacement services by attending a two-day workshop conducted at a hotel conference room. Over those two days, he picked up some tips on how to tweak his résumé, boned up on his interviewing skills, went through a personal skill-set evaluation, learned about job-hunting strategies, and had the opportunity to bounce ideas back and forth among his peers.

“The workshops took us through a whole host of things, and really got us focused,” Steve says. “I went there with an open mind, figuring if the company was providing it, I should take advantage of it.”

Within two weeks, Steve began to receive job offers, and within four weeks he found a job that he was happy with. “The outplacement really helped shorten the whole process,” he says. “I was able to sharpen up my résumé and work through the expectations of the interview process. The whole thing was beneficial for shortening the learning curve.”

Giving the bad news

Prepare the materials: Explain the rationale and prepare all severance information in writing (notification letter, salary continuation/severance period, benefits, outplacement, etc.) Prepare the message: Write the script you will use during the meeting and the key information you will convey to remaining employees. Keep it short and to the point. Arrange the next steps: Schedule meetings with your organization’s human-resources and outplacement professionals. Review what should be done with the departing employee’s personal belongings and specify when the employee should leave the organization. Prepare yourself emotionally: Don’t assume personal responsibility for the termination. Remember that it is a business decision based on business needs. Acknowledge your anxiety, prepare your approach, and talk about your feelings with the company’s human-resource and outplacement professionals. Anticipate employee reactions: There are typically five reactions to termination: anticipation, disbelief, escape, euphoria, or violence. By acknowledging these various reactions and learning to recognize them, you will ensure that no matter what the reaction, you will be prepared to handle it in the best way.

Dos and don’ts:

Do

invite the employee in to sit down get right to the point explain the actions taken and the reasons listen to the employee and wait for a response restate the message if necessary use your prepared notes/guidelines clarify the separation date give an overview of the separation package explain the logistics for leaving the company provide appropriate written materials close the meeting within 15 minutes escort the employee to the next appointment

Don’t

start with “Good morning,” “Good to see you,” or “How are you?” engage in small talk use humor be apologetic defend, justify, or argue threaten discuss other employees sympathize try to minimize the situation make promises personalize the anger use platitudes like “I know how you feel” or “You will be just fine.”

(Thanks to Drake Beam Morin for these tips)

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