Organizational changes 3

Paul L. Schumann, Ph.D.Professor of Management

MGMT 440: Human Resource Management

1© 2008 by Paul L. Schumann. All rights reserved.

OutlineRestructuringCareer PlanningRetirementVoluntary TurnoverInvoluntary TurnoverEmployment-At-WillDiscipline SystemsTermination for CauseRetrenchment & Layoffs

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RestructuringOther names:

Retrenchments: “I’ve been retrenched”Downsizing: “I’ve been downsized”Rightsizing: “I’ve been rightsized”Reductions-in-force (RIF): “I’ve been riffed”Layoffs: “I’ve been laid off”

Goals:Cut labor costsMake the organization more nimbleMake top management closer to customers

Methods:Eliminate specific positions to reduce headcountEliminate entire levels of middle management to flatten

the organization

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RestructuringEthics: What are the ethical issues involved with

restructuring? Under what conditions is it ethical?Does it matter if the company is in financial trouble

and might otherwise go out of business?What if the company is earning record profits and

the senior executives are receiving many millions of dollars in pay?

Restructuring affects employees’ career pathsReduced job security

Example: Restructuring might mean you get riffed because your job has been eliminated

Reduced promotion opportunities Example: Restructuring might mean it is harder for you to

get that promotion you want because some of the higher-level jobs have been eliminated

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RestructuringManagement challenge: maintain the motivation and

commitment of employees who won’t get traditional linear promotions (i.e., who are “career-plateaued”)Expert (professional) career ladder: create career

advancement opportunities within a profession or specialty Example: Junior Engineer, Engineer, Senior Engineer

Spiral career path: use lateral transfers to broaden experiences & provide new challenges Example: Transfer a Store Manager from store to store and to

corporate headquarters jobs, then promote to District ManagerTransitory career path: use temporary, special assignments;

move outside organization as an independent consultant

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Career PlanningCareer Planning Steps

Employee self-assessment What are the employee’s values, interests, & motivations?

Available job opportunities What different job opportunities & career paths are

available to the employee both within the current organization & in other organizations?

Formulate career goals & a plan to achieve the goals What are the employee’s career goals?

Incorporate family issues, including dual-career family issues

What does the employee need to do to achieve the goals? Types of training, job assignments, etc.

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Career Planning

Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 16.2, p. 692

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Retirement

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Retirement

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Retirement

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RetirementPhased Retirement

Corporate policy in which the employee retires, but keeps a different kind of employment relationship Examples: Work on as-needed basis, or part-time, or

seasonal, or as a consultant Benefits to company:

Keep the talent Cut costs

Benefits to person: Increase income Stay active

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RetirementBenefits to organization of employee retirements:

New employees may bring in new ideasOpens up career paths for promotionsNew employees tend to be paid less

Harm to organization of employee retirements:Hard to replace the talents & experiences of the

retired employees They know what’s been tried & what really works They have personal networks & contacts They are the source of corporate norms, traditions, &

culture

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Voluntary TurnoverWhy do some employees decide to quit their jobs?

Progression to withdrawal: dissatisfaction leads the employee to withdraw from the organization (negative job behaviors, quit)


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Voluntary TurnoverWhy do some employees decide to quit their jobs?

(more)Factors external to the organization:

Unemployment rate: when unemployment is high, turnover tends to be low

Employees’ perceptions of external job opportunitiesFactors internal to the organization:

Employees’ perceptions & attitudes about the current job: Job satisfaction; organizational commitment; beliefs of

unfair treatment; poor relationship with supervisor; job requirements that are unclear, conflicting, or stressful; limited opportunities for growth, skill development, & promotion

Embeddedness of the employee: the extent to which the employee is tightly linked in a web of relationships among family, work, & community

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Voluntary TurnoverWhy do some employees decide to quit their

jobs? (more)Quitting may also be due to sudden changes in

the employee’s life: Internal job-related

Example: the employee does not get an expected promotion

External job-related Example: the employee gets a better job offer

External off-the-job Example: the employee’s spouse gets transferred to

another town

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Voluntary TurnoverThe optimal turnover rate is

not zero, it’s determined by:Turnover costs: incremental

costs of lost productivity & of replacing the employee The higher the turnover rate,

the higher the turnover costsRetention costs: incremental

costs of programs to retain employees (e.g., higher pay, better benefits, programs to increase job satisfaction, etc.) To achieve lower turnover rates

will require higher retention costs


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Voluntary TurnoverIn managing turnover,

also consider who is quitting:A high performer who

is difficult to replace? You want to keep this

employeeA low performer who is

easy to replace? You’re probably happy to

see this employee quit


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Voluntary TurnoverRetention management programs: programs

to retain employees whose turnover would be dysfunctional to the organizationGet information on the reasons why employees

quit their jobs — if turnover is dysfunctional & we can identify the problem, then we can try to fix it Exit interviews: interview employees when they quit

Include questions that get at the employee’s reasons for quitting Example questions: See Fisher, Schoenfeldt, &

Shaw (2006), Table 16.6, p. 70518

Voluntary TurnoverRetention management programs (more)

Get information on the reasons why employees quit their jobs (more) Organizational surveys: ask employees to complete a

questionnaire that measures their relevant attitudes Example attitudes: Job satisfaction; organizational

commitment; beliefs of fairness of treatment; quality of relationship with supervisor; extent to which job requirements are unclear, conflicting, or stressful; opportunities for growth, skill development, & promotion; etc.

Conduct the surveys on a regular basis to track changes over time

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Voluntary TurnoverRetention management programs (more)

Use the information on the reasons why employees quit their jobs to make changes that are cost-effective to reduce dysfunctional turnover

Evaluate the retention management program Track over time the costs of the program Track over time the turnover rate Track over time who is quitting in terms of job

performance levels & degree of difficulty in replacing the employee

Track over time the reasons for quitting Track over time the results of the organizational surveys

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Involuntary TurnoverVoluntary turnover: the employee decides to

terminate the employment relationship (i.e., to quit)

Involuntary turnover: the employer decides to terminate the employment relationshipExamples:

Termination for cause: fire the employee because of wrongdoing (unacceptable behaviors or results)

LayoffsAn important concept in managing involuntary

turnover is “employment-at-will”21

Employment-At-WillEmployment-at-will: the employment

relationship exists at the will of both the employee & the employerEither party may terminate the employment

relationship at any time for any reason (unless a restriction applies) Employee can quit at any time for any reason (unless a

restriction applies) Not quite accurate cliché: “The employee can quit for a

good reason, a bad reason, or no reason at all” Employer can fire the employee at any time for any

reason (unless a restriction applies) Not quite accurate cliché: “The employee can be fired

for a good reason, a bad reason, or no reason at all”

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Employment-At-WillRestrictions on employment-at-will

State laws: Example: Minnesota Law (181.933): An employee who has been involuntarily terminated

may, within 15 working days following the termination, request in writing that the employer inform the employee of the reason for the termination

Within 10 working days following receipt of the request, an employer shall inform the terminated employee of the truthful reason for the termination

More information on the Minnesota law: http://www.doli.state.mn.us/termination https://www.revisor.leg.state.mn.us/statutes/?id=181.

933

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Employment-At-WillRestrictions on employment-at-will (more)

Civil rights legislation Disparate treatment discrimination: can’t use protected

characteristics (race, color, religion, sex, national origin, age if 40 or older, or disability) as the reason to terminate or layoff an employee A terminated employee might sue the company and

claim that the real reason for the termination was illegal discrimination The company might need to defend itself by presenting

evidence of a non-discriminatory reason for the termination

Adverse impact discrimination: monitor terminations & layoffs for differential effects based on protected characteristics

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Union contracts (or other employment contracts) There may be a formal written employment contract

between the employee & the employer If there is a contract, and if the contract specifies

reasons and procedures to terminate the employment relationship, then the contract must be followed

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Wrongful discharge: situations in which courts have ruled that employment-at-will does not apply Violations of public policy: employee is terminated for

exercising legal rights Examples: firing an employee because he or she:

Refused to break the law (e.g., commit perjury) Took time off work to serve on jury duty Filed a Workers’ Compensation claim (insurance

benefits paid to a worker who suffers an on-the-job injury)

Whistleblowing: firing an employee because he or she properly reported criminal activities by the employer

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Wrongful discharge (more) Expressed or implied guarantee of continued employment:

firing an employee when it violates an implied contract Example: the company has an Employee Handbook that

spells out reasons why an employee can be terminated and procedures to be followed in such cases, but the company didn’t follow the handbook Courts have interpreted the a company’s Employee

Handbook as being a contract Example: a manager refers to employees as either

“Probationary” (new hires) or “Permanent” Courts might interpret “Permanent” to mean that the

manager has promised that the employee can’t be laid off or terminated

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Wrongful discharge (more) Good faith & fair dealing: the termination might not

be good faith & fair dealing Example: a salesperson is terminated because the

company doesn’t want to pay the salesperson a big commission that the salesperson has earned on a big sale

Example: an employee with a completely spotless record with the company for 20 years is fired for a minor violation of a trivial corporate rule

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Wrongful discharge (more) Tortious conduct: the termination might be a tort (a

violation of a duty owed to another person) Example: the termination is motivated by malice

that the supervisor has for the employee The supervisor terminated the employee for the

purpose of intentionally inflicting emotional distress on the employee or to defame the employee’s character

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Employment-At-WillManagement’s responses to restrictions on

employment-at-will:Revise Employee Handbooks to emphasize the at-will

status of employeesHave employees and applicants sign statements in

which they recognize their at-will statusTrain managers & supervisors to use at-will language

& to avoid making promises about job securityModify employment contracts to include at-will

language & to specify mandatory arbitration instead of lawsuits & courts in cases of disputes over the contract

Avoid hiring & promoting poor performers

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Discipline SystemsDiscipline punishes the employee for

wrongdoing to get the employee to stop the wrongdoing

Discipline guidelines: Discipline should be:Proportional to the wrongdoingApplied before the wrongdoing becomes a habitFocused on a specific instance of wrongdoingApplied consistently across people & timeAdministered by someone who the employee

trusts & respectsProgressive Discipline Systems implement the

guidelines31

Discipline SystemsProgressive Discipline System: a written

discipline policy with the following characteristics:Develop an menu of sanctions from less serious

to more serious Example:

Oral warning Written warning 3-day suspension without pay 5-day suspension without pay 30-day suspension without pay Termination

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Discipline SystemsProgressive Discipline System (more)

Develop a list of possible wrongdoings Examples:

Tardiness (being late to work) Unapproved absence Loafing Violation of safety rules Stealing Unauthorized use of company computers, network, or

Internet Unauthorized possession of a weapon Reporting to work under the influence of alcohol or other

drugs Insubordination Etc.

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For each offense, develop a written policy that states what the sanction would be for each occurrence Examples:

Tardiness: 1st Time: oral warning 2nd Time: written reprimand 3rd Time: 3-day suspension without pay 4th Time: 5-day suspension without pay 5th Time: termination

Insubordination: 1st Time: 30-day suspension without pay 2nd Time: termination

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Some examples of offenses that are so bad that they typically justify immediate termination: Falsify résumé or employment application Falsify work records Divulge trade secrets Steal company property Assault of a supervisor or co-worker Possession of a weapon Possession of alcohol or illegal drugs

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Discipline SystemsManaging investigations & discipline:

Take notes during interviews with employee & witnesses

Conduct interviews in private But consider having a witness or video the interviews

Maintain confidentiality of informationDon’t use force or imply that the employee can’t

leaveDocument, document, document

Maintain a detailed file with all notes, evidence, dates, times, places, witnesses, etc.

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Retrenchment & LayoffsOther terms: downsizing, rightsizing, restructuring,

reductions-in-force (RIF)Layoffs are typically used to reduce headcount to cut

costsBut layoffs can increase costs, especially if mismanaged

The company has invested in its employees & layoffs will mean that the company loses the return on those investments The company has incurred costs to recruit, hire, train,

develop, & motivate its employees These costs were incurred in the hope of the company

getting future benefits from having more effective employees When an employee is laid off, the company has already

incurred the costs, but now it won’t get those future benefits

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Retrenchment & LayoffsGoal: Reduce the need for layoffs of regular,

full-time employees (in whom the company has its greatest investment) by doing 2 things: #1: During good times, grow in ways that

increase flexibility for possible future downsizing When the business is growing, accommodate some of

the need for additional employees by: Overtime Subcontractors (out-sourcing) Temporary employees (Temps) Hiring new full-time employees

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Retrenchment & Layoffs#2: During bad times, use alternatives to only using

layoffs Hiring freeze & attrition Reduce overtime Reduce subcontracting In-sourcing Reduce Temps Voluntary separation incentives Early retirement incentives Job sharing Job retraining & redeployment Voluntary unpaid leaves of absence Reductions in pay & benefits Layoffs

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Retrenchment & LayoffsGolden Rules for Effectively Managing

LayoffsPlanFocus on productivity improvementInvolveCommunicateTake care of those laid offTake care of survivors(For details, see Fisher, Schoenfeldt, & Shaw

(2006), Table 16.10, p. 720)

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Retrenchment & LayoffsWorker Adjustment & Retraining Notification Act

(WARN)Covers: employers with 100 or more full-time-equivalent

employeesProvides: employers must give 60 days written notice of

plant closings or mass layoffs If the layoffs result from closure of a faltering company,

unforeseeable business circumstances, or a natural disaster, then the notice can be for less than 60 days

An employer who violates WARN is liable to each employee for an amount equal to back pay and benefits for the period of the violation, up to 60 days, which may be reduced by the period of any notice that was given and any voluntary payments that the employer made to the employee, and is subject to a civil penalty not to exceed $500 for each day of violation, which the employer may avoid by satisfying the liability to each employee within three weeks after the closing or layoff

http://www.dol.gov/compliance/laws/comp-warn.htm http://www.dol.gov/compliance/guide/layoffs.htm

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OutlineRestructuringCareer PlanningRetirementVoluntary TurnoverInvoluntary TurnoverEmployment-At-WillDiscipline SystemsTermination for CauseRetrenchment & Layoffs

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Education

Organizational changes 3