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Downsizing

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Downsizing

"Downsizing" redirects here. It is not to be confused with degrowth or shrinkage.

Layoff (in British[1] and American English), also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or (more commonly) a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs.

Originally the term layoff referred exclusively to a temporary interruption in work, as when factory work cyclically falls off. The term however nowadays usually means the permanent elimination of a position, requiring the addition of "temporary" to specify the original meaning.

Many synonyms such as downsizing exist, most of which are euphemisms or doublespeak and more abstract descriptions of the process, most of which can also be used for more inclusive processes than that of reducing the number of employees. Downsizing is defined as the "conscious use of permanent personnel reductions in an attempt to improve efficiency and/or effectiveness".[2] Since the 1980s, downsizing has become increasingly common. Indeed, recent research on downsizing in the U.S.,[3] UK,[4] and Japan[5][6] suggests that downsizing is being regarded by management as one of the preferred routes to turning around declining organisations, cutting costs, and improving organisational performance,[7] most often as a cost-cutting measure.

Terminology

Euphemisms are often used to "soften the blow" in the process of firing and being fired.[8] The term "layoff" originally meant a temporary interruption in work (and usually pay). The term became a euphemism for permanent termination of employment and now usually means that, requiring the addition of "temporary" to refer to the original meaning. Many other euphemisms have been coined for "(permanent) layoff", including "downsizing", "excess reduction", "rightsizing", "delayering", "smartsizing", "redeployment", "workforce reduction", "workforce optimization", "simplification", "force shaping", "recussion", and "reduction in force" (also called "RIF", especially in the government employment sector).

"Mass layoff" is defined by the United States Department of Labor as 50 or more workers laid off from the same company around the same time. "Attrition" implies that positions will be eliminated as workers quit or retire. "Early retirement" means workers may quit now yet still remain eligible for their retirement benefits later. While "redundancy" is a specific legal term in UK labour law. When an employer is faced with work of a particular type ceasing or diminishing at a particular location,[9] it may be perceived[by whom?] as obfuscation. Firings imply misconduct or failure while layoffs imply economic forces beyond the employer's and employees' control, especially in the face of a recession such as the one that began in the late 2000s.

Common abbreviations for reduction in force

  • RIF - A generic reduction in force, of undetermined method. Often pronounced like the word riff rather than spelled out. Sometimes used as a verb, as in "the employees were pretty heavily riffed".
  • eRIF – Layoff notice by email.
  • IRIF - Involuntary reduction in force - The employee(s) did not voluntarily choose to leave the company. This usually implies that the method of reduction involved either layoffs, firings, or both, but would not usually imply resignations or retirements. If the employee is fired rather than laid off, the term "with cause" may be appended to indicate that the separation was due to this employee's performance and/or behavior, rather than being financially motivated.
  • VRIF - Voluntary reduction in force - The employee(s) did play a role in choosing to leave the company, most likely through resignation or retirement. In some instances, a company may exert pressure on an employee to make this choice, perhaps by implying that a layoff or termination would otherwise be imminent, or by offering an attractive severance or early retirement package.
  • WFR - Work force reduction.

Unemployment compensation

The method of separation may have an effect on a former employee's ability to collect whatever form of unemployment compensation might be available in their jurisdiction. In many U.S. states, workers who are laid off can file an unemployment claim and receive compensation. Depending on local or state laws, workers who leave voluntarily are generally ineligible to collect unemployment benefits, as are those who are fired for gross misconduct. Also, lay-offs due to a firm's moving production overseas may entitle one to increased re-training benefits. Some companies in the United States utilize Supplemental Unemployment Benefits.[10] Since they were first introduced by organized labor and the Department of Labor in the early 1950s, and first issued in a Revenue Ruling by the IRS in 1956, SUB-Pay Plans[11] have enabled employers to supplement the receipt of state unemployment insurance benefits for employees that experience an involuntary layoff. By establishing severance payments as SUB-Pay benefits, the payments are not considered wages for FICA, FUTA and SUI tax purposes, and employee FICA tax. To qualify for SUB-Pay benefits, the participant must be eligible for state unemployment insurance benefits and the separation benefit must be paid on a periodic basis.

Certain countries (such as Portugal, France and Germany), distinguish between leaving the company of one's own free will, in which case the person is not entitled to unemployment benefits and leaving a company voluntarily as part of a reduction in labour force size, in which case the person is entitled to them. A RIF reduces the number of positions, rather than laying off specific people, and is usually accompanied by internal redeployment. A person might leave even if their job is not reduced, unless the employer has strong objections. In this situation, it's more beneficial for the state to facilitate the departure of the more professionally active people, since they are less likely to remain jobless. Often they find new jobs while still being paid by their old companies, costing nothing to the social security system in the end.

There have also been increasing concerns about the organizational effectiveness of the post-downsized ‘anorexic organization’. The benefits, which organizations claim to be seeking from downsizing, centre on savings in labour costs, speedier decision making, better communication, reduced product development time, enhanced involvement of employees and greater responsiveness to customers (De Meuse et al. 1997, p. 168). However, some writers draw attention to the ‘obsessive’ pursuit of downsizing to the point of self-starvation marked by excessive cost cutting, organ failure and an extreme pathological fear of becoming inefficient. Hence ‘trimming’ and ‘tightening belts’ are the order of the day (Tyler and Wilkinson 2007)

See also

References

  • Cameron KS. 1(994) Strategies for successful organizational downsizing. Human Resource Management, 33: 477-500.
  • Cascio, F.W. (2002) ‘Strategies for responsible restructuring’, Academy of Management Executive, Vol.16, pp. 80–91.
  • Redman T and Wilkinson A (2006) Downsizing, in T. Redman and A. Wilkinson(eds), Contemporary Human Resource Management, London: FT/Prentice Hall, pp. 356–381
  • Sahdev, K. (2003) ‘Survivors’ reactions to downsizing: the importance Human Resource Management Journal, Vol.13, No.4, pp. 56–74.
  • Tyler M and Wilkinson A (2007) The Tyranny of Corporate Slenderness: Understanding Organizations Anorexically, Work, Employment and Society, 21: 537-549.

Further reading

  • BusinessWeek magazine, September 12, 2008.

External links

  • CASE No.: 2001-ERA-19 A case before the U.S. Department of Labor, wherein the terms RIF, IRIF, and VRIF are commonly used.
  • APPENDIX D; GLOSSARY OF TERMS A glossary in a U.S. Department of Energy document that includes brief definitions of RIF, IRIF, and VRIF.
  • Office of Personnel Management
  • UK Redundancy Legal Rights UK specific information on the legal rights of those being made redundant.
  • Airline Industry Layoffs - by Patrick Smith
  • Most Notable IT Industry Layoffs of 2008
  • Job Losses Tracker (UK-based)
  • Layoff news and tracker Layoffs news and tracker.
  • Rising After Redundancy - RTÉ Ireland TV Series
  • Redundancy advice
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