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Why the cost of redundancy cannot be measured purely in terms of the financial package on offer

This article was first published in the March 2011 Ireland edition of Accounting and Business magazine

In recent times, many organisations have been faced with the challenge of implementing redundancies, from senior executive level down, and, from the finance director’s point of view, the financial implications of such actions are major.

The actual cost of the redundancy payments is a straightforward calculation and, indeed, the cost savings generated by the reduction in head count is also easy to estimate. What is far more difficult to calculate is the cost of the negative impact on the morale of the remaining employees and on the wider circle of the individual’s business contacts and customers.

The other cost factor open to debate is the negative impact on the employer’s brand, which can arise when such redundancies are poorly implemented. Finally, there is also the possibility of litigation arising when redundancies are incorrectly implemented – this can have major cost implications, both with regard to legal costs and the time spent by company staff in dealing with such cases, not to mention any negative publicity that may arise. The finance director, in conjunction with the chief executive and HR director, has a duty of care to ensure that such projects are managed effectively.

Planning the process

The role of professional outplacement organisations/career transition organisations in right-sizing/ downsizing projects is also immense. There are a number of key elements to their role:

  • Support in planning the entire process;
  • Training managers to implement the restructuring; and,
  • Supporting remaining/departing employees.

Given those charged with planning the process may well be doing so for the first time, support from an organisation experienced in expertly handling such situations not only makes practical sense but ensures best practice is adhered to throughout the process. In terms of taking the right approach, expert advice should be sought at the earliest stage, as prevention is certainly better than a cure.

The stress on managers tasked with ‘breaking the news’ and handling a downsizing project can often be overlooked. It is vital, therefore, that managers are supported and well equipped in this regard. Although employees will often notice the effect of a downturn on their employer and suspect redundancies are imminent, this ‘breaking of the news’ is the first time they know that they will be leaving the organisation. It is the very first step in their moving on and it must be handled well.

How a manager approaches this unenviable task reflects directly on the employer and can either enhance or damage relations at senior level. Presumably, the manager will be staying on and should they feel unsupported in this difficult task, their own attitude towards their employer may well change.

Supports

Career transition support for departing employees can include:

  • Assistance with the decision making process (where redundancies are voluntary);
  • CV development;
  • Interview training;
  • Training in the techniques of effective job searching;
  • Access to online career tools;
  • Administration support;
  • Use of office facilities;
  • Budgeting and financial planning assistance; and,
  • Social welfare advice.

The difference between an employee merely ‘cut loose’ with nothing but their financial package and one who also receives such supports is immense. A well-supported employee will leave confident in their approach to finding a new role, with the tools to best equip them to land it. Such supports can be provided by way of one- or two-day outplacement workshops or by personalised one-toone sessions with a dedicated consultant or, indeed, a combination of both.

Control

When emotions subside, employees will often accept that the organisation had no choice but to implement redundancies. However, employers do have full control over how the situation is handled and employees will note how well or how poorly they were supported on departure. Therein lies the key to either the enhancement or deterioration of the employer brand. During the recruitment phase, employers will put their best foot forward in order to attract the ‘brightest and the best’. Such an approach should extend to the departing phase, should it arise.

A study by US talent management company Lee Hecht Harrison (see link below) suggests a direct correlation between an employer’s brand and the provision of career transition support. The results indicated that providing such support is no longer ‘a nice thing to do’ but is an essential business practice for companies who want to protect their employer brand, as well as minimise litigation and negative PR. The additional costs as a result of the provision of such services may be as little as 2-3%, but the payback in terms of external image and the commitment, productivity and focus of those remaining in the organisation, will be major.

This topic of downsizing/ restructuring/right-sizing is going to very relevant to many financial directors in the immediate future. Now is the time to become familiar with the challenges it brings and the solutions that can be provided to overcome these challenges. The management and support of employees who are, or may be, departing from your organisation is significant for the future financial wellbeing of your organisation and, therefore, the professional handling of such events needs attention. Even if this challenge is not yours today, it will most likely be at some point in the future. Now is the time to become familiar with solutions that work best for employees and the company.

Gerard O’Shea is managing partner of Sanders & Sidney/O’Shea

Last updated: 7 Apr 2014