Morale of Remaining Employees Indicative of Successful Downsizing

August 27, 2009 ( - Organizations find that separation benefits provided to terminated employees impact the morale of remaining employees, according to a new study by DBM, a global outplacement, coaching, and career management firm, and the Human Capital Institute (HCI).

The study, Global Trends in Separation Practices , shows a company’s decisions about separating employees, including severance pay, outplacement support, and other continuing benefits, can create ripple effects across the entire enterprise long after the departing employees have left the organization, even affecting the company’s brand and public image.

According to a press release, the companies surveyed consider separation practices as part of an overall strategy to preserve and strengthen the relationship between the organization and its disparate constituents.

Virtually all organizations of the more than 1,200 business leaders from 45 countries reported problems resulting from a reduction in force, particularly noting decreased levels of morale (71%) and reduced loyalty (62%) among remaining employees, the press release said. Ninety-five percent of human resources professionals said the morale of remaining employees is the most important indicator of a successful downsizing event.

When determining separation policies, companies place the greatest emphasis on consideration of departing employees (84%) and protecting the morale and commitment of remaining employees (82%) over financial considerations such as budget (68%) and return on investment (40%), the survey found. Most organizations (81%) indicated they believe providing higher levels of separation benefits most significantly impact the morale and productivity of the remaining workforce.

Most organizations (85%) surveyed provide severance to at least some of their employees, with almost half (45%) providing severance to all of their employees, including part-time employees. Two-thirds (66%) reported they pay severance in lump sums instead of as continued salary payments.

According to a press release, more than half (54%) of responding companies increase severance benefits for terminations resulting from organizational change events, such as mergers, acquisitions, closures, outsourcing and the sale of the company. Years of service (85%), followed by level within the organization (50%), are the most frequently used factors for determining severance.

Approximately half of organizations provide senior executives (48%) and executives (49%) with three weeks or more of severance for each year of service, while managers and below generally receive two weeks or more per year of service, the press release said. The majority of companies set maximum severance payments to 12 or more months of salary and minimum payments to at least two to four weeks of salary.

Outplacement services are provided to some terminating employees by 75% of organizations with 100 or more employees. Organizations that provide outplacement report that the primary motivation for providing support is corporate values (76%), while less than 10% identify labor relations or legal considerations as a rationale.

Level within the organization is the factor most often used to determine outplacement support (63%), followed by years of service (39%). More than half (58%) of responding employers increase levels of outplacement support under certain circumstances, such as mergers, acquisitions, and facility closings. Increased support is often determined on a case-by-case basis.

Globally, at least 90% of human resources professionals agree the most valued features of outplacement programs include support, coaching and guidance from consultants; self-marketing materials; skill building and coaching; job leads and networking connections; and access to online resources.