Employee Morale After Downsizing

Employee Morale After Downsizing

Downsizing has become a significant idea in today's economy and maintaining the trust of employees when something like this takes place has also become very serious business (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). The question is not whether a company should downsize their employees but how to do the downsizing properly so that as few employees as possible are injured (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). There are several ways that companies can downsize that will help retain much of the loyalty of the workers that remain (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Companies who downsize through attrition and buyouts, those companies that work to help downsized employees find new jobs, and companies that are willing to provide outplacement services to those individuals often end up in positions that are much better than companies that simply fire workers due to downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). These companies who show that they care about the workers that they have to remove through downsizing have a much greater chance of retaining a lot of the loyalty originally given to them by the workers that survived the downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Trust is a very important asset for these companies but it is very difficult to achieve and just as difficult to hold on to (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). If companies are willing to downsize in a way that is considered to be very humane by many of the workers these companies will fare better in the long-term than companies who perceive workers as disposable (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Late in the 1970s, companies began to downsize workers (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). They did this in order to improve the bottom line and also to cut many of their costs (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Even though some companies today are making record profits they carry on this idea that they must be as lean as they possibly can in order to compete (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Since 1989, over 3 million jobs have been eliminated each year (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Since 1979, this adds up to 43 million jobs in this country that have been removed and eliminated due to downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). One point one million of these jobs have been lost since 1987 in the defense industry due to budget cuts in the government (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). In 1998, it was expected that another 700,000 layoffs would take place in his government sector (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). In order to put this in perspective it is safe to say about that 50 percent more people have been victims of various layoffs and downsizing than have been victims of violent crimes (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Downsizing in today's society is seen as a basic way of life for many United States companies (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). There is usually a first round of downsizing in many companies and this is often followed a short time later by a second round of downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Sixty-seven percent of the firms that cut their jobs in any given year will do the same again in the following year (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Unfortunately for these companies, many of the payoffs that they have expected to get from downsizing their workforce have been rather sparse (If, 1996). These expected payoffs include a better stock performance, more flexibility, and higher productivity (If, 1996). Although these have been seen, they have not been seen in all companies that have downsized, and even for companies that have seen these payoffs, they have not been as large as had been expected (If, 1996). There are several reasons that these various expected gains from downsizing have not actually been achieved and these will be explored here. Also looked at will be effective strategies that should be utilized for downsizing and the idea that maintaining the trust of the surviving employees is the only way to realize many of the gains that one expects and minimize the costs associated with downsizing.

Even though there have been many expected payoffs to downsizing, many of these have been mixed (If, 1996). One particular study found that reducing the people in the company by 10 percent only reduced costs by one and one-half percent (If, 1996). Another issue worthy of note that was found in that same study was that the stock price for the average firm that had downsized was only 4.7 percent over three years (If, 1996). Firms in a similar situation that had not downsized had stock prices rise in excess of 34 percent (If, 1996). Half of the firms that had downsized had increased their profitability, but the other half had not, and looking at productivity produced no results that were conclusive (If, 1996).

Some of these mixed findings come from many of the costs that are included when firms downsize (If, 1996). Some of these costs include severance checks that laid-off employees often receive (If, 1996). Quite often this includes a week of pay for every year that this particular employee served, as well as any sick pay and vacation pay that these individuals have accumulated (If, 1996). In addition to these things, supplemental benefits given to them through unemployment and benefits provided through outplacement can often accumulate to be 15 percent of these individuals' salaries (If, 1996). This is a great deal of financial hardship for businesses that downsize a great number of individuals in any one period in time (If, 1996).

Financial problems are not the only issues that these companies face, however (If, 1996). Another issue is that much of the talent that these individuals brought to the company will be lost when they are downsized and due to this many of the crucial skills that these individuals have disappear from the company (If, 1996). Disruptions and loss in the organizational memory are also seen (If, 1996). When companies downsize in this way they may feel as though they are retaining a competitive advantage because they are making themselves a leaner operation (If, 1996).