Severance packages on the increase

Sunday Business Post - Recruitment Section - Jan 25 2009

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Voluntary redundancy is on the increase, just a few weeks into the new year, as businesses look for solutions to the cost pressures caused by the downturn.

‘‘This is probably the highest number of companies offering voluntary severance packages that I have seen in the 15 years I have been in the business,” said Miriam Magner-Flynn, managing director, Career Decisions.

‘‘Voluntary redundancy is increasingly being seen as a necessary step by companies looking to reduce headcount.”

Managing the process
Voluntary redundancies should always be managed in a careful and sensitive manner, said Magner-Flynn.

‘‘No matter what a company calls it - downsizing, right-sizing, restructuring, merging, off-shoring - it often boils down to people losing their jobs,” she said. ‘‘Addressing and managing the separation of employees from the company is a difficult task for any organisation.

‘‘If a redundancy is handled badly, and poor-quality support is provided to departing or remaining employees, you can expect departing employees to express anger towards the company, and the remaining staff to feel extremely anxious about their future career prospects.”

Frank Keane, a partner with MKO Partners, also advised companies to handle the voluntary redundancy process carefully, no matter how severe the financial pressures they face.

‘‘It is not just as simple as letting some staff go,’’ said Keane. ‘‘The issues facing an employer range from the more clear-cut financial and legal aspects, such as, ‘How much will it cost me to make an individual redundant?’ and ‘What are my legal obligations?’, to the more difficult human aspects, including, ‘What position will I make redundant?’ and ‘How will this affect me and the individuals involved?”

Communication
Honest communication with everyone affected - from staff to customers and clients - is vital, according to Magner Flynn.

‘‘Information about job losses should be released first to staff, in a planned and honest way. The timing, wording, content and delivery of this announcement is pivotal in maintaining the goodwill, morale and confidence of remaining employees,’’ she said.

‘‘If word leaks out early, it creates uncertainty. Companies run the risk of prompting an employee exodus, rumours, reduced productivity and revenue.”

Who to include
Keane said it was often difficult for employers to decide which roles to include in the voluntary redundancy scheme.

‘‘It can be a gut feeling that someone is right and should be kept at all costs. One argument is to keep qualified and experienced staff if possible, as they will be more expensive to re-hire when times improve.

‘‘The opposite can also be true as less experienced people are generally on lower salaries and may be hungrier, born from desperation, to stay employed.”

From a legal standpoint, companies cannot simply select certain individuals to let go and offer a redundancy package just to them, Keane said.

‘‘One makes a role and not a person redundant,” he said. ‘‘It is therefore hard to decide [to keep] certain people, especially where there are a number of people at a similar level doing similar work. Companies need get proper legal advice on structuring and planning for the future.”

It is important to keep valuable staff, whose jobs are not affected by any redundancy plans, informed about their future with the company, said Magner-Flynn.

‘‘An organisation that is downsizing relies heavily on the loyalty and performance of remaining staff for its future survival and growth,’’ she said. ‘‘An individualised approach to communication, career development and role clarification is the key to retaining important people. It is important to spend time with employees to individually and collectively reassure them of their value, answer questions, explain how expectations have changed, find out their concerns and lay out the future vision for the organisation.”

Attractive package

Getting staff to accept voluntary redundancy in the current economic environment often required a substantial package, said Keane. In the current environment, redundancy would have to be generous to tempt someone out of a job unless they had another job already.

‘‘In an economic storm like this, the employer has a vicious circle of not being able to offer much money, but yet needing to offer larger sums to get people to take it,” he said.

‘‘Employees will weigh a tempting package against the probability of not getting another job for a period of time.”

Keane said there were mandatory payments that must be included in any redundancy offering.

‘‘Elements of the package should include the statutory redundancy payment - two weeks’ pay capped at €600 per week - for each complete year of service, plus one bonus week, as well as anything the employee is contractually entitled to,” he said.

Most voluntary redundancy packages went well beyond the legal minimum, Keane said. ‘‘Any ‘ex gratia’ payment offered is at the employer’s discretion,” he said.

‘‘The employer may choose to include company assets in the settlement - for example, company car, laptop or mobile phone, as a means of reducing the cash cost to the company. This may prove favourable for the employee from a tax perspective.”

Outplacement

Magner-Flynn said employers could assist employees who have taken voluntary redundancy, via outplacement programmes.

‘‘The main concern of employees is getting a job. Outplacement programmes enable employees to identify their next career or job move and to use the intervening period to up-skill and re-skill,’’ she said.

‘‘The employee has increased marketability and employability when they re-enter the job market, while the employer maintains employee engagement and productivity throughout the change process.”

Michael McDonnell, director, CIPD Ireland, said non-monetary factors were often foremost in an employee’s decision to accept a redundancy offer.

‘‘Issues like counselling and outplacement are quite important in seeking volunteers,” he said.

‘‘A well designed programme will help them with things like refreshing their interview skills, redrafting their CVs, helping them to reply effectively to job advertisements and also some advice about finance issues.”

Magner-Flynn said many employers were surprised at how many staff members decided to avail of voluntary redundancy schemes, despite the downturn, when given the opportunity.

‘‘A lot of people begin to see that there are opportunities. The initial reaction is one of fear, but once they are provided with the support they begin to feel differently,” she said.

‘‘From the perspective of some employees, it can be an attractive route out of an organisation. In some circumstances, voluntary redundancy presents an opportunity to satisfy the requirements of both the company and the individual, and create a win-win for both parties.”

Who might go?

Younger staff members were often less likely to accept voluntary redundancy, McDonnell said.

‘‘A lot of younger people have high mortgages, car loans and significant other debt. That puts extra strain on individuals who might have taken redundancy before,” he said.

‘‘Also, in the past, there were generally more opportunities abroad - people could leave Ireland for Britain or Australia and pick up jobs - but the global downturn limits the job opportunities abroad.”

However, others tended to take amore positive viewpoint, according to McDonnell. ‘‘A lot of young people are fairly optimistic that this thing will pass and, in a couple of years’ time, there will be more opportunities,” he said.

‘‘This can be a good time for younger people to maybe go back to college and upgrade their skills portfolio.”

Staff members who are already considering a career move are often the first to accept voluntary redundancy, McDonnell said. ‘‘You may have people with the idea to set up their own business, or who would like to take a year or two off. There may also be people who have given long service, and may be eligible to opt for retirement,” he said.

‘‘That can be a way of reducing numbers. The more you can meet their future expectations and address the apprehensions that individuals might have, the easier it is to get voluntary redundancies.”

Working practices

McDonnell advised businesses to let staff know that if they did not accept the voluntary redundancy package, there would still have to be changes in their working practices. ‘‘Carrying out an appraisal of future work prospects and possible changes in working arrangements, is also important.

That might persuade people to go, if they think that in future the company will be looking at salaries and work practices.”