Downsizing As shown in Figure 25 the number of organizations undergoing

Downsizing as shown in figure 25 the number of

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Downsizing As shown in Figure  2.5 the number of organizations undergoing downsizing has increased significantly, reaching record highs in 2009. 27 The current economic crisis means that one important question facing companies is how, despite having to reduce the size of their workforce, they can develop a reputation as an employer of choice and engage employees in working toward the goals of the firm. The way companies answer this question will determine how they can compete by meeting the stake- holder needs of their employees. Downsizing presents a number of challenges and opportunities for HRM. In terms of challenges, the HRM function must “surgically” reduce the workforce by cutting only the workers who are less valuable in their performance. Achieving this is dif- ficult because the best workers are most able (and often willing) to find alterna- tive employment and may leave voluntarily before the organization lays off anyone. Figure 2.5 Number of Employees Laid Off during the Past Decade 500,000 0 1,000,000 1,500,000 2,000,000 2,500,000 2000 915,962 2001 1,524,832 2002 1,272,331 2003 1,216,886 2004 993,909 2005 884,661 2006 935,969 2007 965,935 2008 1,516,978 2009 2,023,392 Number of Layoffs from 2000 to 2009 SOURCE: Bureau of Labor Statistics, “Extended Mass Layoffs: Fourth Quarter 2009, Annual Totals 2009,” news release, February 17, 2010, .
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42 PART 1 The Human Resource Environment Early-retirement programs are humane, but they essentially reduce the workforce with a “grenade” approach—not distinguishing good from poor performers but rather eliminating an entire group of employees. In fact, research indicates that when com- panies downsize by offering early-retirement programs, they usually end up rehiring to replace essential talent within a year. Often the company does not achieve its cost- cutting goals because it spends 50 to 150 percent of the departing employee’s salary in hiring and retraining new workers. Adding to the problem, because layoffs typically involve severance pay, they don’t even bring the same dollar-for-dollar benefits of a direct reduction in spending, such as cutting pay rates or hours worked. 28 Another HRM challenge is to boost the morale of employees who remain after the reduction; this is discussed in greater detail in Chapter 5 and in the “HR How To” box. HR professionals should maintain open communication with remaining employ- ees to build their trust and commitment, rather than withholding information. 29 All employees should be informed why the downsizing is necessary, what costs are to be cut, how long the downsizing will last, and what strategies the organization intends to pursue. Finally, HRM can provide downsized employees with outplacement services to help them find new jobs. Such services are ways an organization can show that it cares about its employees, even though it cannot afford to keep all of them on the payroll.
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