Companies need to reduce the number of people that they employ from time to time. Downsizing may be part of a drive to reduce costs or the result of a merger or acquisition, after which the company has too many employees in certain departments. Although some departing employees will find downsizing a traumatic experience, for others it opens up opportunities that they would not otherwise have pursued.
What Causes Downsizing?
There are many reasons why a company may need to reduce the number of people it employs. The introduction of new technology may result in a reduced workload for employees. External financial pressures or increased competition in the marketplace may force a company to reduce its labor costs. Mergers and acquisitions may leave a company with more employees than it requires, particularly if bringing the two companies together results in duplication of business support functions, such as finance, I.T. and human resources.
Who Will Be Affected?
After deciding to downsize, the company must decide which employees will stay and which will go. The company should use objective criteria to make this decision to ensure that no discrimination occurs. Criteria will include the skills mix required to take the company forward together with employees' length of service, disciplinary records and attendance records. When employees know that the criteria used are objective and the process has been fairly applied, they are more likely to accept the outcome.
Financial Impact on Departing Employees
Employees who lose their jobs as a result of downsizing experience financial consequences because they no longer receive a salary. This can be a significant blow if the employee is the family's main breadwinner. Loss of her regular salary can lead to the departing employee depleting her savings and taking out loans to cover her bills. If she fails to keep up her rental or mortgage payments after losing her job, she could even lose her house. Losing a job can also mean losing associated benefits, such as health insurance. While health benefits can be extended under the Consolidated Omnibus Budget Reconciliation Act, COBRA, this is an expensive option that will eventually run out. Lack of health benefits can lead to missed check-ups and failure to pick up prescriptions, causing a deterioration in the individual's health.
Impact on Well-being of Departing Employees
Departing employees may also find that downsizing affects their mental well-being. Employees expect to be rewarded for working hard. However, the need to reduce labor costs may mean that even some of the most hardworking employees have their jobs eliminated. This can undermine their confidence and lead to mistrust of future employers. Departing employees can find themselves in a downward spiral that contributes to depression and mental health issues. Some of them may turn to substance abuse to help them cope with their situation. Others may take their frustration out on loved ones through domestic violence.
Positive Effects on Departing Employees
For some employees, the loss of a job due to downsizing can be a positive step that allows them to reinvent themselves. Job security may have led to an employee remaining in a post that was no longer challenging or satisfying. Downsizing can be the push the employee needs to get out of the rut of job security and look for a more rewarding role. Severance packages can provide employees with a financial cushion that enables them to explore alternative options, such as self-employment.
Lynne MacDonald has experience in the fields of human resource management, training, organizational development and law. MacDonald received a law degree from the University of Dundee in 1990 and holds diplomas in personnel management and legal practice. She is a Fellow of the Chartered Institute of Personnel & Development.