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Wynette Harewood

Human Resource Management - Arthur Lok Jack Global School of Business

Human Resource Management in a Recession

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In a recessionary period, human resource managers cannot afford to continue to operate in a ‘business as usual’ manner. In response to uncertainties in business environments, your human resource management leadership strategy should focus on:

  1. Staff reduction and its impacts on employees
  2. Adjusting its HRM functions
  3. Minimising economic adjustment impacts on the organisation
  4. Preparing for the period after a recession

Human Resource Management - Arthur Lok Jack Global School of Business

Let’s look in closer detail at the first two activities.

HRM Activities Associated with Staff Reduction & the Impact on Employees

In periods of economic decline, companies often seek to de-clutter ‘excesses’, trim operational ‘fat’ by removing resources such as time, money or people. These corporate activities are generally undertaken with the aim of improving operational efficiency. Therefore, employee downsizing shouldn’t be implemented as an ad hoc activity but rather as a part of the company’s overall strategy to improve its internal business operations. Employee reduction, retrenchment or separation impact three specific groups of employees. 

The Victims

First on the list are “victims” or persons who lose their job due to downsizing. The HRM objective in managing employee separation is to implement the downsizing process in a way that allows dismissed employees to leave the organisation with dignity. Termination with dignity requires separation packages to include: 

  • Severance pay
  • On-going career coaching
  • In-house counseling for separated employees
  • Outplacement services  to make job seeking easier
  • The provision of training and re-qualification courses to assist victims in acquiring new job market skill

Human resource management professionals should avoid sudden-death discharges i.e. abruptly telling employees of their job loss. Instead, consideration should be given to finding ways to eliminate the element of surprise, shock and humiliation employees may experience. A compassionate separation option is a decompression period of two or three weeks of notice. During this period, the affected employee has the time to complete projects, plan for the last paycheck and begin their job search. Employees should also be provided with an explanation of their severance package in writing. Sensitivity and care are required when employees are going through a termination process. Their lives and futures are at stake, and the organisation’s image and reputation are also at risk.  Line managers and human resource management professionals must appreciate the realities of human loss and hurt and be trained to listen attentively and respond appropriately to employees’ distress.

The Survivors 

The second group, the “survivors” are those employees who remain with the organisation. Though still employed, some persons may experience what psychologists label the “survivor syndrome”. This malady causes a marked decrease in the motivation, engagement, and productivity of employees who remain at a company following a workforce reduction. Common symptoms include job uncertainty, fear, anger, the perception of unfairness, stress from increased work and loss of loyalty and commitment. Some researchers suggest downsizing creates a phenomenon in survivors called “the cycle of failure” which begins with dissatisfaction and fear of taking action. Thus, leading to organisational inefficiency and reduced organisational commitment. 

The Implementers  

The third group, the implementers, the organisational managers driving the staff reduction process, represent the third group. Some authors have labelled these employees “executors”.  The downsizing executioners are individuals with responsibilities for planning, implementing and/or dealing with the aftermath of downsizing activities. Human resource professionals are responsible for training the executioners to cope with the downsizing process. Training will help them to display suitable forms of behaviour during the downsizing process.Human Resource Management - Arthur Lok Jack Global School of BusinessThe Impact of Headcount as a Reduction Strategy 

Employee layoffs can have negative, positive and mixed effects on an organisation. Headcount reduction by itself, as a recession survival strategy often causes an organisation’s performance to suffer. In addition to losing the knowledge of dismissed employees, massive downsizing negatively affects the entire network of knowledge within an organisation. Staff reductions also disrupt the organisation’s existing social networks, regarded by economists as valuable, intangible assets developed over long periods of time. Loss of employee loyalty, damage to the organisation’s image, the firing of knowledgeable people and loss of trust are some of the negative effects on staff reductions in organisations.

When layoffs are paired with organisational redesign and restructuring initiatives, organisational performance can be enhanced. A positive outcome from employee downsizing is the removal of redundant resources which can improve efficiency, productivity and profit by reducing labour cost. 

Human Resource Management - Arthur Lok Jack Global School of Business  

Human Resource Management Functions & Recession

Which HR functions are most likely to be impacted by a downturn in a company’s operations? The top four are training and development, recruitment and selection, compensation and workplace redesign.

Training & Development

In the area of training and development, a recession requires employees to have new skills. This creates a need for new training plans or revisions to existing ones.  As voluntary turnover generally decreases in a period of economic contraction, employees may require assistance to rethink career paths and revisit personal development plans and goals. A recessionary period, therefore, presents the organisation with an opportunity to adopt new approaches to human capital development to support competitive advantage.

Recruitment & Selection

In times of organisational crisis, recruitment of labour is likely to be stopped or significantly curtailed. Under these circumstances, meeting the organisation’s need for human capital requires a new recruitment and selection strategy. When unemployment is high, an employer has a larger pool of “high quality” potential employees to select from. This presents the selection challenge of having the right techniques to filter the best performing applicants from the rest of the applicant group. Promotional opportunities may also be stymied in organisations experiencing a recession, causing dissatisfaction for employees seeking advancement and growth.

Compensation & Workplace Redesign

The challenge of designing compensation programmes to provide equitable and attractive compensation and incentives for employees escalate in recessionary times. Maintaining the correct balance between base and incentive pay in the form of bonus schemes may have to be revisited. The organisation must also consider the adequacy of the existing health and welfare benefit programmes as the cost of employee benefit claims may increase due to greater levels of stress and resulting illnesses. 

It is not unusual for companies facing tough economic conditions to undertake job re-design and workplace restructuring initiatives. Faced with job loss, an employee’s primary concern in a restructured job may only be with the compensation factors. Other aspects of the job such as task variety, job relevance, or work-life balance may be ignored. Financial needs, however, are not an employee’s only source of motivation. Human resource management professionals who focus solely on compensation and ignore other job motivation factors demonstrate a limited understanding of or appreciation for workplace motivation factors. 

Change in workplace design can also be driven by outsourcing or offshoring of non-core operations. These are attractive strategies for supporting labour cost reductions.  Some of the risk associated with these strategies include a decline in employee morale and loyalty, often in sympathy for those who have lost their jobs, the loss of managerial control and internal talent, an increase in the complexity associated with managing operational processes. Ironically, when a company outsources jobs to individuals overseas, there is a loss of jobs in the domestic market, which can increase national unemployment levels.

Doing Nothing is Not an Option

To survive, and even thrive in a period of recession, an organisation has to be innovative and flexible enough to design and implement a new business strategy.  Effective human resource management professionals must respond to this change, by adjusting the HRM structures, practices and policies to help the company obtain competitive advantage the company. Doing nothing is not an option.

By: Wynette Harewood

Wynette Harewood is an HRM Consultant. Lecturer and the Programme Director for the Master of Human Resource Management at the Arthur Lok Jack Global School of Business.

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