Employee Downsizing

Analysts commented that downsizing did more damage than good to the companies as it resulted in low morale of retained employees, loss of employee loyalty and loss of expertise as key personnel/experts left to find more secure jobs. Moreover, the uncertain job environment created by downsizing negatively affected the quality of the work produced. Analysts also felt that most companies adopted downsizing just as a 'me-too' strategy even when it was not required.

However, despite these concerns, the number of companies that chose to downsize their employee base increased in the early 21st century. Downsizing strategy was adopted by almost all major industries such as banking, automobiles, chemical, information technology, fabrics, FMCG, air transportation and petroleum. In mid-2002, some of the major companies that announced downsizing plans involving a large number of employees included Jaguar (UK), Boeing (US), Charles Schwab (US), Alactel (France), Dresdner (Germany), Lucent Technologies (US), Ciena Corp. (US) and Goldman Sachs Group (US). Even companies in developing countries such as India, Indonesia, Thailand, Malaysia and South Korea were going in for downsizing.

-Attrition: Natural reduction of workforce that occurs when employees leave the organization due to retirement, death or resignation. It is a normal Human Resources (HR) practice of a downsizing company to freeze hiring totally/partially.

-Voluntary retirement and buyout benefits: Voluntary retirement benefits encourage employees to retire early with full or reduced pension benefits before the stipulated retirement age. Buyout is a similar technique that includes offering lumpsum payment to encourage employees (eligible/not eligible for voluntary retirement or regular retirement) to voluntarily leave the organization. Both of these are considered to be very effective downsizing techniques and are used across the world.

-Involuntary Separation/Layoff: A layoff may be defined as the separation of an employee from service for involuntary reasons other than resignation, not reflecting any discredit on the employee. It was also defined as termination of an employee’s employment for reasons beyond the control of an employee and which do not reflect discredit on the employee.

-Leave without pay: Leave without pay is granted to employees with reduced benefits, but with the guarantee of job when they return at the end of their leave period. This strategy was useful for firms, which downsized to cut costs rather than to reduce the workforce by a certain number.