Organizational changes 3

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Published on April 26, 2014

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Organizational changes

Paul L. Schumann, Ph.D. Professor of Management MGMT 440: Human Resource Management 1© 2008 by Paul L. Schumann. All rights reserved.

Outline Restructuring Career Planning Retirement Voluntary Turnover Involuntary Turnover Employment-At-Will Discipline Systems Termination for Cause Retrenchment & Layoffs 2

Restructuring Other names: Retrenchments: “I’ve been retrenched” Downsizing: “I’ve been downsized” Rightsizing: “I’ve been rightsized” Reductions-in-force (RIF): “I’ve been riffed” Layoffs: “I’ve been laid off” Goals: Cut labor costs Make the organization more nimble Make top management closer to customers Methods: Eliminate specific positions to reduce headcount Eliminate entire levels of middle management to flatten the organization 3

Restructuring Ethics: What are the ethical issues involved with restructuring? Under what conditions is it ethical? Does it matter if the company is in financial trouble and might otherwise go out of business? What if the company is earning record profits and the senior executives are receiving many millions of dollars in pay? Restructuring affects employees’ career paths Reduced job security  Example: Restructuring might mean you get riffed because your job has been eliminated Reduced promotion opportunities  Example: Restructuring might mean it is harder for you to get that promotion you want because some of the higher-level jobs have been eliminated 4

Restructuring Management challenge: maintain the motivation and commitment of employees who won’t get traditional linear promotions (i.e., who are “career-plateaued”) Expert (professional) career ladder: create career advancement opportunities within a profession or specialty  Example: Junior Engineer, Engineer, Senior Engineer Spiral career path: use lateral transfers to broaden experiences & provide new challenges  Example: Transfer a Store Manager from store to store and to corporate headquarters jobs, then promote to District Manager Transitory career path: use temporary, special assignments; move outside organization as an independent consultant 5

Career Planning Career Planning Steps Employee self-assessment  What are the employee’s values, interests, & motivations? Available job opportunities  What different job opportunities & career paths are available to the employee both within the current organization & in other organizations? Formulate career goals & a plan to achieve the goals  What are the employee’s career goals?  Incorporate family issues, including dual-career family issues  What does the employee need to do to achieve the goals?  Types of training, job assignments, etc. 6

Career Planning Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 16.2, p. 692 7

Retirement 8

Retirement 9

Retirement 10

Retirement Phased Retirement Corporate policy in which the employee retires, but keeps a different kind of employment relationship  Examples: Work on as-needed basis, or part-time, or seasonal, or as a consultant  Benefits to company:  Keep the talent  Cut costs  Benefits to person:  Increase income  Stay active 11

Retirement Benefits to organization of employee retirements: New employees may bring in new ideas Opens up career paths for promotions New employees tend to be paid less Harm to organization of employee retirements: Hard to replace the talents & experiences of the retired employees  They know what’s been tried & what really works  They have personal networks & contacts  They are the source of corporate norms, traditions, & culture 12

Voluntary Turnover Why do some employees decide to quit their jobs? Progression to withdrawal: dissatisfaction leads the employee to withdraw from the organization (negative job behaviors, quit) Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 16.3, p. 698 13

Voluntary Turnover Why do some employees decide to quit their jobs? (more) Factors external to the organization:  Unemployment rate: when unemployment is high, turnover tends to be low  Employees’ perceptions of external job opportunities Factors internal to the organization:  Employees’ perceptions & attitudes about the current job:  Job satisfaction; organizational commitment; beliefs of unfair treatment; poor relationship with supervisor; job requirements that are unclear, conflicting, or stressful; limited opportunities for growth, skill development, & promotion Embeddedness of the employee: the extent to which the employee is tightly linked in a web of relationships among family, work, & community 14

Voluntary Turnover Why do some employees decide to quit their jobs? (more) Quitting may also be due to sudden changes in the employee’s life:  Internal job-related  Example: the employee does not get an expected promotion  External job-related  Example: the employee gets a better job offer  External off-the-job  Example: the employee’s spouse gets transferred to another town 15

Voluntary Turnover The optimal turnover rate is not zero, it’s determined by: Turnover costs: incremental costs of lost productivity & of replacing the employee  The higher the turnover rate, the higher the turnover costs Retention costs: incremental costs of programs to retain employees (e.g., higher pay, better benefits, programs to increase job satisfaction, etc.)  To achieve lower turnover rates will require higher retention costs Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 16.4, p. 701 16

Voluntary Turnover In managing turnover, also consider who is quitting: A high performer who is difficult to replace?  You want to keep this employee A low performer who is easy to replace?  You’re probably happy to see this employee quit Source of figure: Fisher, Schoenfeldt, & Shaw (2006), Figure 16.5, p. 702 17

Voluntary Turnover Retention management programs: programs to retain employees whose turnover would be dysfunctional to the organization Get information on the reasons why employees quit their jobs — if turnover is dysfunctional & we can identify the problem, then we can try to fix it  Exit interviews: interview employees when they quit  Include questions that get at the employee’s reasons for quitting  Example questions: See Fisher, Schoenfeldt, & Shaw (2006), Table 16.6, p. 705 18

Voluntary Turnover Retention management programs (more) Get information on the reasons why employees quit their jobs (more)  Organizational surveys: ask employees to complete a questionnaire that measures their relevant attitudes  Example attitudes: Job satisfaction; organizational commitment; beliefs of fairness of treatment; quality of relationship with supervisor; extent to which job requirements are unclear, conflicting, or stressful; opportunities for growth, skill development, & promotion; etc.  Conduct the surveys on a regular basis to track changes over time 19

Voluntary Turnover Retention management programs (more) Use the information on the reasons why employees quit their jobs to make changes that are cost-effective to reduce dysfunctional turnover Evaluate the retention management program  Track over time the costs of the program  Track over time the turnover rate  Track over time who is quitting in terms of job performance levels & degree of difficulty in replacing the employee  Track over time the reasons for quitting  Track over time the results of the organizational surveys 20

Involuntary Turnover Voluntary turnover: the employee decides to terminate the employment relationship (i.e., to quit) Involuntary turnover: the employer decides to terminate the employment relationship Examples:  Termination for cause: fire the employee because of wrongdoing (unacceptable behaviors or results)  Layoffs An important concept in managing involuntary turnover is “employment-at-will” 21

Employment-At-Will Employment-at-will: the employment relationship exists at the will of both the employee & the employer Either party may terminate the employment relationship at any time for any reason (unless a restriction applies)  Employee can quit at any time for any reason (unless a restriction applies)  Not quite accurate cliché: “The employee can quit for a good reason, a bad reason, or no reason at all”  Employer can fire the employee at any time for any reason (unless a restriction applies)  Not quite accurate cliché: “The employee can be fired for a good reason, a bad reason, or no reason at all” 22

Employment-At-Will Restrictions on employment-at-will State laws: Example: Minnesota Law (181.933):  An employee who has been involuntarily terminated may, within 15 working days following the termination, request in writing that the employer inform the employee of the reason for the termination  Within 10 working days following receipt of the request, an employer shall inform the terminated employee of the truthful reason for the termination  More information on the Minnesota law:  http://www.doli.state.mn.us/termination  https://www.revisor.leg.state.mn.us/statutes/?id=181.933 23

Employment-At-Will Restrictions on employment-at-will (more) Civil rights legislation  Disparate treatment discrimination: can’t use protected characteristics (race, color, religion, sex, national origin, age if 40 or older, or disability) as the reason to terminate or layoff an employee  A terminated employee might sue the company and claim that the real reason for the termination was illegal discrimination  The company might need to defend itself by presenting evidence of a non-discriminatory reason for the termination  Adverse impact discrimination: monitor terminations & layoffs for differential effects based on protected characteristics 24

Employment-At-Will Restrictions on employment-at-will (more) Union contracts (or other employment contracts)  There may be a formal written employment contract between the employee & the employer  If there is a contract, and if the contract specifies reasons and procedures to terminate the employment relationship, then the contract must be followed 25

Employment-At-Will Restrictions on employment-at-will (more) Wrongful discharge: situations in which courts have ruled that employment-at-will does not apply  Violations of public policy: employee is terminated for exercising legal rights  Examples: firing an employee because he or she:  Refused to break the law (e.g., commit perjury)  Took time off work to serve on jury duty  Filed a Workers’ Compensation claim (insurance benefits paid to a worker who suffers an on-the-job injury)  Whistleblowing: firing an employee because he or she properly reported criminal activities by the employer 26

Employment-At-Will Restrictions on employment-at-will (more) Wrongful discharge (more)  Expressed or implied guarantee of continued employment: firing an employee when it violates an implied contract  Example: the company has an Employee Handbook that spells out reasons why an employee can be terminated and procedures to be followed in such cases, but the company didn’t follow the handbook  Courts have interpreted the a company’s Employee Handbook as being a contract  Example: a manager refers to employees as either “Probationary” (new hires) or “Permanent”  Courts might interpret “Permanent” to mean that the manager has promised that the employee can’t be laid off or terminated 27

Employment-At-Will Restrictions on employment-at-will (more) Wrongful discharge (more)  Good faith & fair dealing: the termination might not be good faith & fair dealing  Example: a salesperson is terminated because the company doesn’t want to pay the salesperson a big commission that the salesperson has earned on a big sale  Example: an employee with a completely spotless record with the company for 20 years is fired for a minor violation of a trivial corporate rule 28

Employment-At-Will Restrictions on employment-at-will (more) Wrongful discharge (more)  Tortious conduct: the termination might be a tort (a violation of a duty owed to another person)  Example: the termination is motivated by malice that the supervisor has for the employee  The supervisor terminated the employee for the purpose of intentionally inflicting emotional distress on the employee or to defame the employee’s character 29

Employment-At-Will Management’s responses to restrictions on employment- at-will: Revise Employee Handbooks to emphasize the at-will status of employees Have employees and applicants sign statements in which they recognize their at-will status Train managers & supervisors to use at-will language & to avoid making promises about job security Modify employment contracts to include at-will language & to specify mandatory arbitration instead of lawsuits & courts in cases of disputes over the contract Avoid hiring & promoting poor performers 30

Discipline Systems Discipline punishes the employee for wrongdoing to get the employee to stop the wrongdoing Discipline guidelines: Discipline should be: Proportional to the wrongdoing Applied before the wrongdoing becomes a habit Focused on a specific instance of wrongdoing Applied consistently across people & time Administered by someone who the employee trusts & respects Progressive Discipline Systems implement the guidelines 31

Discipline Systems Progressive Discipline System: a written discipline policy with the following characteristics: Develop an menu of sanctions from less serious to more serious  Example:  Oral warning  Written warning  3-day suspension without pay  5-day suspension without pay  30-day suspension without pay  Termination 32

Discipline Systems Progressive Discipline System (more) Develop a list of possible wrongdoings  Examples:  Tardiness (being late to work)  Unapproved absence  Loafing  Violation of safety rules  Stealing  Unauthorized use of company computers, network, or Internet  Unauthorized possession of a weapon  Reporting to work under the influence of alcohol or other drugs  Insubordination  Etc. 33

Discipline Systems Progressive Discipline System (more) For each offense, develop a written policy that states what the sanction would be for each occurrence  Examples:  Tardiness:  1st Time: oral warning  2nd Time: written reprimand  3rd Time: 3-day suspension without pay  4th Time: 5-day suspension without pay  5th Time: termination  Insubordination:  1st Time: 30-day suspension without pay  2nd Time: termination 34

Discipline Systems Progressive Discipline System (more) Some examples of offenses that are so bad that they typically justify immediate termination:  Falsify résumé or employment application  Falsify work records  Divulge trade secrets  Steal company property  Assault of a supervisor or co-worker  Possession of a weapon  Possession of alcohol or illegal drugs 35

Discipline Systems Managing investigations & discipline: Take notes during interviews with employee & witnesses Conduct interviews in private  But consider having a witness or video the interviews Maintain confidentiality of information Don’t use force or imply that the employee can’t leave Document, document, document  Maintain a detailed file with all notes, evidence, dates, times, places, witnesses, etc. 36

Retrenchment & Layoffs Other terms: downsizing, rightsizing, restructuring, reductions-in-force (RIF) Layoffs are typically used to reduce headcount to cut costs But layoffs can increase costs, especially if mismanaged  The company has invested in its employees & layoffs will mean that the company loses the return on those investments  The company has incurred costs to recruit, hire, train, develop, & motivate its employees  These costs were incurred in the hope of the company getting future benefits from having more effective employees  When an employee is laid off, the company has already incurred the costs, but now it won’t get those future benefits 37

Retrenchment & Layoffs Goal: Reduce the need for layoffs of regular, full-time employees (in whom the company has its greatest investment) by doing 2 things: #1: During good times, grow in ways that increase flexibility for possible future downsizing  When the business is growing, accommodate some of the need for additional employees by:  Overtime  Subcontractors (out-sourcing)  Temporary employees (Temps)  Hiring new full-time employees 38

Retrenchment & Layoffs #2: During bad times, use alternatives to only using layoffs  Hiring freeze & attrition  Reduce overtime  Reduce subcontracting  In-sourcing  Reduce Temps  Voluntary separation incentives  Early retirement incentives  Job sharing  Job retraining & redeployment  Voluntary unpaid leaves of absence  Reductions in pay & benefits  Layoffs 39

Retrenchment & Layoffs Golden Rules for Effectively Managing Layoffs Plan Focus on productivity improvement Involve Communicate Take care of those laid off Take care of survivors (For details, see Fisher, Schoenfeldt, & Shaw (2006), Table 16.10, p. 720) 40

Retrenchment & Layoffs Worker Adjustment & Retraining Notification Act (WARN) Covers: employers with 100 or more full-time-equivalent employees Provides: employers must give 60 days written notice of plant closings or mass layoffs  If the layoffs result from closure of a faltering company, unforeseeable business circumstances, or a natural disaster, then the notice can be for less than 60 days  An employer who violates WARN is liable to each employee for an amount equal to back pay and benefits for the period of the violation, up to 60 days, which may be reduced by the period of any notice that was given and any voluntary payments that the employer made to the employee, and is subject to a civil penalty not to exceed $500 for each day of violation, which the employer may avoid by satisfying the liability to each employee within three weeks after the closing or layoff  http://www.dol.gov/compliance/laws/comp-warn.htm  http://www.dol.gov/compliance/guide/layoffs.htm 41

Outline Restructuring Career Planning Retirement Voluntary Turnover Involuntary Turnover Employment-At-Will Discipline Systems Termination for Cause Retrenchment & Layoffs 42

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