Unconventional savings stop job loss


Unconventional savings stop job loss

The decision by Pan Pharmaceuticals to pay 130 casuals redundancy payments highlights generally that restructures and redundancies do not always have to follow the norm and, with some creative thinking, may even save jobs.


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The decision by Pan Pharmaceuticals to pay 130 casuals redundancy payments highlights generally that restructures and redundancies do not always have to follow the norm and, with some creative thinking, may even save jobs.
Casuals are not automatically entitled to redundancy pay-outs. Casuals who had worked for Pan for 12 months or more will receive payments capped at 20 weeks. Some casuals had been employed at Pan for more than six years.
The broader issues of redundancy and business options were addressed at the Transforming HR Convention in Sydney this week.
Management Professor of The Business School at the University of Colorado, USA, Wayne Cascio, told the Convention that although redundancy pay-outs were important, restructuring should not always mean lay offs. Some creative thinking could save a number of jobs, he said.
Cost cutting or revenue raising
Contrary to popular belief, retrenching staff did not always translate into improving the bottom line, Cascio said.
Between 1982 and 2000, he assessed the financial performance, in relation to downsizing and investing, of the top 500 companies listed by Standard and Poors.
He found there was no evidence that downsizing improved the financial bottom line. However, companies that upsized in plant and equipment - went for investment rather than cutting employment costs - improved their financial returns, he said.
Cascio concluded that companies couldn't 'shrink their way into prosperity' - growing the business and finding new markets and customers was the way to go.
Ten restructuring traps to avoid
According to Cascio, companies that needed to restructure didn't always manage it appropriately and made the following mistakes:
  • no clear long or short-term goal as to why they were restructuring and making staff redundant;
  • redundancy was used as a first resort, not as a last resort;
  • non-selective downsizing, which failed to assess the abilities and replaceability of those being made redundant;
  • staff were cut but processes weren't re-engineered to enable the survivors to deal with the altered work load;
  • staff weren't involved in finding solutions - staff were seen as the problem;
  • failure to communicate the restructure openly and honestly;
  • inept management of those who lost their jobs;
  • 'survivors' weren't managed well - poor morale and stress problems, increased workplace conflict if a union was involved and higher turnover;
  • ignoring the effects on customers and other stakeholders; and
  • failure to learn from mistakes.
New markets and re-skilling
According to Cascio, US based company Lincoln Electric realised $800 million in new revenues in two years by retraining technical staff into sales and marketing positions, rather than retrenching them.
When Lincoln's sales dropped by 40 per cent in the 1990s they asked for volunteers to be retrained to locate new markets. The retrained staff found an opening in home welding and successfully exploited it.
There were no lay offs and staff were seen as an asset and not a cost to be minimised in a restructure, he said.
Choices not redundancy
US computer company Intel stays ahead of its competitors, not by getting rid of staff each time a product becomes obsolete but, by using staff as an asset, Cascio said.
When an Intel product is about to become obsolete, the engineers working on the product are offered choices, not redundancy, he explained.
Employees can access $8,000 in training credits to help them redeploy to another part of the company. Or they can move to any two new positions in the company on a temporary basis for up to six months to determine where they would like to work. Or they are offered $17,000 to relocate to another Intel office elsewhere in the US. Or they are offered outplacement, he said.
Intel takes its redeployment scheme so seriously that it employed a corporate redeployment manager, he said. Staff were seen as valuable assets that were rare and difficult to duplicate - people were seen as a source of renewal, he added.
In 1989, 26,000 Intel staff were affected by product changes, but 93 per cent were able to be redeployed. There were no equal employment opportunity complaints, he said.
To be eligible for the Intel program staff needed to achieve satisfactory performance reviews.
CEO cuts first
Cascio said Charles Schwab and Co was a good example of how to keep the staff onside when retrenchments were necessary.
In 2002, Schwab's revenues were down by 57 per cent. Before laying off staff it went through a process where the co-CEOs took a 50 per cent pay cut, with sliding pay cuts into other levels of management. This was done before it asked lower level employees to take voluntary days off, he said.
Eventually 5000 staff out of 25,000 had to be laid off. But when the lay-offs occurred, Charles Schwab himself personally offered $20 million of his own money toward tuition bonuses for laid off employees. Plus sign on bonuses for employees who came back to the company after 18 months, once the company had pulled itself out of the down turn, he said.
It was necessary to keep staff onside if Charles Schawb and Co wanted the talent to flow back to them, he added. Schwab eventually reinvented itself through the development of new revenue streams, he said.
Because Schwab had handled the redundancies properly its name remained highly regarded amongst employees - through the entire process not a bad word was spoken about Schwab's record with employees, he added.
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