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Downsizing options: letting employees go the easy way.

To say that layoffs and unemployment color today's economic picture is, unfortunately, to state the obvious. Last year, 3.32 million U.S. workers lost their jobs because of reductions in force, according to the Bureau of Labor Statistics (Chicago Tribune, June 23, 1991).

The number of U.S. business failures jumped 20 percent in 1990 (The Wall Street Journal, March 13, 1991). This represents the sharpest annual increase since 1983--and 1991 shows no sign of reversing the trend. The biggest increase in business failures has been in the finance, insurance, and real estate sector, which has shown a 32.4 percent jump in failures (from 2,932 in 1989 to 3,881 in 1990).

Real estate is, of course, a cyclical proposition, so riding out storms is nothing new. But this torm seems near to hurricane proportions. As a result, cost cutting, cutbacks, and layoffs have become the order of the day. However, if your firm is facing personnel layoffs, there are several factors to consider.

Options to layoffs

When downsizing is the only remedy for saving a company, are there options you can offer employees before you have to let them go?

One of the worst scenarios in a downsizing company occurs when downsizing becomes downgrading--and even more employees start to leave.

One employee in a downsizing company resigned when she saw that people who were laid off were later replaced with less experienced employees--at less cost to the company. This caused an even faster downward spiral. Clients noticed that their properties were not receiving the same professional treatment, and they started pulling their accounts.

"A lighter staff," she states, "would have been far preferable to a less qualified one. This could have been accomplished through a four-day work week or by offering a part-time option with no benefits."

Another pitfall to avoid, however, is cutting back pay and benefits without offering employees anything in return. Health insurance costs mean an additional 7 percent to 15 percent of a base salary; a benefits package can represent 35 to 50 percent of an employee's total compensation (George Barbee, Boardroom Reports, 1990).

Obviously, it is very tempting to cut this significant cost. But if you want to take something away--such as a generous car allowance--you should be willing to give something back. Otherwise, you begin to lose employees and clients, and then you begin that downward spiral again. In return for employees' acceptance of fewer benefits, consider offering a shortened work week or a more flexible schedule.

Reports a human resources specialist in a large real estate company, "In one instance, we had a small escrow company faced with laying someone off. Instead, all three employees went on a four-day work week and accepted a reduction in salary by one fifth. They alternated the days they took off. It worked out well, because it was beneficial to everyone."

She also remarks, "Employees are more productive if keeping the arrangement is important to them. They want to show you that they can do more in less time in order to keep a situation they like. In another case, I persuaded an employee who had just had a second child to stay on with the company by working a four-day week. She did as much in four days as she had done in five because she was very happy with the arrangement and wanted it to work."

Consider a part-time option or a temporary project also when it is clear that you cannot contine an employee's position. Employees remark that practically any option is helpful when they are faced with unemployment.

In a company in Houston, when an account was pulled and many employees had to go, the company was able to give the chief engineer a position on a building that was under a transitional contract. He worked on a week-to-week basis until another in-house position opened. Another engineer was also able to "babysit" a building for the company until he found another job.

Unfortunately, "warehousing," or putting employees on special projects when you have lost an account, is not usually possible unless you've already signed another contract and you are sure you can transfer the employee quickly to another account.

Another option to consider when lay-offs are inevitable is to offer early retirement to some long-term employees.

You might be willing to give an employee 30 years credit for 25 years of service, for example, to make the option of retiring attractive. A window of time during which the eligible employee must respond to the offer is also common.

Liberalizing the pension eligibility requirements in this way can substantially increase voluntary retirements and reduce the need for painful layoffs.

To help employees decide if early retirement is a viable option, you might offer employee financial planning services. This service can cost under $500 per employee.

The service merges the information from a confidential financial questionnaire with information about the employee's salary and benefits. It then provides a report to each employee, along with financial workshops or individual counselling. The goal is to answer such questions as "Can I afford to retire now? Would working another 5 or 10 years actually cost more than accepting a generous severance package?"

Sending out lifeboats

But what about when it comes down to this: throw something overboard, or let the ship sink? Do you:

* Make it quick, while no one is looking, and pretend a big wave was responsible?

* Proclaim the verdict, make the victim(s) walk the plank, and invite everyone to the ceremony?

* Throw the crew members overboard and toss them a lifesaver?

* Send them out in an attached lifeboat and cut the ropes two months into the cyclone?

Finding a humane way to lay off valued workers is not an easy task. Fortunately, lifeboats and lifesavers do exist. Anyone at the helm of a ship in the eye of a storm should have them ready.

So what are some of the best and worst ways to handle the situation?

One of the best things you can do for your employees is to give them time. As difficult as this may be, it is best to tell people as early as possible when financial difficulties are on the way.

One laid-off employee relates, "In my last job, I asked how things were going because I had relocated, and I wanted to buy a home. I didn't want to go ahead with it if things were looking bad. They told me not to worry. As it turned out, my last day at work was the day of the closing on the house."

At a small company in Nashville, in contrast, all the employees found other jobs before the company was forced to lay them off. "Other companies had bid lower than we could afford to on some of our buildings," remarks the company's owner. "I knew about four months in advance that I would have to let certain employees go. I told them immediately, and they all eventually found other jobs." While the company couldn't afford outplacement or other costly services, what it gave its employees was time--and it worked to everyone's advantage.

While most people find it difficult to tell their employees that a company is going through hard times, most employees usually notice the signs. "Generally," remarks one employee, "you're going to be aware if something could go." This includes a rebid on a building at the end of a contract period.

Also, what employees imagine when layoffs are imminent is always worse than what is happening. Preventing gossip from gaining control is always preferable to denying difficulties.

Another way to make matters worse is to deny reality by implementing short fixes. The company quickly loses credibility if a temporary solution does not work, and another short fix becomes necessary. One company faced with reducing its workforce by 1,000 over a six-to-seven-month time period had to do it in waves. "Every time we thought we were through with layoffs, we had a new wave facing us. It was the most unsettling way possible to do it. Everyone began to feel insecure--even employees whose positions were not in danger."

It is best to keep employees completely aware of the company's condition. You might need to tell them that the company is healthy, for example, but that the volume of business has shrunk. If you're working on other deals while a project is in jeopardy, keep employees informed of the progress.

Obviously, the more notice you can give employees when you do have to lay them off, the better off they are. Of course, in tight markets, giving people notice does not mean losing them the next day. "In Houston," remarks one employee, "you'd have to stay on no matter how much notice they gave you."

If you're worried that other employees will start to jump ship, one option might be to offer them incentives to stay. For example, offer your employees a generous severance package. Everyone who stays on board receives something for their loyalty if things don't go as planned, and if you all survive the storm together, so much the better.

So exactly, how much notice do you give people? One-day notice is all too common--and extremely detrimental psychologically to employees.

Remarks the head of the human resources department of a large property management company, "Giving people a notice period was so difficult that supervisors believed they would have given one day of notice. It was like facing death: the emotions went from shock to anger to denial to depression, and the people who stayed did not know what to say to the ones who were leaving. We gave a three-week notice, and the emotional level became higher and higher throughout this time period."

Still, she says, being in touch with the emotional impact of the layoffs is preferable. Without notice, the only reaction from the employee is one of extreme anger. With notice, you can at least try to help them through the stages you know they will face. "You can get people through a little of the most emotional period. By the time they leave, they have at least started to look for something else--they have started talking to people and prepared a resume."

When you have to tell an employee about a layoff, who is the best person for the job? Everyone agrees there is no good way to do it. One supervisor relates that everyone was called one by one into the vice president's office. "I think they would have taken it better coming from me. I was their immediate superior--and I was being laid off as well." Human resources professionals agree: "The immediate supervisor knows the person best and has the most credibility."

The importance of being honest

Just about the worst thing you can do to employees is to leave them wondering what happened. One employee relates, "What they said to me was different from what they said to other people. To me, they said the company was in serious financial trouble. To other people, they said, 'Well, things just were not working out.' I would have preferred knowing the truth."

Again, denying the pain is not the way to handle it. Employees need you to confront them openly. Relates an employee, "The first time this happened to me, I was hired because of expansion plans in 1985. I relocated to take the job. After the tax law changes in '86, the company changed its course of direction, and four vice presidents had to leave. Unfortunately, there was an extreme sense of paranoia; we were given no notice, and the company thought that other employees would be adversely affected if they talked to us, so there was this conspiracy of silence. This was extremely difficult psychologically for those of us who went."

Survivors' guilt also contributes to a conspiracy of silence. Relates the same employee, "Because survivors' guilt caused people I was close to not to talk to me the first time, I knew better how to head it off the second time. We lost half our portfolio, and I was let go, along with most of the staff.

"One property manager survived to handle what was left. When we got the news, she came into my office in tears. I said immediately, 'You're going to feel some survivors' guilt. Don't let it take over. I want to continue my relationship with you.'"

The same employee had a real need to confront her boss. "The president couldn't face me," she says. "I needed to confront the situation by facing him, so I walked into his office. We both cried. I couldn't be angry. I was so aware of the financial difficulties."

In another case, a company had 60 days to re-bid on a project, and it was not a finalist. The owner requested that the manager stay with the building. Instead, the manager made a commitment to stay with the company. Soon after, however, another owner backed out of a deal, and the manager was out of a job.

"My boss didn't want to look at me for a couple of days," relates the manager. "I said, 'Come on; snap out of it; I need your help.'"

At worst, denial of the difficulties includes making demands as if nothing has happened. Another employee relates, "About a month after the initial wave of bad news, everyone received a letter saying we were expected to perform all duties as usual. If not, we were subject to immediate dismissal."

A better way to handle layoffs is to acknowledge employees who are leaving by sending memos that thank them for their service and show genuine appreciation. Memos can also inform other staff members of the leaving dates of their colleagues and how to reach them in the future.

Even better are meetings for all staff. People want to know how secure they are, and they appreciate the opportunity to ask questions. Honesty is essential to keeping their loyalty.

Offering concrete help

So exactly what kind of help can you provide laid-off employees in addition to the psychological help of acknowledgment? Maintaining contact with them is best; tossing them out and cutting off all attachments is the cruellest way to handle a layoff.

In the worst situations, former employees are not notified when recruitment agencies ask about them or request references. Even worse, calls from former employees are not returned, and they have trouble getting through to the company.

Laid-off employees appreciate even small gestures of concern. A list of people to contact, even if the employee is already aware of these leads, shows sincere concern. In one case, an employee found work with the help of suggestions from her former boss. Later, she was glad to refer business to the employer who had laid her off. Employees remember when a company is supportive.

One employee remarks, "One of the best things about the way the company handled the situation was their responsiveness to my requests. I asked that all phone calls be handled in a delicate manner and be referred to my home. Everyone offered to make phone calls for me."

Take the time to make a few calls to see if you can refer the employee to another company. At a company that underwent severe reductions over a six-to-seven-month period, human resources personnel were able to find jobs for some of those laid off. "We've called some of our former employees about opportunities we found out about. Some of them did get jobs this way." Also, make it clear if you can give an employee a good reference.

Extremely helpful to employees is a severance pay policy that has been outlined from the beginning. This alleviates a great deal of anxiety. You might want to send a memo that clearly explains eligibility requirements and amounts of pay for service rendered. The memo should also answer commonly asked questions concerning pay for unused vacation days, the date insurance coverage ends, the distribution of pension funds, and so forth.

Other information helpful to employees includes:

* How to convert insurance benefits and how much it costs.

* What state unemployment benefits they can expect.

* The location of state unemployment offices.

The severance pay companies provide varies widely. But laid-off employees strongly recommend trying to negotiate. Termination provisions are not necessarily carved in stone, they say.

Encourage employees faced with a layoff to make a list of what is important to them and talk about it with you. The list might include reasonable items such as keeping a car allowance or other benefits along with salary during the severance pay period or having mail sent home. Employers might want to send a memo to other staff members explaining the procedures for handling mail and phone calls.

In the best of situations, you can provide your employees with outplacement services. An outplacement service should provide former employees with the following:

* Job counseling.

* Training on such topics as interviewing.

* Help with targeting jobs.

* Office space.

* Help in writing a resume.

* Help in setting goals, e.g., a list of tasks to accomplish each week.

* Monitoring achievement of goals.

The former employer pays for the service, although it is possible for individuals to do it. Unfortunately, the service is usually costly (it can cost $6,000 to $7,000 per employee). Services continue until the former employee finds another job.

Remarks a human resources specialist in a property management company, "We found outplacement services extremely effective. They helped the employee move to a more positive mental state more quickly. It was definitely worth it; I wish I could have provided it to more of our employees."

In the same company, the human resources department decided to provide in-house services to other employees (there was only one 15-year employee they felt they could provide with outplacement from an outside source). They set up workshops on resume writing and interviewing. They also provided employees with office space, secretarial support, and use of the voice-mail system. The service most used by employees, however, was the offer to type and copy resumes.

Providing outplacement in-house was a low-cost alternative to providing hundreds of employees with expensive outside services.

But does it work well to allow former employees to use empty office space when they're looking for work? The answer seems to be both negative and positive. One employee describes his experience. "They allowed me to use a phone, an extra office, and typing services. At first, I really wanted to keep in the habit of putting on a suit and tie every day. After about a week, it got old. The stuff I needed typed was really low priority and took several hours.

"I started to feel that I didn't belong anymore. I'd contacted everyone I knew to contact and felt it was time to leave. But initially it was extremely helpful--in the first two or three days I was able to spend a solid 20 hours and make a concentrated effort to find another job."


A ship on stormy seas is not an easy place to be--especially if you're the captain. But remember the lifelines. Giving people time to fasten on life jackets is always better than immediately throwing them overboard. Notifying them of ships on calmer seas might keep them from floundering. And sending them out in lifeboats with maps and advice might be a lifesaver for you if you eventually find yourself out to sea without a paddle--or a boat.

Dorothy Walton is a freelance writer based in Chicago. She was previously a developmental book editor for the Institute of Real Estate Management. She has also designed and taught courses in English as a Foreign Language in Madrid.
COPYRIGHT 1992 National Association of Realtors
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Title Annotation:includes related article
Author:Walton, Dorothy
Publication:Journal of Property Management
Date:Jan 1, 1992
Previous Article:The good news about real estate employment.
Next Article:Short-term and long-term survival strategies.

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