What Are Employee Separations?

An employee separation occurs when an employee ceases to be a member of an organization. The turnover rate is a measure of the rate at which employees leave the firm. Well-managed companies try to monitor their turnover rate and identify and manage causes for turnover. The goal is to minimize turnover and the costs of replacing employees. Replacement costs, particularly for highly skilled positions, can be surprisingly high. For example, replacing a U.S. Navy fighter pilot may cost more than $1,000,000. However, multiple turnover rates can be calculated, and it is important to focus on the correct numbers. Exhibit presents the basics about calculating turnover rates. An excessively high turnover rate compared to the industry standard is often a symptom of problems within the organization.

Employee separations can and should be managed. Before we discuss the management of separations, however, we examine both the costs and the benefits of separations.

Types of Employee Separations

Employee separations can be divided into two categories. Voluntary separations are initiated by the employee. Involuntary separations are initiated by the employer. To protect themselves against legal challenges by former employees,employers must manage involuntary separations very carefully with a well-documented paper trail.

Voluntary Separations

Voluntary separations occur when an employee decides, for personal or professional reasons, to end the relationship with the employer. The decision could be based on the employee obtaining a better job, changing careers, or wanting more time for family or leisure activities. Alternatively, the decision could be based on the employee finding the present job unattractive because of poor working conditions, low pay or benefits, a bad relationship with a supervisor, and so on. In most cases, the decision to leave is a combination of having attractive alternatives and being unhappy with aspects of the current job.

Voluntary separations can be either avoidable or unavoidable. Unavoidable voluntary separations result from an employee's life decisions that extend beyond an employer's control, such as a spouse's decision to move to a new area that requires the employee to relocate. However, recent studies show that approximately 80 percent of voluntary separations are avoidable, and many of those are due to staffing mistakes. By investing in quality HRM recruiting, selection, training, and developmentprograms , companies can avoid a poor match between the employee and the job."

The two types of voluntary separations are quits and retirements.

Quits

The decision to quit depends on (1) the employee's level of dissatisfaction with the job and (2) the number of attractive alternatives the employee has outside the organization." The employee can be dissatisfied with the job itself, the job environment, or both.

In recent years, some employers have been using pay incentives to encourage employees to quit voluntarily. Employers use these voluntary severance plans, or buyouts, to reduce the size of their workforce while avoiding the negative factors associated with a layoff. The pay incentive may amount to a lump-sum cash payment of six months to two years of salary, depending on the employee's tenure with the company and the plan's design.

Retirements

A retirement differs from a quit in a number of respects. First, a retirement usually occurs at the end of an employee's career. A quit can occur at any time. (In fact, it is in the early stages of one's career that a person is more likely to change jobs.) Second, retirements usually result in the individual receiving retirement benefits from the organization. These may include a retirement income supplemented with personal savings and Social Security benefits. People who quit do not receive these benefits. Finally, the organization normally plans retirements in advance. HR staff can help employees plan their retirement, and managers can plan in advance to replace retirees by grooming current employees or recruiting new ones. Quits are much more difficult to plan for.

Most employees postpone retirement until they are close to 65 because that is the age at which they are entitled to Medicare benefits from the government. Without these benefits, many workers would find it difficult to retire. It is illegal for an employer to force an employee to retire on the basis of age.

Many Fortune 500 companies have found early retirement incentives to be an effective way to reduce their workforces. These incentives make it financially attractive for senior employees to retire early. Along with buyouts, they are used as alternatives to layoffs because they are seen as a gentler way of downsizing.

Involuntary Separations

An involuntary separation occurs when management decides to terminate its relationship with an employee due to (1) economic necessity or (2) a poor fit between the employee and the organization. Involuntary separations are the result of very serious and painful decisions that can have a profound effect on the entire organization and especially on the employee who loses his or her job.

Although managers implement the decision to dismiss an employee, the HR staff makes sure that the dismissed employee receives “due process" and that the dismissal is performed within the letter and the spirit of the company's employment policy. Cooperation and teamwork between managers and HR staff are essential to effective management of the dismissal process. HR staff can act as valuable advisers to managers in this arena by helping them avoid mistakes that can lead to claims of wrongful discharge. They can also help protect employees whose rights are violated by managers. There are two types of involuntary separations: discharges and layoffs.

Discharges

A discharge takes place when management decides that there is a poor fit between an employee and the organization. The discharge is a result of either poor performance or the employee's failure to change some unacceptable behavior that management has tried repeatedly to correct. Sometimes employees engage in serious misconduct, such as theft or dishonesty, which may result in immediate termination. Recently, employee use of social media has become the basis for employee discharges. The Manager's Notebook, "Social Media and Work Can Be a Terminal Mix," explores this practice.

Managers who decide to discharge an employee must make sure they follow the company's established discipline procedures. Most nonunion companies and all unionized firms have a progressive discipline procedure that allows employees the opportunity to correct their behavior before receiving a more serious punishment. For example, an employee who violates a safety rule may be given a verbal warning, followed by a written warning within a specified period of time. If the employee does not stop breaking the safety rule, the employer may choose to discharge the employee. Managers must document the occurrences of the violation and provide evidence thatthe employee knew about the rule and was warned that its violation could lead to discharge. In this way, managers can prove that the employee was discharged for just cause. Chapter 14 details the criteria that managers can use to determine whether a discharge meets the standard of just cause."

An example illustrates how costly discharging an employee can be if handled poorly or without due process. Sandra McHugh won $1.1 million in damages in an age discrimination lawsuit against her employer. McHugh was forced out of her job because of her age which was 42 at the time. 16

Layoffs

Layoffs are a means for an organization to cut costs. For example, the recent layoff announcement by Zynga, mentioned in the opening of this chapter, was based on financial considerations. Changes in online gaming and a reduction in revenues led Zynga to make the decision to let go hundreds of its employees.

A layoff differs from a discharge in several ways. With a layoff, employees lose their jobs because a change in the company's environment or strategy forces it to reduce its workforce. Global competition, reductions in product demand, changing technologies that reduce the need for workers and, mergers and acquisitions are the primary factors behind most layoffs." In contrast, the actions of most discharged employees have usually been a direct cause of their separation. Although we can make these conceptual distinctions between a layoff and a discharge, the Zynga workers whoendured being cut simply know that they lost their jobs, whatever the process is called.

Layoffs have a powerful impact on the organization. They can affect the morale of the organization's remaining employees, who may fear losing their own jobs in the future. In addition, layoffs can affect a region's economic vitality, hurting the merchants who depend on the workers' patronage to support their businesses. Layoffs can also affect the perceptions of the safety and security of an area.

Investors may be affected by layoffs as well. The investment community may interpret a layoff as a signal that the company is having serious problems. This, in turn, may lower the price of the company's stock on the stock market. Finally, layoffs can hurt a company's standing as a good place to work and make it difficult to recruit highly skilled employees who can choose among numerous employers.

Layoffs, downsizing, and rightsizing

Let's clarify the differences between a layoff, downsizing, and rightsizing. A company that adopts a downsizing strategy reduces the scale (size) and scope of its business to improve its financial performance.When a company decides to downsize, it may choose layoffs as one of several ways of reducing costs or improving profitability. In recent years many firms have done exactly this, but we want to emphasize that companies can take many other measures to increase profitability without resorting to layoffs.

Rightsizing means reorganizing a company's employees to improve their efficiency. An organization needs to rightsize when it becomes bloated with too many management layers or bureaucratic work processes that add no value to its product or service. For example, companies that reconfigure their frontline employees into self-managed work teams may find that they are overstaffed and need to reduce their headcount to take advantage of the efficiencies provided by the team structure. The result may be layoffs, but layoffs are not always necessary. As with downsizing, management may have several alternatives to layoffs available when it rightsizes its workforce. Whatever the label, the result of downsizing or rightsizing is that people are losing their jobs.

Managing a layoff is an extremely complex process. Before we examine the specifics, however, we'll examine an important alternative: early retirements.