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Reducing the economic and human cost of layoffs
Reducing the Economic and Human Cost of Layoffs Myron D. Fottler and Dennis W. Shuler
9 Myron D. Fottler is Professor of Management and Director of the Ph.D. Program in Administration and Health Services at the University of Alabama in Birmingham. He has published extensively in human resource fields. Dennis W. Shuler is the Staff Personnel Relations Representative for Kaiser Aluminum & Chemical Corporation, Ravenswood Works. The authors would like to thank Nancy Snyder, Senior Personnel Representative at Kaiser Aluminum & Chemical Corporation, for her assistance in this research.
The deep recession of 1980-1982 caused many companies to face the prospect of large-scale work force reductions. Such cutbacks are costly for both the company and for the individuals affected. This ar.ticle focuses on the outplacement efforts of the Ravenswood (West Virginia) Works of the Kaiser Aluminum & Chemical Corporation, using them as a model for organizing and managing similar programs. he recession of 1980-1982 was the most severe since the Great Depression of the 1930s. Layoffs and terminations affected professional and managerial employees as well as blue-collar employees. Since some economic experts predict recurrent and increasingly severe recessions (or depressions) throughout the present decade, it appears that plant closings and large scale layoffs and terminations will remain a recurring phenomenon. Many U.S. industries-steel, automobile, shoe, and rubber manufacturing-are no longer internationally competitive. According to Peter Drucker, the situation requires corporate "redundancy planning." This involves anticipating structural and technological
T
changes in the economy, retraining employees, and locating new jobs for those workers who must be cut back. 1 Such displaced workers may need psychological security as much as they need economic security. This situation requires that human resources managers and planners anticipate plant closings well in advance so that plans can be developed to minimize the adverse effects of work force reductions on the rank-and-file employees, on management personnel, and on the corporation itself. Yet one recent survey showed that more than half of all corporations surveyed could 1. Peter F. Drucker, "The Reindustrialization of America," The Wall Street Journal, June 13, 1980: 24. Business Horizons /July-August 1984
These psychological symptoms have also been linked to actual illness. A study by Cobb and Kasl showed the linkages among job loss, psychological conditions, and Costs of U n e m p l o y m e n t physiological conditions over a he costs of u n e m p l o y m e n t two-year period among one hunand job cutbacks are both dred men who lost their jobs in the economic and human. 1960s. 4 Compared with a control Studies of u n e m p l o y m e n t over a group, these men were more likely period of the last forty years show to be depressed, to have low selfthe same, unsurprising pattern: un- esteem, to be anxious and tense, e m p l o y m e n t is a stressful state. In and to be irritable, easily angered, the past, the economic deprivation and suspicious. They also showed was so severe that the effect of higher blood pressure readings durstress was obliterated or ignored. In ing the periods of anticipated unmore recent y e a r s , however, the employment, actual unemploynon-economic effect of work depri- ment, and probationary reemployvation has become more apparent ment. The differences in blood because u n e m p l o y m e n t compensa- pressure decreased as stable new tion and other benefits have buf- jobs were acquired. Cholesterol fered many workers against the levels and pulse rates, diabetes, worst economic effects of job loss. peptic ulcers, gout, heart attacks, Those affected by a layoff or arthritis, and hypertension showed termination often experience bitter- similar patterns. Research results of ness, anger, shock, and disappoint- this nature show that the costs of ment. In addition to the sharply u n e m p l o y m e n t are physical as well reduced living standard, they tend as economic and psychological. to experience various mental prob- They also show that the threat of lems of distrust, pessimism, and u n e m p l o y m e n t triggers some physpsychological depression. These iological changes long before actual psychological symptoms are some- job loss occurs and that most inditimes associated with severe family cators return to normal when new problehas, including divorce, sui- job security is attained. cide, and child abuse, which tend to accompany long jobless periods. The Employer Perspective For example, Michigan social indicators showed that child abuse in- The accumulating evidence that creased 37 percent, substance abuse stress associated with employee cut10 percent, and suicide 27 percent backs contributes significantly to when u n e m p l o y m e n t increased be- increased rates of physical diseases, tween 1979 and 19807 Layoffs as well as to psychological diseases and terminations may also create and other social problems, argues some serious morale problems strongly for employer efforts to among the remaining employees. improve human resource planning On a social adjustment scale to in general, and employee reduction measure the degree of stress as- procedure in particular. In addition sociated with various life events, to humanitarian concerns, however, job loss was rated forty-seven there are some practical reasons points on a one hundred point why management should be conbasis, which places it below the cerned with alleviating symptoms death of a close family member but and problems usually associated above most other life events. with job loss.
not give notice of a plant dosing more than two to six months in advance.2
T 10
2. Richard S. Greenburger, The Wall Street Journal, July 22, 1980:1 3. Robert L. Kahn, Work and Health (New York: John Wiley and Sons, 1981): 78-83.
4. Samuel Cobb and Saul Kasl, Termination: The Consequences o f Job Loss (Washington D.C.: U.S. Government Printing Office, 1977).
First, it is becoming apparent that courts and juries are now more receptive to claims for damages based on job-related stress and emotional duress. In at least six states, courts have ruled that emotionally-ill employees are entitled to compensation for job stress. One executive sued his employer, claiming his work demands caused him to have a coronary. He won the case, and the c o m p a n y was ordered to pay a cash settlement, s While no awards have yet been made on the basis of layoff-related stress, that possibility clearly exists. Employers could be sued by those who are forced to lay off others as well as by those who are actually laid off. Second, labor unions are now seeking more influence in plant closing decisions, and recent court decisions suggest that employers may have to negotiate with unions before closing a plant. 6 In Canada, legislation has been introduced in the Ontario legislature requiring employers to aid in relocating laidoff workers. 7 Third, employers also bear some other economic and non-economic costs associated with employee cutbacks. Among these are severance pay for professional and technical employees, u n e m p l o y m e n t benefit costs, negative public image, and morale problems among remaining employees. Many organizations are now going to considerable lengths to avoid severing employees in precipitous and inhumane ways. How can employers alleviate the adverse effects of employee cutbacks? Obviously, one way is through human resources planning and long-term strategic planning which renders such layoffs unnecessary. Since the avoidance of layoffs is not always possible, some employers have pro5 . J o h n M. Ivancevich and Michael T. Matteson, "Optimizing Human Resources: The Case for Preventative Health and Stress Management," Organizational Dynamics, Autumn 1980: 5-25. 6.Joanne S. Lublin, The Wall Street Journal, September 2, 1980: 1. 7. Toronto Star, November 15, 1980: 1.
Reducing the Economic and Human Costs of Layoffs
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;to-
vided advanced warning relocation to other plant sites, early retirement, and assistance in locating other jobs in the community. Other employers have attempted to develop a work environment which provides social support from peers, supervisors, and subordinates for those who must be laid off or terminated. Such support not only reduces stress while enhancing physical and mental health, but also provides tools for locating alternative employment. These types of efforts are usually termed outplacement. Outplacement is the removal from the payroll of redundant or marginal employees with minimum disruption and cost to the company and with maximum assistance to the displaced individuals. Outplacement encompasses every aspect of career assessment, personal introspection, and the job search campaign. This new function has grown from virtually nothing in the 1960s to a service provided by approximately one-third of the major em-
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ployers in 1979. 8 It is estimated the use of outplacement will increase 90 percent annually through 1986; savings to corporate personnel budgets are forecast to be in excess of 35 percent above the actual costs of outplacement services (a net savings of about $20 million in 1982) for those companies which engage in it. 9 The Kaiser Cutbacks aiser Aluminum & Chemical Corporation is both a fully integrated aluminum producer and a diversified industrial company engaged in a variety of businesses, including agricultural chemicals, industrial chemicals, oil and gas, refractories, real estate development, and international trading. The company ranks third
K I
8.James W. Walker and Tom G. Gutteridge, Career Planning Practice (New York: AMACOM, 1979). 9. Dave Henrikson, "Outplacernent: Guidelines that Insure Success," Personnel Journal, August 1981: 583-589.
in the United States in terms of its capacity to produce and/or market aluminum. It has established itself over the years as a leader in proactive personnel relations and has aggressively pursued controversial issues. The economic problems facing this country over the past few years have affected the aluminum industry severely. In an effort to reduce inventory levels in the face of a soft market, Kaiser was forced to curtail operations at many of its locations. As the magnitude of the cutbacks became apparent, the company discussed ways to minimize the impact of the reductions. One way selected was outplacement services for affected salaried employees. Although out-placement activities have occurred throughout the corporation, we will deal with those at Kaiser Aluminum's largest facility, the Ravenswood Works in Ravenswood, West Virginia. ,This facility is located on the Ohio River near a town with a population of about 4,100. It is a two-plant loca-
"The threat of unemployment triggers some physiological changes long before actual job loss occurs and most indicators return to normal when new job security is attained."
12 tion, with a reduction plant and a ment, the center was named the fabrication plant. The reduction "Career Counseling and Placement plant's function is to reduce alu- Center." The objective of the mina ore to molten aluminum b y center would be to assist, b u t not an electrolytic process in oven-like. necessarily to find e m p l o y m e n t for, structures, or " p o t s . " The hot salaried employees affected b y the metal is then transferred to the reduction in force. Because losing a fabrication plant where it is cast j o b is a very stressful experience, outplacement efforts and rolled into a variety of semi- Kaiser's focused on minimizing the negative finished and finished products. At full capacity the two plants aspects of unemployment, while provided employment for about assisting the displaced employees to 4,300. Between 1980 and 1982 the focus their energies on a j o b search. Ravenswood's Career Counselfacility experienced increased costs and reduced demand. As a result, ing and Placement Center was the reduction plant was shut down opened on November 3, 1981, and completely, and the fabrication operated for one year. The center of three telephoneplant's operation was significantly consisted curtailed. Between 1980 and 1982 equipped offices, one copy malabor force at the facility was re- chine, employment opportunity duced about 50 percent. Since ap- listings b y respective career field, a proximately 60 percent of Kaiser's current collection of newspapers employees live in the county in and business/trade journals, and a which the plant operates, the cut- placement board which listed indibacks were felt extremely hard in viduals who had secured employthis community. As of April 30, ment. The complex was staffed full1982, over 2,000 of the original 4,300 employees had lost their time b y representatives of the perjobs; 300 of these were salaried sonnel department and one secreemployees. Kaiser then offered out- ta W who was available to answer placement services to these 300 telephones; to type cover letters, resumes, and miscellaneous cordisplaced salaried employees. respondence; and to maintain contacts with employment agencies Outplacement Efforts and businesses. After the affected individuals rior to the first major reducwere notified at the plant that they tion in force, management were either being terminated or laid established an outplacement center. To minimize the nega.tive off, they were encouraged to schedconnotation of the term outplace- ule one-hour sessions with a person-
p
nel representative at the center. The one-on-one sessions consisted of these steps: • Overview of benefits. Each person received a short summary of the severance pay and the benefits that could be expected. Individual questions were answered to ensure each employee fully understood his or her entitlements. This was found to be particularly beneficial, as it eased the uncertainty of their situations and allowed them to focus their energies on the j o b search. *Appraisal and discussion of attitude. In those instances where it was evident the employee was bitter or greatly upset with the company's decision, open discussion of feelings was encouraged. This allowed the employee the opportunity to vent his or her frustrations, and then to relax and make the mental adjustment to proceed with the j o b hunting process. This approach also allowed the c o m p a n y to determine those people w h o were extremely despondent in order to refer them to a mental health counselor. • Presentation of the Career Counseling and Placement Center. The majority of the session was devoted to explaining the function of the center. It was emphasized that the objective of the placement service was to assist and not necessarily to find employment for displaced individuals. The point was made clear in order to place the
Reducing the Economic and Human Costs of Layoffs
"One female supervisor was extremely upset the day her employment was terminated . . . . She quickly regained her confidence and self-esteem and soon assumed the role of informal advisor to other displaced employees."
13 responsibility for finding a job on the individual. Rules concerning the operation of the center were also discussed, including operating hours, limitations on phone-use time, available space and facilities, and the necessity to provide "the center managers with copies of resumes and with notification of job acceptances. • Preview of the outplacement seminar. Each person was given a short preview of a three-day outplacement seminar and was encouraged to attend. Roughly twothirds of the affected 300 salaried employees took advantage of the opportunity. Kaiser contracted with a well-known outplacement firm which presented useful and timely information on a variety of topics, including the nature, causes, and methods of coping with unemployment stress; effective resume writing; interviewing skills and techniques; and successful job search methods. Group participation was encouraged in order that those attending could share their thoughts and become comfortable with the group, thus minimizing the stress of being unemployed. Each person prepared a skills inventory sheet from which his or her resume was constructed, and each employee had the opportunity to participate in a mock interview session. The outplacement specialists were also available for one-on-one counseling with those who desired additional assistance. • Tour of the facility. A "where
tion of displaced employees in terms of their job-seeking behavior and their participation in outplacement activities. Of the 295 displaced employees, approximately Outplacement Effectiveness one-third were awaiting recall or Most of the affected employees were voluntarily retired, while twowent through predictable stages in thirds (191) were seeking other reacting to their situation. Prior to jobs. Seventy-two of the 191 seektheir termination they had assumed ing jobs did not participate in any that the economic problems of the of the outplacement activities, 39 company were being overstated and participated in the center only, and that work force reductions would 80 participated both in the center not be nearly as bad as some and in the outplacement seminar. predicted. Moreover, they had felt While the overall placement rate of that whatever cuts did occur would those seeking new jobs was approxiaffect other employees and not mately 28 percent, it ranged from a themselves. When the actual cuts very low 15 percent for non-particiwere announced, the initial reaction pants in outplacement activities to was often shock and disbelief. This a high 40 percent for those who was followed in some instances by used the center and attended the anger and resentment toward the seminar. These results are quite good, considering the high unemcompany. For the two-thirds of the ployment rates and the poor busisalaried employees who took ad- ness climate in West Virginia. It vantage of Kaiser's outplacement should also be remembered that services, the next stage was coming this data includes only those who to terms with their situation and reported acceptance of a new posithen a focused search for desirable tion; therefore, the actual placement rates were undoubtedly someemployment alternatives. what higher. In addition to these observed Table 2 indicates the particiemployee reactions, the effectivepants' evaluation of the three-day ness of Kaiser's outplacement efoutplacement seminar. From forts can also be determined by November 1981 to February 1982, more objective data. By September seminars were held on six separate 1982 approximately 54 of the 191 displaced salaried employees who occasions for groups ranging from were seeking new jobs (28 percent) eleven to eighteen people. The overhad been reemployed. In addition, all evaluation of the suitability of many others were interviewing and the program to personal needs, organization and presentation, and entertaining job offers. Table 1 indicates the distribu- instructor abilities was very posito find" tour was conducted with each person to familiarize him or her with the center's layout.
Table 1 A Breakdown of Layoffs, Job Seeking Behavior, Participation in Outplacement Activities, and Placements Among Displaced Salaried Employees Distribution
Category
14
Placements
Number
Percent
Number
Percent
Displaced employees
295
100.0
54
18.3
Voluntary retirement or expecting recall Seeking new jobs Non-participant in outplacement Participant in center only Participant in center and seminar
104 191 72 39 80
35.3 64.7 24.4 13.2 27.1
0 54 11 12 31
0.0 28.2 15.3 30.8 39.5
Table 2 Participant Evaluation of The Outplacement Seminar Overall evaluation ,~
Suitability to your personal needs Organization and presentation Instructor Probability of finding good position before program Probability of finding good position after program
5.4 5.6 5.7 3.6 5.1
*Six point scale: 1 = very poor; 6 = excellent Most valuable areas o f the seminar
Number Interviewing skills 54 Resume preparation 42 Job hunting techniques 33 Personal contacts and networks 15 Self-eyaluation and self-marketing 12 Letter preparation 10 Personal critique and advice 6 Development of positive mental outlook 5 Group activities and group sharing 4
Percent of Participants (n = 80) 67.5 52.5 41.3 18.8 15.0 12.5 7.5 6.2 5.0
five, ranging from 5.4 to 5.7 on a 6 point scale. Moreover, although the average participant viewed the probability of finding a good position as "fair" prior to the seminar, this probability increased to "very good" following the program. Those sections of the seminar dealing with interviewing skills,
resume preparation, and job-hunting techniques were viewed by the participants as the most valuable. The development of personal contacts and networks, self-evaluation and self-marketing, and letter preparation were also considered valuable by a large number of participants. The single, consistent suggestion for improvement was that the seminar should have been scheduled for more than three days since participants desired to spend more time on specific topic discussions. There was also a desire that the instructor spend more time with each individual in resume and interview preparation. Sample comments by the participants included these: • "This program has made me feel more confident in finding employment." • "I feel the instructor presented himself and the company very effectively to a hostile group." • "The program highlights your strengths and demonstrates how to handle your weaknesses constructively." • "Overall, I thought the program was very good and well worth attending. The instructor provided a professional presentation under negative conditions." The success of the Kaiser outplacement services cannot, and should not, be measured solely by the number of people participating in the center activities or the numbers finding employment. Other key indicators of success have been
the improved spirit of the displaced employees, the minimization of the negative reaction to the terminations on the part of the affected employees and the community, and the camaraderie which was established among the displaced employees. Similar success in both improved employee attitudes and job placements has also been found in other outplacement programs in other corporations.' 0 After one year of operation, the Career Counseling and Placement Center was dosed in November 1982. By this time, less than twenty individuals per day were using the facility. Moreover, the costs of running it could not be justified considering such small numbers and the diminishing returns. As a result of the support system developed through the outplacement services, behavioral changes in some people at the center were quite dramatic. One female supervisor was extremely upset the day her employment was terminated. She had been employed only a short period of time and was very concerned regarding future job prospects. Personnel representatives encouraged her to attend the outplacement seminar. With the help of a personnel representative, she then developed a resume that became the model job-experience summary for other center participants. Bolstered by this activity, she quickly regained her confidence and self-esteem and soon assumed the role of informal adviser to other displaced employees. It was not unusual to find her assisting the center's secretary during hours of peak use by making appointments or by answering telephones. She eventually secured employment with a West Coast firm, but continued to maintain contact with the center by periodically calling to 10. Robert S. Barkhaus and Carol Meek, "A Practical View of Outplacement Counseling," The Personnel Administrator, March 1982: 77-82.
Reducing the Economic and Human Costs of Layoffs
inform participants of potential employment opportunities. Another measure of the effectiveness of the Career Counseling and Placement Center is drawn from a survey, prepared at the center, to determine the reaction of the user to the services provided. Of the twenty-six respondents to the questionnaire, twenty-one indicated that the unlimited use of telephones was the most helpful service provided. An overwhelming majority felt the center was very helpful in providing resume-writing assistance. Over 85 percent believed the job search information was very helpful in their e m p l o y m e n t search. That survey showed many favorable comments regarding the positive aspects of the center. One individual noted that, "The peer group situation has aided in cgmbating the depression of being unemployed." Another felt that the "log of those who were able to find jobs was most helpful since it probably reflects only 60 percent of actual placement." Another cited the "encouragement and support of other displaced employees as well as the center's staff." One person summed up the displaced employees' attitudes by saying, "I feel the entire industrial community could take a lesson from Kaiser in employee/community relations." Suggestions for improvement included "restricting the center for those who abuse the services," "providing a greater availability of big city newspapers," and "providing more telephones." Management of Outplacement S a result of Kaiser Aluinum's experience, the following recommendations are offered concerning the establishment, organization, and managem e n t of outplacement activities. • When naming the center, or when answering phones, make a conscious effort to discourage the use of the word outplacement. Outplacement denotes negativism. A
more appropriate name like "career counseling and placement center" is preferable. • Determine a location that is conveniently situated for the user. Kaiser discovered the people who are most reluctant to use the center are those who live fifteen or more miles away. The economic hardship of driving long distances is magnified when one does not have a steady source of income; thus the incentive to take advantage of the service is diminished. • Staff the center with management personnel. The presence of a personnel representative indicates to the displaced employee that the company is willing to devote the necessary resources to ensure meaningful placement activities. It has been Kaiser's experience that personnel representatives should be available on a full-time basis to answer questions and to manage problem employees effectively during the initial two-week period following a reduction in force. After the first two weeks, only part-time coverage is needed. • Determine objectives for the center. The center should have a stated purpose, and criteria should be determined to measure its success. *Prepaxe and distribute rules for use of the center. The operation runs more smoothly when everyone is aware of the rules governing the use of the facility. When all people are aware of their responsibilities, abuse of privileges is lessened. • The following core materials should be available at the center: major area metropolitan newspapers, college placement annuals, the Million Dollar Directory, the Thomas Register, the Wall Street Journal, What Color is your Parachute?, Guide to Effective Resume Writing, and Standard ~ Poors Index. • A job placement board should be designated to track and record those employees who have found jobs. This is a particularly important activity which helps to motiI
vate people by learning of the success of their peers. • Background music should be considered. A radio tends to relax individuals as it creates a low-key, unobtrusive atmosphere in which they can work. • When debriefing displaced employees, schedule one-hour sessions. One-half h o u r sessions indicate to the affected individual that time is more important than they are. An hour allows for in-depth discussions for those desiring them. *Efforts should be made to ensure that addresses, phone numbers, areas of expertise, and resumes are on file for each displaced employee. This easy reference system is vital when matching experience with job vacancies. If there are sufficient resumes, a book can be prepared for mailing to prospective employers. This is a good way to inform agencies and employers of the talent available. • When a large number of nonprofessional employees are displaced, a separate outplacement seminar should be scheduled for their benefit. The typical outplacement format is normally geared for professional employees; therefore, seminars designed specifically for non-professional employees need to be developed and presented separately. • Careful screening is vital when agencies are scheduled to interview displaced employees on site. Most agencies conduct themselves in a professional manner; however, others come only to collect resumes. • An explanation of their pay and u n e m p l o y m e n t compensation eligibilities should be made when employees are informed of their benefits. The discussion of benefits should also inform employees for how long, and under what conditions, they should expect to receive benefits. • Displaced employees should be offered an outplacement program which consists of both supportive services and an outplace-
15
ment seminar. The potential of placement firms which specialize in each should be explained to each such seminars. individual. The outplacement ser• Outplacement services should vices shouid be developed and be discontinued when the number staffed internally (perhaps with of displaced employees using them outside consultation during the ini- fails to justify their costs. Approtial setting-up stage) in order to priate notice should be given before demonstrate the company's interest such closings are implemented. in and commitment to the displaced employees. On the other o single approach can hope hand, the outplacement seminar is to eliminate the economic probably best accomplished by outand psychological costs as-
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sociated with job loss. However, experience to date at Kaiser and in other settings indicates that outplacement efforts can play a significant role in minimizing such costs. Such efforts appear to be a necessary c o m p o n e n t of human resources planning efforts for many companies during the decade of the 1980s. [Z]
9 Myron D. Fottler is Professor of Management and Director of the Ph.D. Program in Administration and Health Services at the University of Alabama in Birmingham. He has published extensively in human resource fields. Dennis W. Shuler is the Staff Personnel Relations Representative for Kaiser Aluminum & Chemical Corporation, Ravenswood Works. The authors would like to thank Nancy Snyder, Senior Personnel Representative at Kaiser Aluminum & Chemical Corporation, for her assistance in this research.
The deep recession of 1980-1982 caused many companies to face the prospect of large-scale work force reductions. Such cutbacks are costly for both the company and for the individuals affected. This ar.ticle focuses on the outplacement efforts of the Ravenswood (West Virginia) Works of the Kaiser Aluminum & Chemical Corporation, using them as a model for organizing and managing similar programs. he recession of 1980-1982 was the most severe since the Great Depression of the 1930s. Layoffs and terminations affected professional and managerial employees as well as blue-collar employees. Since some economic experts predict recurrent and increasingly severe recessions (or depressions) throughout the present decade, it appears that plant closings and large scale layoffs and terminations will remain a recurring phenomenon. Many U.S. industries-steel, automobile, shoe, and rubber manufacturing-are no longer internationally competitive. According to Peter Drucker, the situation requires corporate "redundancy planning." This involves anticipating structural and technological
T
changes in the economy, retraining employees, and locating new jobs for those workers who must be cut back. 1 Such displaced workers may need psychological security as much as they need economic security. This situation requires that human resources managers and planners anticipate plant closings well in advance so that plans can be developed to minimize the adverse effects of work force reductions on the rank-and-file employees, on management personnel, and on the corporation itself. Yet one recent survey showed that more than half of all corporations surveyed could 1. Peter F. Drucker, "The Reindustrialization of America," The Wall Street Journal, June 13, 1980: 24. Business Horizons /July-August 1984
These psychological symptoms have also been linked to actual illness. A study by Cobb and Kasl showed the linkages among job loss, psychological conditions, and Costs of U n e m p l o y m e n t physiological conditions over a he costs of u n e m p l o y m e n t two-year period among one hunand job cutbacks are both dred men who lost their jobs in the economic and human. 1960s. 4 Compared with a control Studies of u n e m p l o y m e n t over a group, these men were more likely period of the last forty years show to be depressed, to have low selfthe same, unsurprising pattern: un- esteem, to be anxious and tense, e m p l o y m e n t is a stressful state. In and to be irritable, easily angered, the past, the economic deprivation and suspicious. They also showed was so severe that the effect of higher blood pressure readings durstress was obliterated or ignored. In ing the periods of anticipated unmore recent y e a r s , however, the employment, actual unemploynon-economic effect of work depri- ment, and probationary reemployvation has become more apparent ment. The differences in blood because u n e m p l o y m e n t compensa- pressure decreased as stable new tion and other benefits have buf- jobs were acquired. Cholesterol fered many workers against the levels and pulse rates, diabetes, worst economic effects of job loss. peptic ulcers, gout, heart attacks, Those affected by a layoff or arthritis, and hypertension showed termination often experience bitter- similar patterns. Research results of ness, anger, shock, and disappoint- this nature show that the costs of ment. In addition to the sharply u n e m p l o y m e n t are physical as well reduced living standard, they tend as economic and psychological. to experience various mental prob- They also show that the threat of lems of distrust, pessimism, and u n e m p l o y m e n t triggers some physpsychological depression. These iological changes long before actual psychological symptoms are some- job loss occurs and that most inditimes associated with severe family cators return to normal when new problehas, including divorce, sui- job security is attained. cide, and child abuse, which tend to accompany long jobless periods. The Employer Perspective For example, Michigan social indicators showed that child abuse in- The accumulating evidence that creased 37 percent, substance abuse stress associated with employee cut10 percent, and suicide 27 percent backs contributes significantly to when u n e m p l o y m e n t increased be- increased rates of physical diseases, tween 1979 and 19807 Layoffs as well as to psychological diseases and terminations may also create and other social problems, argues some serious morale problems strongly for employer efforts to among the remaining employees. improve human resource planning On a social adjustment scale to in general, and employee reduction measure the degree of stress as- procedure in particular. In addition sociated with various life events, to humanitarian concerns, however, job loss was rated forty-seven there are some practical reasons points on a one hundred point why management should be conbasis, which places it below the cerned with alleviating symptoms death of a close family member but and problems usually associated above most other life events. with job loss.
not give notice of a plant dosing more than two to six months in advance.2
T 10
2. Richard S. Greenburger, The Wall Street Journal, July 22, 1980:1 3. Robert L. Kahn, Work and Health (New York: John Wiley and Sons, 1981): 78-83.
4. Samuel Cobb and Saul Kasl, Termination: The Consequences o f Job Loss (Washington D.C.: U.S. Government Printing Office, 1977).
First, it is becoming apparent that courts and juries are now more receptive to claims for damages based on job-related stress and emotional duress. In at least six states, courts have ruled that emotionally-ill employees are entitled to compensation for job stress. One executive sued his employer, claiming his work demands caused him to have a coronary. He won the case, and the c o m p a n y was ordered to pay a cash settlement, s While no awards have yet been made on the basis of layoff-related stress, that possibility clearly exists. Employers could be sued by those who are forced to lay off others as well as by those who are actually laid off. Second, labor unions are now seeking more influence in plant closing decisions, and recent court decisions suggest that employers may have to negotiate with unions before closing a plant. 6 In Canada, legislation has been introduced in the Ontario legislature requiring employers to aid in relocating laidoff workers. 7 Third, employers also bear some other economic and non-economic costs associated with employee cutbacks. Among these are severance pay for professional and technical employees, u n e m p l o y m e n t benefit costs, negative public image, and morale problems among remaining employees. Many organizations are now going to considerable lengths to avoid severing employees in precipitous and inhumane ways. How can employers alleviate the adverse effects of employee cutbacks? Obviously, one way is through human resources planning and long-term strategic planning which renders such layoffs unnecessary. Since the avoidance of layoffs is not always possible, some employers have pro5 . J o h n M. Ivancevich and Michael T. Matteson, "Optimizing Human Resources: The Case for Preventative Health and Stress Management," Organizational Dynamics, Autumn 1980: 5-25. 6.Joanne S. Lublin, The Wall Street Journal, September 2, 1980: 1. 7. Toronto Star, November 15, 1980: 1.
Reducing the Economic and Human Costs of Layoffs
°..-. ~4-:.
11
] CopING@0olLy
;to-
vided advanced warning relocation to other plant sites, early retirement, and assistance in locating other jobs in the community. Other employers have attempted to develop a work environment which provides social support from peers, supervisors, and subordinates for those who must be laid off or terminated. Such support not only reduces stress while enhancing physical and mental health, but also provides tools for locating alternative employment. These types of efforts are usually termed outplacement. Outplacement is the removal from the payroll of redundant or marginal employees with minimum disruption and cost to the company and with maximum assistance to the displaced individuals. Outplacement encompasses every aspect of career assessment, personal introspection, and the job search campaign. This new function has grown from virtually nothing in the 1960s to a service provided by approximately one-third of the major em-
F" Ec-rs Otc I' "°fzK 1)E1 V.,o,TlOtU
°;o.
ployers in 1979. 8 It is estimated the use of outplacement will increase 90 percent annually through 1986; savings to corporate personnel budgets are forecast to be in excess of 35 percent above the actual costs of outplacement services (a net savings of about $20 million in 1982) for those companies which engage in it. 9 The Kaiser Cutbacks aiser Aluminum & Chemical Corporation is both a fully integrated aluminum producer and a diversified industrial company engaged in a variety of businesses, including agricultural chemicals, industrial chemicals, oil and gas, refractories, real estate development, and international trading. The company ranks third
K I
8.James W. Walker and Tom G. Gutteridge, Career Planning Practice (New York: AMACOM, 1979). 9. Dave Henrikson, "Outplacernent: Guidelines that Insure Success," Personnel Journal, August 1981: 583-589.
in the United States in terms of its capacity to produce and/or market aluminum. It has established itself over the years as a leader in proactive personnel relations and has aggressively pursued controversial issues. The economic problems facing this country over the past few years have affected the aluminum industry severely. In an effort to reduce inventory levels in the face of a soft market, Kaiser was forced to curtail operations at many of its locations. As the magnitude of the cutbacks became apparent, the company discussed ways to minimize the impact of the reductions. One way selected was outplacement services for affected salaried employees. Although out-placement activities have occurred throughout the corporation, we will deal with those at Kaiser Aluminum's largest facility, the Ravenswood Works in Ravenswood, West Virginia. ,This facility is located on the Ohio River near a town with a population of about 4,100. It is a two-plant loca-
"The threat of unemployment triggers some physiological changes long before actual job loss occurs and most indicators return to normal when new job security is attained."
12 tion, with a reduction plant and a ment, the center was named the fabrication plant. The reduction "Career Counseling and Placement plant's function is to reduce alu- Center." The objective of the mina ore to molten aluminum b y center would be to assist, b u t not an electrolytic process in oven-like. necessarily to find e m p l o y m e n t for, structures, or " p o t s . " The hot salaried employees affected b y the metal is then transferred to the reduction in force. Because losing a fabrication plant where it is cast j o b is a very stressful experience, outplacement efforts and rolled into a variety of semi- Kaiser's focused on minimizing the negative finished and finished products. At full capacity the two plants aspects of unemployment, while provided employment for about assisting the displaced employees to 4,300. Between 1980 and 1982 the focus their energies on a j o b search. Ravenswood's Career Counselfacility experienced increased costs and reduced demand. As a result, ing and Placement Center was the reduction plant was shut down opened on November 3, 1981, and completely, and the fabrication operated for one year. The center of three telephoneplant's operation was significantly consisted curtailed. Between 1980 and 1982 equipped offices, one copy malabor force at the facility was re- chine, employment opportunity duced about 50 percent. Since ap- listings b y respective career field, a proximately 60 percent of Kaiser's current collection of newspapers employees live in the county in and business/trade journals, and a which the plant operates, the cut- placement board which listed indibacks were felt extremely hard in viduals who had secured employthis community. As of April 30, ment. The complex was staffed full1982, over 2,000 of the original 4,300 employees had lost their time b y representatives of the perjobs; 300 of these were salaried sonnel department and one secreemployees. Kaiser then offered out- ta W who was available to answer placement services to these 300 telephones; to type cover letters, resumes, and miscellaneous cordisplaced salaried employees. respondence; and to maintain contacts with employment agencies Outplacement Efforts and businesses. After the affected individuals rior to the first major reducwere notified at the plant that they tion in force, management were either being terminated or laid established an outplacement center. To minimize the nega.tive off, they were encouraged to schedconnotation of the term outplace- ule one-hour sessions with a person-
p
nel representative at the center. The one-on-one sessions consisted of these steps: • Overview of benefits. Each person received a short summary of the severance pay and the benefits that could be expected. Individual questions were answered to ensure each employee fully understood his or her entitlements. This was found to be particularly beneficial, as it eased the uncertainty of their situations and allowed them to focus their energies on the j o b search. *Appraisal and discussion of attitude. In those instances where it was evident the employee was bitter or greatly upset with the company's decision, open discussion of feelings was encouraged. This allowed the employee the opportunity to vent his or her frustrations, and then to relax and make the mental adjustment to proceed with the j o b hunting process. This approach also allowed the c o m p a n y to determine those people w h o were extremely despondent in order to refer them to a mental health counselor. • Presentation of the Career Counseling and Placement Center. The majority of the session was devoted to explaining the function of the center. It was emphasized that the objective of the placement service was to assist and not necessarily to find employment for displaced individuals. The point was made clear in order to place the
Reducing the Economic and Human Costs of Layoffs
"One female supervisor was extremely upset the day her employment was terminated . . . . She quickly regained her confidence and self-esteem and soon assumed the role of informal advisor to other displaced employees."
13 responsibility for finding a job on the individual. Rules concerning the operation of the center were also discussed, including operating hours, limitations on phone-use time, available space and facilities, and the necessity to provide "the center managers with copies of resumes and with notification of job acceptances. • Preview of the outplacement seminar. Each person was given a short preview of a three-day outplacement seminar and was encouraged to attend. Roughly twothirds of the affected 300 salaried employees took advantage of the opportunity. Kaiser contracted with a well-known outplacement firm which presented useful and timely information on a variety of topics, including the nature, causes, and methods of coping with unemployment stress; effective resume writing; interviewing skills and techniques; and successful job search methods. Group participation was encouraged in order that those attending could share their thoughts and become comfortable with the group, thus minimizing the stress of being unemployed. Each person prepared a skills inventory sheet from which his or her resume was constructed, and each employee had the opportunity to participate in a mock interview session. The outplacement specialists were also available for one-on-one counseling with those who desired additional assistance. • Tour of the facility. A "where
tion of displaced employees in terms of their job-seeking behavior and their participation in outplacement activities. Of the 295 displaced employees, approximately Outplacement Effectiveness one-third were awaiting recall or Most of the affected employees were voluntarily retired, while twowent through predictable stages in thirds (191) were seeking other reacting to their situation. Prior to jobs. Seventy-two of the 191 seektheir termination they had assumed ing jobs did not participate in any that the economic problems of the of the outplacement activities, 39 company were being overstated and participated in the center only, and that work force reductions would 80 participated both in the center not be nearly as bad as some and in the outplacement seminar. predicted. Moreover, they had felt While the overall placement rate of that whatever cuts did occur would those seeking new jobs was approxiaffect other employees and not mately 28 percent, it ranged from a themselves. When the actual cuts very low 15 percent for non-particiwere announced, the initial reaction pants in outplacement activities to was often shock and disbelief. This a high 40 percent for those who was followed in some instances by used the center and attended the anger and resentment toward the seminar. These results are quite good, considering the high unemcompany. For the two-thirds of the ployment rates and the poor busisalaried employees who took ad- ness climate in West Virginia. It vantage of Kaiser's outplacement should also be remembered that services, the next stage was coming this data includes only those who to terms with their situation and reported acceptance of a new posithen a focused search for desirable tion; therefore, the actual placement rates were undoubtedly someemployment alternatives. what higher. In addition to these observed Table 2 indicates the particiemployee reactions, the effectivepants' evaluation of the three-day ness of Kaiser's outplacement efoutplacement seminar. From forts can also be determined by November 1981 to February 1982, more objective data. By September seminars were held on six separate 1982 approximately 54 of the 191 displaced salaried employees who occasions for groups ranging from were seeking new jobs (28 percent) eleven to eighteen people. The overhad been reemployed. In addition, all evaluation of the suitability of many others were interviewing and the program to personal needs, organization and presentation, and entertaining job offers. Table 1 indicates the distribu- instructor abilities was very posito find" tour was conducted with each person to familiarize him or her with the center's layout.
Table 1 A Breakdown of Layoffs, Job Seeking Behavior, Participation in Outplacement Activities, and Placements Among Displaced Salaried Employees Distribution
Category
14
Placements
Number
Percent
Number
Percent
Displaced employees
295
100.0
54
18.3
Voluntary retirement or expecting recall Seeking new jobs Non-participant in outplacement Participant in center only Participant in center and seminar
104 191 72 39 80
35.3 64.7 24.4 13.2 27.1
0 54 11 12 31
0.0 28.2 15.3 30.8 39.5
Table 2 Participant Evaluation of The Outplacement Seminar Overall evaluation ,~
Suitability to your personal needs Organization and presentation Instructor Probability of finding good position before program Probability of finding good position after program
5.4 5.6 5.7 3.6 5.1
*Six point scale: 1 = very poor; 6 = excellent Most valuable areas o f the seminar
Number Interviewing skills 54 Resume preparation 42 Job hunting techniques 33 Personal contacts and networks 15 Self-eyaluation and self-marketing 12 Letter preparation 10 Personal critique and advice 6 Development of positive mental outlook 5 Group activities and group sharing 4
Percent of Participants (n = 80) 67.5 52.5 41.3 18.8 15.0 12.5 7.5 6.2 5.0
five, ranging from 5.4 to 5.7 on a 6 point scale. Moreover, although the average participant viewed the probability of finding a good position as "fair" prior to the seminar, this probability increased to "very good" following the program. Those sections of the seminar dealing with interviewing skills,
resume preparation, and job-hunting techniques were viewed by the participants as the most valuable. The development of personal contacts and networks, self-evaluation and self-marketing, and letter preparation were also considered valuable by a large number of participants. The single, consistent suggestion for improvement was that the seminar should have been scheduled for more than three days since participants desired to spend more time on specific topic discussions. There was also a desire that the instructor spend more time with each individual in resume and interview preparation. Sample comments by the participants included these: • "This program has made me feel more confident in finding employment." • "I feel the instructor presented himself and the company very effectively to a hostile group." • "The program highlights your strengths and demonstrates how to handle your weaknesses constructively." • "Overall, I thought the program was very good and well worth attending. The instructor provided a professional presentation under negative conditions." The success of the Kaiser outplacement services cannot, and should not, be measured solely by the number of people participating in the center activities or the numbers finding employment. Other key indicators of success have been
the improved spirit of the displaced employees, the minimization of the negative reaction to the terminations on the part of the affected employees and the community, and the camaraderie which was established among the displaced employees. Similar success in both improved employee attitudes and job placements has also been found in other outplacement programs in other corporations.' 0 After one year of operation, the Career Counseling and Placement Center was dosed in November 1982. By this time, less than twenty individuals per day were using the facility. Moreover, the costs of running it could not be justified considering such small numbers and the diminishing returns. As a result of the support system developed through the outplacement services, behavioral changes in some people at the center were quite dramatic. One female supervisor was extremely upset the day her employment was terminated. She had been employed only a short period of time and was very concerned regarding future job prospects. Personnel representatives encouraged her to attend the outplacement seminar. With the help of a personnel representative, she then developed a resume that became the model job-experience summary for other center participants. Bolstered by this activity, she quickly regained her confidence and self-esteem and soon assumed the role of informal adviser to other displaced employees. It was not unusual to find her assisting the center's secretary during hours of peak use by making appointments or by answering telephones. She eventually secured employment with a West Coast firm, but continued to maintain contact with the center by periodically calling to 10. Robert S. Barkhaus and Carol Meek, "A Practical View of Outplacement Counseling," The Personnel Administrator, March 1982: 77-82.
Reducing the Economic and Human Costs of Layoffs
inform participants of potential employment opportunities. Another measure of the effectiveness of the Career Counseling and Placement Center is drawn from a survey, prepared at the center, to determine the reaction of the user to the services provided. Of the twenty-six respondents to the questionnaire, twenty-one indicated that the unlimited use of telephones was the most helpful service provided. An overwhelming majority felt the center was very helpful in providing resume-writing assistance. Over 85 percent believed the job search information was very helpful in their e m p l o y m e n t search. That survey showed many favorable comments regarding the positive aspects of the center. One individual noted that, "The peer group situation has aided in cgmbating the depression of being unemployed." Another felt that the "log of those who were able to find jobs was most helpful since it probably reflects only 60 percent of actual placement." Another cited the "encouragement and support of other displaced employees as well as the center's staff." One person summed up the displaced employees' attitudes by saying, "I feel the entire industrial community could take a lesson from Kaiser in employee/community relations." Suggestions for improvement included "restricting the center for those who abuse the services," "providing a greater availability of big city newspapers," and "providing more telephones." Management of Outplacement S a result of Kaiser Aluinum's experience, the following recommendations are offered concerning the establishment, organization, and managem e n t of outplacement activities. • When naming the center, or when answering phones, make a conscious effort to discourage the use of the word outplacement. Outplacement denotes negativism. A
more appropriate name like "career counseling and placement center" is preferable. • Determine a location that is conveniently situated for the user. Kaiser discovered the people who are most reluctant to use the center are those who live fifteen or more miles away. The economic hardship of driving long distances is magnified when one does not have a steady source of income; thus the incentive to take advantage of the service is diminished. • Staff the center with management personnel. The presence of a personnel representative indicates to the displaced employee that the company is willing to devote the necessary resources to ensure meaningful placement activities. It has been Kaiser's experience that personnel representatives should be available on a full-time basis to answer questions and to manage problem employees effectively during the initial two-week period following a reduction in force. After the first two weeks, only part-time coverage is needed. • Determine objectives for the center. The center should have a stated purpose, and criteria should be determined to measure its success. *Prepaxe and distribute rules for use of the center. The operation runs more smoothly when everyone is aware of the rules governing the use of the facility. When all people are aware of their responsibilities, abuse of privileges is lessened. • The following core materials should be available at the center: major area metropolitan newspapers, college placement annuals, the Million Dollar Directory, the Thomas Register, the Wall Street Journal, What Color is your Parachute?, Guide to Effective Resume Writing, and Standard ~ Poors Index. • A job placement board should be designated to track and record those employees who have found jobs. This is a particularly important activity which helps to motiI
vate people by learning of the success of their peers. • Background music should be considered. A radio tends to relax individuals as it creates a low-key, unobtrusive atmosphere in which they can work. • When debriefing displaced employees, schedule one-hour sessions. One-half h o u r sessions indicate to the affected individual that time is more important than they are. An hour allows for in-depth discussions for those desiring them. *Efforts should be made to ensure that addresses, phone numbers, areas of expertise, and resumes are on file for each displaced employee. This easy reference system is vital when matching experience with job vacancies. If there are sufficient resumes, a book can be prepared for mailing to prospective employers. This is a good way to inform agencies and employers of the talent available. • When a large number of nonprofessional employees are displaced, a separate outplacement seminar should be scheduled for their benefit. The typical outplacement format is normally geared for professional employees; therefore, seminars designed specifically for non-professional employees need to be developed and presented separately. • Careful screening is vital when agencies are scheduled to interview displaced employees on site. Most agencies conduct themselves in a professional manner; however, others come only to collect resumes. • An explanation of their pay and u n e m p l o y m e n t compensation eligibilities should be made when employees are informed of their benefits. The discussion of benefits should also inform employees for how long, and under what conditions, they should expect to receive benefits. • Displaced employees should be offered an outplacement program which consists of both supportive services and an outplace-
15
ment seminar. The potential of placement firms which specialize in each should be explained to each such seminars. individual. The outplacement ser• Outplacement services should vices shouid be developed and be discontinued when the number staffed internally (perhaps with of displaced employees using them outside consultation during the ini- fails to justify their costs. Approtial setting-up stage) in order to priate notice should be given before demonstrate the company's interest such closings are implemented. in and commitment to the displaced employees. On the other o single approach can hope hand, the outplacement seminar is to eliminate the economic probably best accomplished by outand psychological costs as-
N
16
sociated with job loss. However, experience to date at Kaiser and in other settings indicates that outplacement efforts can play a significant role in minimizing such costs. Such efforts appear to be a necessary c o m p o n e n t of human resources planning efforts for many companies during the decade of the 1980s. [Z]