Boosting Employee Morale After Downsizing

Introduction: Downsizing as a Business Reality

Downsizing has become a significant feature of today's economy, and maintaining the trust of employees when reductions occur has become a serious business challenge (Brockner, Konovsky, Cooper-Schneider, Folger, Martin, & Bies, 1994). The question is not whether a company should downsize its employees, but how to do so properly so that as few employees as possible are harmed (Brockner et al., 1994). There are several approaches that companies can take when downsizing that will help retain much of the loyalty of the workers who remain.

Companies that downsize through attrition and buyouts, that work to help downsized employees find new jobs, and that provide outplacement services to departing individuals often end up in far better positions than companies that simply terminate workers without support (Brockner et al., 1994). These companies demonstrate care for the workers they must let go, and as a result have a much greater chance of retaining the loyalty of the employees who survive the downsizing process (Brockner et al., 1994).

Trust is a very important asset for these companies, but it is difficult to achieve and equally difficult to hold on to (Brockner et al., 1994). Companies willing to downsize in a manner considered humane by their workers will fare better in the long term than those that treat workers as disposable (Brockner et al., 1994). Beginning in the late 1970s, companies started to downsize in order to improve their bottom line and cut costs (Brockner et al., 1994). Even though some companies today record substantial profits, they continue to pursue the idea that they must be as lean as possible in order to compete (Brockner et al., 1994). Since 1989, over three million jobs have been eliminated each year (Brockner et al., 1994).

Since 1979, this amounts to 43 million jobs eliminated in the United States due to downsizing (Brockner et al., 1994). Over one million of these jobs were lost after 1987 in the defense industry alone due to government budget cuts, and in 1998 another 700,000 layoffs were expected in that sector (Brockner et al., 1994). To put this in perspective, approximately 50% more people have been victims of layoffs and downsizing than have been victims of violent crimes (Brockner et al., 1994). Downsizing has become a basic way of life for many United States companies, and there is usually a first round of downsizing followed shortly by a second round: sixty-seven percent of firms that cut jobs in any given year will do the same in the following year (Brockner et al., 1994).

The Mixed Payoffs of Workforce Reduction

Unfortunately for many companies, the payoffs expected from downsizing have been rather sparse (If, 1996). These expected payoffs include better stock performance, greater flexibility, and higher productivity. Although some gains have been observed, they have not appeared in all companies that have downsized, and even where they have appeared, they have not been as large as anticipated (If, 1996). There are several reasons why these expected gains have not been achieved, and effective strategies for maintaining employee trust during downsizing deserve careful attention.

One particular study found that reducing a company's workforce by 10% only reduced costs by one and one-half percent (If, 1996). The same study found that the stock price for the average firm that had downsized rose only 4.7% over three years, while firms in a similar situation that had not downsized saw stock prices rise in excess of 34% (If, 1996). Half of the firms that had downsized increased their profitability, but the other half had not, and productivity results were inconclusive (If, 1996).

Some of these mixed findings stem from the substantial costs associated with downsizing (If, 1996). Severance payments to laid-off employees often include a week of pay for every year of service, as well as accumulated sick pay and vacation pay (If, 1996). In addition, supplemental unemployment benefits and outplacement services can accumulate to roughly 15% of each departing employee's salary (If, 1996). This represents significant financial hardship for businesses that downsize a large number of individuals within a short period.

Financial problems are not the only issues these companies face. Much of the talent and institutional knowledge that departing employees carried is permanently lost, along with crucial skills and organizational memory (If, 1996). When companies downsize believing they are gaining a competitive advantage through a leaner operation, they often realize — too late — that the very employees they cut were the ones needed to maintain that advantage (If, 1996). Over 50% of firms that downsize eliminate too many workers and are subsequently forced to rehire many of them as consultants, who typically command higher rates of pay than original employees (If, 1996). The indirect costs of lost opportunities while seeking to replace that talent are also significant (If, 1996).

The principal reason that many of the anticipated benefits of downsizing are not achieved, however, has to do with the morale of the employees who remain. Surveys have indicated that just over 30% of individuals who remain after an organization downsizes believe the company can be trusted (If, 1996). When employees feel the downsizing process was unfair, they often reduce their commitment to the organization (If, 1996). Studies have also shown that many survivors exhibit strong resistance to change, withdrawal, fear, and paralysis in their job duties — outcomes linked to increased cynicism and burnout (If, 1996). Much of this distrust is compounded by the double or even triple workload these employees must shoulder as their departments shrink by one-half to two-thirds of their original size (Cole, 1995).

Works Cited

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