Boosting Employee Morale After Downsizing

Boosting Employee Morale After Downsizing

Downsizing has become a significant idea in today's economy and maintaining the trust of employees when something like this takes place has also become very serious business (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). The question is not whether a company should downsize their employees but how to do the downsizing properly so that as few employees as possible are injured (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). There are several ways that companies can downsize that will help retain much of the loyalty of the workers that remain (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Companies who downsize through attrition and buyouts, those companies that work to help downsized employees find new jobs, and companies that are willing to provide outplacement services to those individuals often end up in positions that are much better than companies that simply fire workers due to downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). These companies who show that they care about the workers that they have to remove through downsizing have a much greater chance of retaining a lot of the loyalty originally given to them by the workers that survived the downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Trust is a very important asset for these companies but it is very difficult to achieve and just as difficult to hold on to (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). If companies are willing to downsize in a way that is considered to be very humane by many of the workers these companies will fare better in the long-term than companies who perceive workers as disposable (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Late in the 1970s, companies began to downsize workers (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). They did this in order to improve the bottom line and also to cut many of their costs (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Even though some companies today are making record profits they carry on this idea that they must be as lean as they possibly can in order to compete (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Since 1989, over 3 million jobs have been eliminated each year (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Since 1979, this adds up to 43 million jobs in this country that have been removed and eliminated due to downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). One point one million of these jobs have been lost since 1987 in the defense industry due to budget cuts in the government (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). In 1998, it was expected that another 700,000 layoffs would take place in his government sector (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). In order to put this in perspective it is safe to say about that 50% more people have been victims of various layoffs and downsizing than have been victims of violent crimes (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Downsizing in today's society is seen as a basic way of life for many United States companies (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). There is usually a first round of downsizing in many companies and this is often followed a short time later by a second round of downsizing (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). Sixty-seven percent of the firms that cut their jobs in any given year will do the same again in the following year (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994).

Unfortunately for these companies, many of the payoffs that they have expected to get from downsizing their workforce have been rather sparse (If, 1996). These expected payoffs include a better stock performance, more flexibility, and higher productivity (If, 1996). Although these have been seen, they have not been seen in all companies that have downsized, and even for companies that have seen these payoffs, they have not been as large as had been expected (If, 1996). There are several reasons that these various expected gains from downsizing have not actually been achieved and these will be explored here. Also looked at will be effective strategies that should be utilized for downsizing and the idea that maintaining the trust of the surviving employees is the only way to realize many of the gains that one expects and minimize the costs associated with downsizing.

Even though there have been many expected payoffs to downsizing, many of these have been mixed (If, 1996). One particular study found that reducing the people in the company by 10% only reduced costs by one and one-half percent (If, 1996). Another issue worthy of note that was found in that same study was that the stock price for the average firm that had downsized was only 4.7% over three years (If, 1996). Firms in a similar situation that had not downsized had stock prices rise in excess of 34% (If, 1996). Half of the firms that had downsized had increased their profitability, but the other half had not, and looking at productivity produced no results that were conclusive (If, 1996).

Some of these mixed findings come from many of the costs that are included when firms downsize (If, 1996). Some of these costs include severance checks that laid-off employees often receive (If, 1996). Quite often this includes a week of pay for every year that this particular employee served, as well as any sick pay and vacation pay that these individuals have accumulated (If, 1996). In addition to these things, supplemental benefits given to them through unemployment and benefits provided through outplacement can often accumulate to be 15% of these individuals' salaries (If, 1996). This is a great deal of financial hardship for businesses that downsize a great number of individuals in any one period in time (If, 1996).

Financial problems are not the only issues that these companies face, however (If, 1996). Another issue is that much of the talent that these individuals brought to the company will be lost when they are downsized and due to this many of the crucial skills that these individuals have disappear from the company (If, 1996). Disruptions and loss in the organizational memory are also seen (If, 1996). When companies downsize in this way they may feel as though they are retaining a competitive advantage because they are making themselves a leaner operation (If, 1996). However, many of these companies realize, and quite often they realize it too late, that the employees that they downsized were the ones that they needed in order to keep a competitive advantage (If, 1996). Over 50% of firms that downsize eliminate too many of the individuals who normally work for them and due to this they have to rehire many of the employees that they laid off as consultants (If, 1996).

This costs money in direct hiring costs and consultants often demand a higher rate of pay than original employees did (If, 1996). There are also many a significant cost of opportunities that may be lost while individuals are searching to replace the talent that they lost (If, 1996). These are indirect costs but nevertheless still significant (If, 1996). However, the main reason that many of the benefits of downsizing are not actually achieved has to do with the morale of the employees who remain (If, 1996). Surveys done in the past have indicated that just slightly over 30% of individuals that remain after organizations downsize believe that the company is to be trusted (If, 1996). If these individuals believe that the downsizing processes undertaken by the company were not fair they often reduce their commitment to the organization (If, 1996). Studies have also indicated that many of these survivors of the downsizing showed a strong resistance to change, as well as withdrawal, fear, and paralysis in their job duties due to the increase in the cynicism and burnout (If, 1996). Much of this has to do with their distrust of the company after downsizing, but a great deal of it also has to do with the double or sometimes even triple workload that these individual employees must deal with (If, 1996).

This often comes from seeing the department that they are in shrinking by one-half to two-thirds of what it once was (Cole, 1995). Employees who work under top management are not the only ones that suffer when layoffs and downsizing take place (Cole, 1995). Managers that have to implement these layoffs often find themselves suffering as well (Cole, 1995). Researchers have discovered that many of these managers often become withdrawn and alienated from their employees (Cole, 1995). They show a great deal of apathy and they often become depressed (Cole, 1995). In addition to this, they can become narcissistic and abrasive as well (Cole, 1995). Many of these managers will blame themselves for the pain that they have dealt out on other individuals even though it was not usually their decision to downsize (Cole, 1995). Ironically, many of the companies that downsize because they feel that they need a competitive advantage in the marketplace are destroying the qualities that they need to actually keep this competitive advantage (Cole, 1995). These qualities include the trust of their employees and their empowerment as well (Cole, 1995).

During the time that they are downsizing, many companies are also becoming advocates of high involvement work systems and creating strategies for total quality management (Cole, 1995). While these are being implemented, the process of downsizing is continuing all throughout the company (Cole, 1995). Unfortunately, to make total quality management and high involvement work systems work properly the empowerment and trust of employees is needed (Cole, 1995). This is something that is usually lost when downsizing occurs and therefore is not there when total quality management strategies are implemented (Cole, 1995). In order to have work relationships that are effective, employees and managers must trust one another (Cole, 1995). This is particularly true of areas where conflict or uncertainty is created, but is also true of simple and normal work relationships (Cole, 1995).

Trust is often defined as the willingness of an individual to be vulnerable to another individual (Cole, 1995). This is based on the belief that the other party is not only reliable and concerned about the interest of that individual, but is open and competent as well (Cole, 1995). Employees that are empowered feel that they have a meaning and a confidence in what they are doing, as well as a personal control over much of the environment around them (Cole, 1995). Empowerment, therefore, is defined as an orientation to an individual's work that is seen as proactive (Cole, 1995). Empowerment is a very critical issue because it is a prerequisite to the activity and risk-taking on the part of an employee (Cole, 1995). Organizations that downsize depend on trust and empowerment because many of the hierarchies that were previously seen are removed and there are fewer managers around to monitor the behavior of various employees (Cole, 1995). In the 1990s, this was especially true, because there were many more reductions in white-collar workers than there were in blue-collar workers (Cole, 1995).

With the hierarchies weakening many individuals were finding themselves more often faced with situations where various sanctions and moral controls were nonexistent (Cole, 1995). This meant that trust was becoming essential to action (Cole, 1995). There are some scholars that hold out the argument that empowerment and trust have replaced transactional contracts and hierarchy as the main control mechanisms in many organizations (Cole, 1995). These are some of the reasons that empowerment and trust within employees show a marked decline during downsizing (Cole, 1995). Much of this has to do with the fact that surviving employees may not trust the openness of top management any longer because they do not feel that management has any credibility or that communication is being dealt with in the proper way (Cole, 1995). In other words, information is being withheld from them and this makes them suspicious (Cole, 1995). These survivors may also believe that management does not care about many of the needs of the employees in the company because they see that many of these employees have been sacrificed for the personal gain of the managers (Cole, 1995).

The competency of top management may also be something that these employees question because most employees are aware of the fact that morale has a great deal to do with how well a company runs (Cole, 1995). If the company has gone back on their promises or has been very inconsistent in the intentions that they have stated and the actions that they have taken afterwards, surviving employees may also lack morale because they may feel that the company that they work for is extremely unreliable (Cole, 1995). The sense of empowerment that many of the surviving employees have also suffers greatly when downsizing takes place (Cole, 1995). They find themselves becoming increasingly more suspicious of the management that they have and they may also start to see themselves as being independent contractors rather than actual employees (Cole, 1995). By doing this they often view the organization in instrumental terms and will not see that they are integrated into the culture of the workplace (Cole, 1995).

When empowerment languishes, the sense of meaning that survivors have is often lost due to lack of communication between themselves and other workers, and between themselves and management (Davidow & Malone, 1992). It is possible that the competency of these surviving workers is also often threatened because they quite likely will take on some of the jobs of the co-workers that were laid off (Davidow & Malone, 1992). Many times, these jobs require a different set of skills that the surviving worker may or may not have (Davidow & Malone, 1992). This may also undermine the sense that they have of personal control and they may feel that the job responsibilities are always changing or that they are not clear (Davidow & Malone, 1992). Frequent layoffs will also leave these employees wondering if maybe they are next (Davidow & Malone, 1992). Even if management assures them that this is not the case, if they have lost trust in management there is no reason for them to believe that this is accurate (Davidow & Malone, 1992). The willingness that these individuals have to take any kind of risk often declines quite steadily and because of this they see themselves as much more resistant to change (Davidow & Malone, 1992). This resistance to change does not allow them to grow and does not allow the company to prosper (Davidow & Malone, 1992).

There are, however, ways that some of this can be avoided to a certain extent and that downsizing can be turned into a process that is basically effective (Davidow & Malone, 1992). Maintaining trust and empowerment is extremely important during downsizing and there are certain ways that this can be done (Davidow & Malone, 1992). The first thing to do is to create a timeline for the downsizing (Davidow & Malone, 1992). Any downsizing process that wishes to be successful must have planning (Davidow & Malone, 1992). This planning must begin long before there is a formal announcement made that individuals will be downsized (Davidow & Malone, 1992). Unfortunately, there are many organizations that look only at the damage control after the announcement has been made, in that they are simply reacting to the negativity that employees display in their reactions (Davidow & Malone, 1992). If these companies would become more proactive and look at ways to minimize not only the upset of the surviving individuals but the preservation of their trust and empowerment as well, the downsizing would be much easier for all involved (Davidow & Malone, 1992).

There are four distinct stages that are the most looked at when companies downsize (Kuzlowski, Chao, Smith, & Hedlund, 1993). These must be followed closely in order to keep the empowerment and trust of the remaining employees as high as possible (Kuzlowski, Chao, Smith, & Hedlund, 1993). First, the decision will be made to downsize (Kuzlowski, Chao, Smith, & Hedlund, 1993). This decision must be made very carefully, and it should never be an easy or painless one (Kuzlowski, Chao, Smith, & Hedlund, 1993). Downsizing because the competition has done it is not a good reason and many managers jump into downsizing before they stop and look at all of the issues that need to deal with (Kuzlowski, Chao, Smith, & Hedlund, 1993). Downsizing should be used only as a last resort (Kuzlowski, Chao, Smith, & Hedlund, 1993). Employees who look at downsizing often see it as a failure to control costs and hiring by top management (Kuzlowski, Chao, Smith, & Hedlund, 1993). They also see it as a failure to value employees and see them as anything more than machinery or cost (Kuzlowski, Chao, Smith, & Hedlund, 1993). When senior managers address not only the needs of the surviving employees but the needs of the workers that are being laid off as well they help to counteract much of the mistrust that they would be facing otherwise (Kuzlowski, Chao, Smith, & Hedlund, 1993).

If they exhaust all of the possible alternatives that they have before they decide to downsized, and if they can show this to employees when an announcement is made, this will indicate concern on the part of top management and this will also help to counteract much of the mistrust (Kuzlowski, Chao, Smith, & Hedlund, 1993). Downsizing is not often necessary for only short-term declines (Kuzlowski, Chao, Smith, & Hedlund, 1993). Many companies implement overtime restrictions, salary freezes, hiring freezes, pay cuts, shortened workweeks, unpaid vacations, or elimination of bonuses in order to avoid downsizing during a difficult economic time (Kuzlowski, Chao, Smith, & Hedlund, 1993). Other companies come up with very creative alternatives (Kuzlowski, Chao, Smith, & Hedlund, 1993). For example, a company called Rhino Foods lent out several of its key employees to suppliers and customers who needed employees until its business got better (Kuzlowski, Chao, Smith, & Hedlund, 1993). Showing a great deal of concern for employees in this way builds a significant amount of trust between management and employees (Kuzlowski, Chao, Smith, & Hedlund, 1993). However, these strategies are all for the short-term and if they are utilized in place of downsizing for the long-term they can create a lack of motivation for many employees (Kuzlowski, Chao, Smith, & Hedlund, 1993).

If all of the options have completely been exhausted companies who wish to downsize can offer not only a voluntary separation with severance pay and other benefits but early retirement for those that might be nearing retirement age (Kuzlowski, Chao, Smith, & Hedlund, 1993). Some other employees might welcome the idea of the change of employment or the ability to switch to the status of a consultant (Kuzlowski, Chao, Smith, & Hedlund, 1993). Quite often, these individuals will use this to start their own business, which is a dream for many individuals in his country (Kuzlowski, Chao, Smith, & Hedlund, 1993). There is a danger, however, and offering this type of voluntary separation may cause many of the best workers at the company to be the first ones to accept it and leave (Kuzlowski, Chao, Smith, & Hedlund, 1993). Much of this has to do with the fact that these individuals have many other employment alternatives and are likely to receive attractive offers from other companies (Kuzlowski, Chao, Smith, & Hedlund, 1993). Companies who wish to offer these types of voluntary separations must manage them very carefully so that they do not lose many of their key people and the skills and competencies that they have (Kuzlowski, Chao, Smith, & Hedlund, 1993).

Companies that have downsized in a successful manner often work with high performers in their company by making sure these individuals can understand how highly they are valued in the company and how much the management would wish them to stay (Kuzlowski, Chao, Smith, & Hedlund, 1993). This is usually done once the downsizing has actually been announced (Kuzlowski, Chao, Smith, & Hedlund, 1993). Only after voluntary separations and early retirement are offered to all employees who wish to take them should forced layoffs be considered (Kuzlowski, Chao, Smith, & Hedlund, 1993). This helps to show that management is concerned about the needs of the various employees instead of just its own necessary reduction in cost (Kuzlowski, Chao, Smith, & Hedlund, 1993). There can be some upfront costs incurred with this type of strategy and it also may take longer but through the amount of increased trust that will be given by the surviving employees these costs will easily pay for themselves (Kuzlowski, Chao, Smith, & Hedlund, 1993).

A credible vision of what is to come must also be crafted (Kuzlowski, Chao, Smith, & Hedlund, 1993). Downsizing is not a short-term fix and it must be made clear to all in the company as to how downsizing will actually help to create a competitive advantage, and why downsizing is actually the best choice to make (Kuzlowski, Chao, Smith, & Hedlund, 1993). A corporate improvement plan is often created for this purpose and the vision of the company is usually part of that (Kuzlowski, Chao, Smith, & Hedlund, 1993). It shows the firm's overall strategic position and how downsizing will help this (Kuzlowski, Chao, Smith, & Hedlund, 1993). The chief executive officer over Malden Mill Industries, Aaron Feuerstein, has downsized virtually continually, and has not harmed the morale of his workforce at all (Kuzlowski, Chao, Smith, & Hedlund, 1993). He is greatly in favor of downsizing, and much of this is a result of various technological advances or good industrial engineering (Kuzlowski, Chao, Smith, & Hedlund, 1993). If he grows the company fast enough, new jobs can be given to many of the people that are displaced by technology, and unnecessary jobs are weeded out (Kuzlowski, Chao, Smith, & Hedlund, 1993). This does not harm the spirit of those who work for him because these employees understand that there is no scheme created to hurt them but simply a change in employment status and work ideals due to changing technology (Kuzlowski, Chao, Smith, & Hedlund, 1993). Having a vision for the company helps to show that the downsizing is credible and this will help to reinforce much of the trust that employees have in senior management (Kuzlowski, Chao, Smith, & Hedlund, 1993).

It will allow employees to see these managers as competent leaders and will see that the firm is going to be revitalized and the competitive advantage restored (Kuzlowski, Chao, Smith, & Hedlund, 1993). Employees also have a stronger sense of empowerment, direction, and meaning when they have a vision for the company (Kuzlowski, Chao, Smith, & Hedlund, 1993). This helps to avoid much of the ambiguity and uncertainty that many of these employees are facing when they know that downsizing and layoffs are coming (Kuzlowski, Chao, Smith, & Hedlund, 1993). The employees that survive after a downsizing has taken place will begin to see that they have a future with the company and by looking at the company's vision they will see where they fit in (Kuzlowski, Chao, Smith, & Hedlund, 1993). This will help them to feel that they have more control over what is happening to them than they would have previously had (Kuzlowski, Chao, Smith, & Hedlund, 1993). Second, the downsizing must be planned (Mishra, 1996). All of the needs of various stakeholders must be considered when a plan of this nature is implemented (Mishra, 1996).

A plan must help and comfort not only shareholders but the surviving employees and the laid off employees as well (Mishra, 1996). They must feel that they have control over much of their destiny even if they see that that destiny is going to involve a layoff (Mishra, 1996). Research indicates that nearly 50% of the effort that goes into downsizing should be done before the actual announcement of downsizing is made (Mishra, 1996). Managers who are well respected and well-trained know the business and the people in it and therefore must do much of this planning (Mishra, 1996). When managers downsize without a great deal of planning they not only look incompetent but they are seen to initiate random and poorly thought-out cuts of employees (Mishra, 1996). A cross-functional team should be formed to plan and implement the downsizing that will take place and should represent the interests of all members so that employees are able to see that management is looking at the needs and concerns of everyone involved (Mishra, 1996).

Representatives should be included from labor relations operations, human resources, public relations, finance, and legal affairs at a minimum (Mishra, 1996). Technical and customer relations should also have some say in the downsizing because they are considered key parts of the company (Mishra, 1996). The responsibility for communicating the downsizing to the stakeholders should be divided up among the team (Mishra, 1996). Public relations will deal with the media and the general manager should give the employees the information (Mishra, 1996). There should be reasons for the downsizing that are clearly agreed on by the team so that workers do not see any type of disagreements occurring among the team members (Mishra, 1996). This will help to benefit the trust that these individuals have (Mishra, 1996). Constituents should be identified (Mishra, 1996). These include the employees of the firm, the community, and the press (Mishra, 1996). Usually, the local media is all that is necessary but in cases of very large companies the national media may become involved as well (Mishra, 1996).

Another constituent would be any type of government agency that may be affected by the layoffs (Mishra, 1996). By looking at the needs and potential risks for all of these constituents each one can be dealt with in the formulation of action plan (Mishra, 1996). It is quite possible that outside experts will be brought in during this time because areas such as job placement and counseling may need expert advice (Mishra, 1996). There are funds that can also be applied for to help with job development, job placement, and training for workers that will be leaving (Mishra, 1996). These can be received through the Job Training and Partnership Act but take two months to receive so planning for downsizing must include starting this particular process early (Mishra, 1996). There are also outplacement companies that can be utilized and firms that offer financial counseling to workers that have been downsized (Mishra, 1996). Not only should the employees who are leaving be helped but those who are remaining should also be counseled and spoken with because they may have a great deal of distrust when they are concerned that the next job to go may be their own (Mishra, 1996).

Managers should also have training because communicating the downsizing announcement is very difficult and they should be able to do it correctly with the least amount of damage (Mishra, 1996). These managers need practice and skills in telling various employees that they will be losing their jobs (Mishra, 1996). They should be able to answer any types of questions that these individuals will have about their jobs and they should be able to convey the announcement convincingly and empathetically as well (Mishra, 1996). It is often difficult to share bad news with employees and many managers have a lot of guilt when this takes place (Mishra, 1996). Sometimes laid off workers will become angry at the individual who is delivering the message rather than the top management who has made the decision (Mishra, 1996). Managers who have been counseled in the proper ways to discuss downsizing with employees should be prepared to deal with the emotions that come from these employees and the guilt that may be felt by having to give the announcement (Mishra, 1996). Counseling and support for these managers after the news is shared is also important to help them deal with the stress and the guilt that they may be facing (Mishra, 1996).

Third, when the announcement is made, it is important to ensure that questions are answered and concern is shown for employees (Hirschhorn & Gilmore, 1992). It is also very important that top management be very honest and open about the reasons that the downsizing is taking place (Hirschhorn & Gilmore, 1992). This will help to avoid much of the distrust that will normally come from finding out that jobs are about to be lost (Hirschhorn & Gilmore, 1992). If the company can communicate its vision and surviving employees see the personal control that they will have over their future much of the distrust will be avoided (Hirschhorn & Gilmore, 1992). The same is true for downsized employees who must understand that they need to find other employment (Hirschhorn & Gilmore, 1992). By making sure that their benefits and severance packages are carefully explained it will help them feel more in control (Hirschhorn & Gilmore, 1992). It is often difficult to explain to employees why downsizing is taking place but it is best to explain it as well as possible so that these employees and do not feel as though they have done anything wrong personally that has cost them their jobs (Hirschhorn & Gilmore, 1992).