In January 2007, Motorola India had to lay off 80 employees in its embedded communications computing division. Companies hate laying people off, but find themselves having to do it sometimes: In some cases, the need is driven by the desire to close down a unit that isn’t performing well; in others, it is necessitated by a change in focus; in still others, it is part of the deal of being a global company—you add jobs in one part of the world and take them away in another. Breaking such news is never easy. And so, after several rounds of discussion, Motorola’s senior management decided to do it the right way, the straightforward one.
“It was bad news for sure, but it was about them and they needed to know the way it was,” says R. Raghuram, director, human resources, Motorola India.
First, the company communicated the news to employees in groups; this was followed by a one-on-one discussion. Apart from a severance package, the company gave terminated employees two to three months’ time to find another job and played the role of an enabler in placing them. It organized counselling sessions, helped employees spruce up their resumes and hired outplacement firms to find them new jobs.
“Fortunately, we were aided by a good economy. Within weeks of the event, most of them found a job,” says Raghuram.
In this instance, the company was able to handle the situation without much anxiety because it had a well-designed severance policy in place. However, most Indian companies don’t have a formal severance plan in place. One reason is that large-scale retrenchment is a phenomenon associated with mature markets. Therefore, severance is the last thing on any company’s mind given that India is a growing economy and companies are only having to add to their manpower, rather than retrench, and they are finding it difficult enough doing that (adding manpower).
“In a booming economy, where demand has far outstripped supply, HR functions are skewed toward hiring and retaining,” says Asim Handa, country manager, Future Step, a division of head-hunting firm Korn/Ferry International. “Till now, the human resource system in India has been predominantly about hiring people. It’s only in the last decade that the HR function has evolved in the face of increased globalization of Indian companies and the advent of multinationals,” he adds.
With the Indian marketplace becoming more global, the rules of the game are changing. Companies are increasingly being forced to downsize in order to remain competitive. “With many large Indian companies being inefficiently driven by a large workforce, the new generation managers and promoters are looking at revamping their enterprises into lean and efficient firms,” says Sampath Shetty, vice-president, TeamLease, a staffing firm.
Factors such as cost-cutting, mergers and acquisitions, restructuring or a strategic shift in business direction are, thus, driving companies to retrench part of their workforce. In April, Citigroup India retrenched around 250 employees from its consumer-finance company business as part of a staff-rationalization exercise. Last year, companies such as chip maker Intel India, personal-computer maker Hewlett-Packard India, and small air-taxi operator Jagson Airlines retrenched employees, although the numbers were not “very significant”.
Experts say a severance policy becomes imperative in cases where employees are forced to leave, not for any fault of theirs, but because their company can no more afford them.
“Letting people go for the larger interest of business is only fair,” says Prabeer Jha, senior vice-president, HR, Dr Reddy’s Laboratories Ltd. “What you can’t let go of is the respect and grace while doing so. No company has the right to violate an employee’s dignity,” Jha adds.
The challenge, say experts, is to make it easier for the person who’s going to go back home jobless. Authors of the international best-seller, Winning, Jack and Suzy Welch, who write a column for Campaign, say in one of their pieces that, “Letting people go in a way that doesn’t engender a lot of bitterness is so rare in business, you might not think it’s possible.”
While most multinational companies have a clearly spelt out severance policy in place, Indian companies are still oblivious to the necessity of having one. Most companies still follow the norm of serving the notice period to the employees concerned and not doing anything else.
“This is a very insensitive way of handling an extremely sensitive issue ,” says Gajendra Chandel, senior vice-president, HR, Tata AutoComp Systems Ltd. Jha agrees: “You shouldn’t spring a surprise on your employees. The leadership can’t shut itself in the comfort of office cabins after the decision to sever. You have to be able to look into the employees’ eyes and tell him honestly the reason for disengagement.”
Jha refers to his past stints as an employee at Thermax Babcock and Wilcox Ltd and an IT company where some 50 and 300 people were retrenched, respectively, in 1999 and during IT downturn in 2001-02. “While Thermax handled the situation with sensitivity, I think the leadership at the IT company did a very shoddy job. Imagine the humiliation of an employee who discovers that his job is gone when he can’t log into his office computer,” he says.
Experts say one of the most significant issues in case of severance is how the disengaged employees are told that they no longer have a job. “The first week is very critical and the business leadership should not only be accessible, but also individualize communication as much as it can,” says Raghuram.
Managers feel the role of HR does not end with communication and a severance package. “HR managers often have to take upon themselves the role of mentoring, helping employees (get in touch) with outplacement firms and counselling sessions,” Raghuram adds.
In addition, the unique needs of an organization and the people who make it up, and the culture they come from, should not be overlooked. “Methods simply borrowed from others may not be the most appropriate for Indian companies,” says Mukul G. Asher, professor, Lee Kuan Yew School of Public Policy, National University of Singapore.
Well-designed severance plans can address the needs of both the employer and the employees. HR consultants say that a good severance policy can also prove to be a very effective marketing tool, especially in a job market where employment brand matters a great deal. With most effective practices, a common feature seems to be an effort to treat employees with fairness. “It works two ways—softens the blow and fosters a sense of commitment and confidence among the current employees,” says Chandel. Of course, fairness is relative, but attempts to be fair can help limit resentment.
It also helps because the employees may not be the only ones evaluating the severance practices. “The reality is that everyone is watching,” says Venkat Shastry, partner, Stanton Chase, an executive search firm. “Your competitors, future employees, recruiting firms and your current employees will all be keeping an eye on you. The perceptions shaped by how you have treated your disengaged employees have an impact on who you get to hire in the future.”
“Who would prefer to work for an insensitive company, especially when job options abound?” asks Shastry.