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The kindest cut?: How to better manage a retrenchment exercise

How to better manage a retrenchment exercise, and the best practices that too many companies neglect

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THE KINDEST CUT? How to better manage a retrenchment exercise, and the best practices that too many companies neglect.

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THE KINDEST CUT? How to better manage a retrenchment exercise, and the best practices that too many companies neglect.

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Industry watchers say that companies are becoming more aware of the need for proper exit management, but there are still black sheep that prioritise convenience over the dignity of departing staff.

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Industry watchers expect 2020 to be a bumpy year for the economy, with the labour market about to feel the effects, especially with the novel coronavirus outbreak.

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"Compared to the past, more companies are giving employees advance notice and engaging outplacement consultants to help employees transition to new jobs," says Linda Teo of ManpowerGroupSingapore.

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"When you do it (layoffs) well, you don't lose key employees or keep the ones that have the wrong skills. The cost is managed and it doesn't have this kind of reputational risk," says Kong Ming Teck of Boston Consulting Group.

JUST like how there is no truly happy divorce, there is no such thing as a merry - or even successful - retrenchment exercise. "The best you can hope for is that the exited employees understand the message, get treated respectfully and compensated fairly, and are given the support to land back on their feet," Adrian Choo, co-author of The Exit Management Handbook and founder of consultancy Career Agility International, tells The Business Times (BT). This comes as retrenchments today are no longer considered unusual, with news appearing every other month on "right-sizing" exercises by companies to cut cost.

But companies can no longer regard layoffs as an afterthought. For one, putting people on the chopping block - no matter how necessary for the firm - affects not only the staff being let go, but also those left behind.

And with social media and the speed of information flow, the employer's reputation is at stake. In the war for talent, companies cannot afford this kind of damage.

More businesses now recognise the need to better manage the retrenchment process, hiring consultants and career counsellors months ahead of time to help plan for it.

BT finds out what it takes to carry out a layoff exercise and what are some best practices that companies tend to neglect - to their peril.

Hello, goodbye

Massive retrenchments used to take place in waves following times of economic downturns with the most recent being the Asian Financial Crisis of 1998, the dotcom bubble bust in 2001, and the global financial crisis (GFC) of 2008.

Following the GFC, the number of retrenchments in Singapore peaked at 23,430 in 2009 - more than double compared with the figures in 2007 and 2010.

But with business cycles now shortening, Mr Choo and co-author Chee Sze-Yen note in their book that what used to be cyclical retrenchments have become more structural in nature - a phenomenon he observes as "pervasive, ongoing and not disappearing any time soon". This is made worse by the ongoing novel coronavirus outbreak, which will take its toll on the labour market with increased layoffs expected.

Industry watchers say that companies are becoming more aware of the need for proper exit management, but there are still black sheep that prioritise convenience over the dignity of departing staff.

Mr Choo belongs to the more critical end of the spectrum. "Retrenchment exercises used to be conducted in a more compassionate manner in the past, but because they are getting more common today, companies are treating these events more transactionally than personally," he says.

He adds that companies these days will try to get away with minimum payouts and benefits compared with in the past, when firms could give up to two months of pay for every year of service.

HR veteran and advisor Carmen Wee, who has more than 25 years of experience in the industry, concurs: "Some employers choose to take short cuts or are nonchalant about it because they do not pay heed to HR advice to do it properly."

For instance, companies think that it is okay to let their employees learn from the media outlets of their impending restructuring, she points out. "It only reflects the way they view their most important assets - people. It is in times like these that really go to show if a company is serious about its own talent."

Various HR consultants pinpointed travel retailer DFS Group as a recent case of a company with a poorly handled retrenchment exercise. In late 2019, its employees were given abrupt notice of impending layoffs with a paltry severance package - initially one week's pay per year of service, capped at 13 weeks.

According to a tripartite advisory, companies are encouraged to pay retrenchment benefits of between two weeks' and a month's salary per year of service. For unionised companies, the norm is one month's salary for each year of service.

Manpower minister Josephine Teo had criticised the employer at that time, saying that it "could have better handled" the layoff exercise, especially the way it communicated with staff and how it offered the severance packages.

DFS later acquiesced and revised its payouts - but the damage in Singapore was done.

Other industry watchers, however, believe that the situation is improving overall.

Linda Teo, country manager, ManpowerGroup Singapore, observes: "More companies are initiating the need for outplacement services at the local level, whereas previously this was mostly seen in large MNCs (multi-national corporations) which engage outplacement services as part of their global policy."

She attributes changing employee demands, employment regulations and awareness of the impact of retrenchment on the company and its brand as factors that have influenced this shift.

"Compared to the past, more companies are giving employees advance notice and engaging outplacement consultants to help employees transition to new jobs," she adds.

Kong Ming Teck, managing director and partner at Boston Consulting Group, believes that senior executives are now viewing it as a priority.

"They are increasingly not just looking at the symptoms - too many people, for example - but focusing on underlying issues," he says.

Better companies are also involving employees to a greater degree, with appropriate engagement when they carry out layoffs, he notes.

"There is a lot of self-interest for companies to do it well and within a certain time," he explains.

"When you do it well, you don't lose key employees or keep the ones that have the wrong skills. The cost is managed and it doesn't have this kind of reputational risk. In some ways, the market for talent and the pressure that companies face, forces them to do it well."

Breaking up is hard to do

The news of a retrenchment might take place in a flash, but the preparation for it typically happens months before that.

HR consultants estimate that it takes about two to three months on average to plan a retrenchment exercise after the decision has been made to conduct one by senior management.

Mr Kong says: "What we do is to help the company design the process leading up to the notification - we don't help with the execution."

The outplacement consultant plays several roles. Among them include augmenting the company's HR team, which is typically overworked and not equipped or experienced enough to carry out such a complex process.

The second is to work with the company to think through its sustainability and change management, as well as training managers who have to deliver the message.

"Not every manager is a good manager. We have to make sure they are skilled enough to have difficult conversations in an appropriate way and to be ready for what to expect," he adds.

Not only must HR and line managers be able to be consistent in delivery, they must also be able to answer questions and provide emotional support on that day - all these while facing inner turmoil themselves.

But even before deciding to conduct a retrenchment, Ms Teo says that companies should consider other possible alternatives to manage their workforce, such as reskilling and redeploying affected staff to other roles within the company given the ongoing talent crunch.

If a retrenchment is inevitable, then an outplacement consultant may be hired to support the process and to help it go smoothly.

Ms Teo explains: "Companies used to engage outplacement consultants mid-way through their retrenchment planning to provide support on notification day. Nowadays, outplacement consultants are increasingly involved in the planning process from the start."

The timing of the notification also matters - while there is no "ideal time" to break the news, conducting an exercise just before the festive period is unlikely to go well with employees, she notes.

Depending on the situation and the reason for retrenchment, companies may give employees a few months' notice to give them sufficient time to make the transition to their next career.

Ms Chee, executive director of Career Agility, says: "I have witnessed individuals who start their outplacement programmes six months before actual exit day."

She adds: "The company informs them way ahead of time, allows them to go for training, and trusts them to take their time to transition their job scope to remaining colleagues.

"One of the worst is to have security escort the employees off the premises on the same day of notification like criminals. These people were made redundant - they are not accused of crimes."

From her over-13 years' experience as a career coach, she says that it would be ideal for third-party career coaches to be on site during notification day as they are a neutral party who can help diffuse the situation if there are heightened emotions.

The first formal meeting with the individual usually centres around their emotional state, their immediate plans and their readiness for next steps, she adds. It usually ends with an agreement on some sort of roadmap of actions for future meetings.

"Our role is to help them to get back on the horse, so to speak, with clear tangible actions and goals," she points out.

"Most people are resilient when they have a plan and a purpose."

Costs for career coaching and outplacement consultancy services can vary.

According to Ms Wee, an outplacement for senior-level employees can go up to as high as S$8,000 per person, or it can cost S$500 per head in a group exercise.

The more senior the candidates, the more likely that they need specialised support to land a new role. The time and effort needed to plan and execute such an exercise are also costs to be factored in. But this is an investment that is seen as essential for responsible employers.

Ms Wee says: "The costs of not doing a proper and professional exercise will come back to haunt the company in future retention efforts of its employees and recruitment of talent."

Get it right

For companies that choose to carry out retrenchments alone, they must firstly bear in mind their legal requirements.

For one, the Ministry of Manpower must be notified of retrenchments within five working days after employees have been informed if the employer has businesses registered in Singapore with at least 10 employees and notified five employees or more of their retrenchment within any six-month period.

Desmond Wee, head of corporate commercial and employment & benefits, Rajah & Tann says: "This obligation may be overlooked at times by companies."

Prior to Jan 1, 2017, there was no formal requirement for companies to submit any notification of retrenchments.

In deciding payout amounts, employers need to ensure that there is consistency in payment from previous layoffs and at the same time, ensuring that any payment reflects a "fair compensation based on its own circumstances", he notes.

Another change is that the tripartite advisory used to state that only employees with three years of service or more are eligible for retrenchment packages - this has been reduced to two years of service.

Jenny Tsin, joint head - Employment Practice, WongPartnership, points out that the advisory nonetheless suggested that those with less than two years of service could be granted an ex-gratia payment, which she said is "quite commonly practised".

While the advisory has no force of law, these guidelines should still be taken seriously by employers, lawyers advised.

For contract workers, it would depend on their contract terms - in the absence of which, they are not entitled to benefits, according to Ms Tsin.

"It is relevant to point out that those who have reached retirement age and are on re-employment contracts are not entitled to any retrenchment benefits," she says. Instead, employers are encouraged to offer them financial assistance using the Employment Assistance Payment (EAP) structure as reference, she adds.

EAP are payments which employers are to pay to eligible employees who have reached retirement age but they are unable to re-employ.

The layoff selection process must also be conducted fairly with no discrimination against any group, such as pregnant women or older workers.

Ms Tsin notes: "The challenge is that those affected may feel discriminated against although objectively, the selection process was properly conducted.

"Often, employee happiness can be better managed through sensitively communicating the negative news and also listening and empathising when affected employees raise concerns or grievances."

Beyond legal obligations, she suggests that employers consider providing affected employees with a longer notice period compared to the contractual notice period, and offering outplacement services for them to move forward.

Staff who remain also need to be dealt with. "Although they have not been let go, there could be anxiety and uncertainty as to their - and their company's - future," she adds.

"Open and timely communications about the future plans of the company could help assuage the concerns of the remaining employees."

Even as businesses continue to grapple with conducting retrenchments in a compassionate and responsible manner, employees will also need to pay attention to the signs and plan ahead for their careers.

Industry watchers expect 2020 to be a bumpy year for the economy, with the labour market about to feel the effects of the novel coronavirus outbreak.

Ms Chee's advice for workers is this: "Maintain a curiosity about your market, your industry, the economy, what is happening, new technologies and a continuous desire to upgrade, learn and adapt.

"The ones who didn't see it coming are dreamers who expect everything to remain the same."