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Published 22 August 2012 12:21, Updated 23 August 2012 07:10
It seems as if Australian businesses have given up on alternatives to job cuts as, day after day, there are announcements of more large-scale retrenchments.
Like a patient who gives up on the alternative therapies and decides to not delay surgery any more, CEOs and company boards are amputating arms of their businesses they deem no longer viable.
But a world expert on responsible restructuring, Wayne Cascio, says we may be getting a distorted view of what is really going on.
Cascio, a professor of management at the University of Colorado Denver who is due to speak at the 14th World Human Resource Congress at the Melbourne Convention and Exhibition Centre on September 26-27, says he is often asked if we have learned anything over the years about over-hiring and over-firing.
“Actually, there are a lot of reasons to be optimistic,” he says on the phone from the US.
The biggest cause for celebration is data collected by the Society for Human Resource Management which shows that 60 per cent of companies have tried not to use redundancy as a first resort through this most recent financial crisis.
“A lot of companies didn’t do any downsizing ... but we don’t hear about those,” he says.
Cascio says he has been tracking the Fortune magazine 100 Best Companies To Work For lists since 2002 and 80 per cent to 85 per cent of those 100 companies have not downsized. This is despite 8.5 million people losing their jobs in the 18 months to June 2009.
“The great ones are not laying off people,” he says.
Although Cascio readily accepts that there are valid reasons to retrench – for instance, when structural change is necessary for survival – the reasons not to retrench are many.
“A very realistic course of action is for senior executives to ask themselves, is this likely to be a short-term phenomenon or is this a change in my industry? Short term is something that is going to last less than two years.”
Retrenchment is not cheap. Direct costs of retrenchments are: severance pay, accrued vacation and sick pay, outplacement, administrative processing and the cost of rehiring former employees when conditions improve.
Indirect costs include: recruiting new people when conditions improve, low morale, risk-averse survivors, lack of available staff when the economy rebounds, training and retraining, legal challenges from aggrieved employees, heightened insecurity, reduced productivity, loss of institutional memory and trust in management.
In his book Responsible Restructuring: Creative and Profitable Alternatives to Layoffs, Cascio says downsizing companies generally suffer a continuing loss of business because staff cuts hurt sales and development of new products and productivity drops because high performers are more likely to leave.
Companies with very deep staff cuts underperform the market by as much as 8 per cent over the following three years.
Cascio says the most obvious alternatives to redundancies is putting people on reduced work weeks or pay freezes.
“Poll after poll shows that if you ask the workforce, roughly 85 per cent would rather take a 5 per cent to 10 per cent pay cut than see their colleagues lose their jobs,” he says. “They would rather share the pain.”
At Dupont in the US, the CEO asked his executives to “cascade down” an invitation to recommend cost-saving measures.
From 60,000 employees, they had enough great suggestions that they could cut costs without having to lay people off.
“This requires seeing the workforce as a source of solutions, rather than the source of the problem,” he says. “It is tough for senior executives to start thinking this way but the fact is, you get a lot more buy-in when you get everyone pulling together and when you have a common goal.”
■ Wayne Cascio will be in Australia to speak at the 14th World Human Resource Congress at the Melbourne Convention & Exhibition Centre, on September 26-27.