Employer focus shifts in work-force reductions

Work-force reductions, while not as common as in the late 1980s and early 1990s, are still a part of doing business in 1997, but with some notable changes, according to a new Hewitt Associates study of more than 200 employers nationwide.

Whether the reductions are voluntary or involuntary, today's employers are focusing more on the needs of the surviving work force, communicating more about the necessary reductions and providing outplacement support for displaced employees.

According to the study, since 1992, employers have on average cut staff by 12 percent through various work-force-reduction measures, including early retirement windows and voluntary and involuntary severance programs.

Having learned from past experiences in the 1980s, employers are paying significantly more attention to the needs of the surviving work force. Seventy-three percent of employers cited increased information sharing and more open communication as key to the long-term success of voluntary severance programs; 58 percent indicated the same in involuntary situations.

"Historically, consideration for the survivors after a work-force reduction was more of an afterthought," said Dave Graffagna, a research consultant at Hewitt Associates and author of the study. "That's changed now, as companies realize that their future success depends on the engagement and commitment of the remaining work force. Today, companies are taking more time to communicate and explain the business reasons behind work-force reductions in an effort to help survivors understand the business imperatives facing the organization."

Realizing that finding and keeping the right people is key to their long-term success, companies reported using a number of programs designed to avoid, delay or minimize work-force reductions. Thirty-six percent of employers used transfers, redeployment or relocation as an alternative to work-force reduction, saving severance, recruiting and training costs, and revitalizing areas of the organization by bringing in new ideas and fresh perspectives.

In the 1990s, there has been an increase in companies offering assistance after termination. Typically, across both voluntary and involuntary reductions, the most common types of assistance provided were outplacement-firm services, and help with resum? preparation and interview techniques.

Management and supervisory level employees were more likely than lower-level employees to receive support, whether in the form of outplacement assistance, one-on-one counseling or the use of office space/telephone/secretarial support.

Participants in early retirement windows and other voluntary programs were more likely than terminated employees to receive some form of financial-planning assistance.

In terms of delivery, 92 percent of companies provided the services through an outplacement firm, while 23 percent provided the services through internal human resources.

"In recent years, we've seen employers make a variety of outplacement assistance programs available to employees, with more emphasis placed on helping employees make the transition from their current positions by offering skills assessment, networking contacts, education and retraining assistance, and financial planning," Graffagna said.

The study showed that costs vary widely based on the benefits offered as part of the program and the number of affected employees.

Early retirement windows are the most costly for employers, with per-employee costs averaging approximately $78,000, and the average total cost coming in at $19.5 million The total cost figure includes communication, sweetened retiree pensions, additional retiree health-and-welfare benefit coverage, outplacement and other costs.

The average cost-per-employee of an involuntary severance program was about $27,000, with the total program cost averaging nearly $4 million.

Typical packages. The most common severance-pay formula used in both voluntary and involuntary severance situations was a variation of one week's pay per year of service. The second most prevalent formula was a variation of two weeks' pay per year of service. With involuntary plans, the most common minimums are two and four weeks of pay, and the most common maximums are 26 and 52 weeks of pay.

As part of their work-force-reduction programs, employers often extend a variety of benefits in addition to pay.

In more than three-fourths of voluntary programs and half of involuntary programs, employers continue health care coverage, usually on the same basis as for active employees.

"Window retirees" usually are eligible for the same post-retirement health care coverage as normal retirees.

"Today's companies don't make the decision to reduce their work forces lightly and they are increasingly doing so with greater awareness of the implications for the future," Graffagna said.

"The 1980s showed companies that work-force reductions of any nature are costly, both in terms of obvious and hidden costs, and as a result, they're being more careful with reductions today to maximize the return on this 'investment' for both the company and employees."

(The preceding article and accompanying graphs were provided by Hewitt Associates LLC, a global management consulting firm specializing in human resource solutions.)

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