B&A is a small auto parts manufacturer in Hong Kong with 80 staff.

Due to increased
competition in the automobile industry, the company anticipates a permanent reduction in the
demand for its industrial products. They have decided to devise a sequential strategy that
involves the implementation of a series of steps beginning with voluntary alternatives. It is also
decided that layoff will be the last resort if all other alternatives do not work well. Suppose you
are the HR Manager of B&A. You have been asked by top management to work out a sequential
strategy and communicate it to all staff in writing as well as in meetings.
Under what circumstances might a company's managers prefer to use layoffs instead of
early retirements or voluntary severance plans as a way to downsize the workforce? Use this
B&A scenario to illustrate.
Answer:
Downsizing means planned elimination of positions or jobs (Cascio 1993). Layoffs may
reduce the costs. But on the contrary, it can bring negative impacts. Whether layoff improves the
firms operation, it depends largely on the survivors. Honestly speaking, layoff may demoralize
the survivors and lower their sense of job security. On the contrary, early retirement or voluntary
severance plans can also cause a series of problem. Thus, whether the managers prefer to use
layoffs instead of early retirements or voluntary severance plans as a way to downsize the
workforce depends on the company strategy.
Early retirement refers to give the choices to the employees to retire earlier and offer
them a package of early retirement incentive to entice them to take the deal. But the company
doesnt take the control of which staff to be early retired under this early retirement policy. The
choice is on employees side. The problems with this policy are as below:-

Employees with top performance may leave B&A / Target layoff group
Those employees with great performance may probably choose to early retire which in

turn B&A may lose lots of high calibers unwillingly. For those marketable employees, since they
are equipped with excellent technical skills and may grow with B&A so that understand the
values, beliefs, operations and culture of B&A, this group of employees is so valuable and can
easily find other jobs in the market. If these high calibers or senior employees leave because of
the early retirement incentives, company may face a talent drain. B&A cannot control which
employees leave since those leaver are also eligible to take this choose. How can B&A confront
with the increased competition with insufficient talent? It is a challenge to find a replacement for
a sophisticated, highly skilled employee with experience in the market. Not only B&A will need
to pay the sum of financial incentive for early retirement, it will also need to pay the recruitment
cost. If for recruiting the high caliber, B&A may need to pay for the agency fee to the search
firm.
Besides, if the target layoff group is not those older generation with great experience,
instead they would like to laid-off those who are fresh and green with less experience, B&A may
choose to use layoff rather than early retirement offer. Under this circumstance, B&A can save
the sum of retirement incentive and severance payment.

Too few or too many employees quit B&A

Since B&A doesnt have the right to choose which employees take the deal to early retire,

there may be too few or too many employees take advantage of this early retirement option as a
result. If too few to leave, B&A may need to take other alternatives to downsize the company. If
too many to leave, B&A will face a shortage of manpower. Actually, B&A now has 80 staff. If
B&A targets to downsize its company to 60 staff, it turns out that a total of 30 staff chooses to
early retire. How should B&A deal with such a large number of leavers? In an auto parts

manufacturing industry, most of the employees are highly skilled and equipped with specific
technical skills. It would not be so easy to recruit a replacement in a short period of time. Apart
from the sum of financial incentive pay to its employees, B&A also needs to pay the costs
associated with recruiting the replacements.

To avoid age discrimination

Age discrimination is always a hot topic in the society. When everyone heard about the

early retirement offer, they will think of the older generation at once. For the youngsters, it is not
possible for them to take this deal as they are not eligible. For sure, if the employees chose to
retire voluntarily, there is no age discrimination because they retire earlier in exchange for a
severance package or early retirement incentive. However, employees may perceive it as a plan
to force them to early retire, otherwise, will be terminated. Suppose B&A offers the early
retirement at first, but no one or only a small part of employees who are eligible for early
retirement take this offer. Then B&A laid-off those who are eligible for early retirement but had
no intention to take the offer. In this case, since they are being terminated constructively, it may
subject to the age bias.
Therefore, to avoid the host of problems above, B&A may choose to use layoff rather than early
retirements or voluntary severance plans to downsize.
Design a communication strategy to deliver the bad news in such a way that neither the
staff made redundant nor the survivors will feel bitter toward the company. Draft the description
or announcement that would frame the strategy in an appropriate context.
HR should give advance notification and convey a clear justification to all employees in
advance about the reason for downsizing, so that they will understand why downsizing is
necessary and will be more willing to cope with the change. This industry environment reason

serves as a clear justification that why downsizing is a must. HR should clearly communicate
with the employees about the alternatives which avoid layoff and reduce the companys cost at
the same time. (Redman and Wilkinson, 2001)
Answer:
Step 1: Conveys advance notification and offers the alternatives
Because of the severe competition in the automobile industry, the management of B&A
anticipates that there will be a reduction in the demand for products. It is needed to implement
cost cutting and let the company can regain the profitability. However, B&A is not willing to
laid-off anyone. To ensure the jobs of each of you, the management offers the alternatives below:

Early retirement scheme

For those employees who at age 48 or above, prefer to retire earlier due to ill health or

would like to enjoy more personal time, they may opt to early retire. The early retirement
incentive will be, say 20% more than the original amount.

Reduced work week schedules / Shortened work week

It aims to reduce the number of work hours, for examples, from 40 hours per week to 30

hours per week, a 25% of reduction. Or to reduce the working week to 4 days instead of 5 days.
The amount of reduced work hours or working day is decided by the employees. There is no
standard reduction percentage.

Voluntary leave of absence

It aims to encourage the employees to take no-paid leave or paid annual leave. Just like to

practice of Cathy Pacific during SARS in 2003 and business deterioration in 2009, Cathy Pacific
also developed this plan to make it through the hard time. (Teddy Ng 2009)
For those employees who would like to take the options, please kindly submit the name
and option chosen to HR in personal. We appreciate your kindly help to make it through the
rough time.

Step 2: Implements the actions

If the first round of cost cutting program has been exhausted and cannot reach the costreduction target, the management has to implement the actions below but we still avoid the need
for a layoff:

Elimination of overtime
Both mandatory and voluntary overtime practice will be eliminated.

Pay freeze
B&A announces that the company will stop increasing the remuneration of employees due to the
cost cutting objective.

Reduced work hours

B&A will reduce the number of work hours of employess from 40 hours per week to 30 hours
per week, a 25% of reduction.
The above programs will be implemented if the first round of cost cutting is not effective.
If there are any concerns or confusion about the actions, please do not hesitate to communicate
with HR for further information. If it is the case that these kinds of programs have to be carried
out, HR will circulate more detail information for your information. To avoid any layoff, we have
no choice but to implement these. We feel regret about this. Hope all of you will understand the
current situation of our firm.
Step 3: Layoff as a last resort
Assume the competition among automobile industry become even rough, we have no
choice but to carry out the layoff. However, it will be served as a last resort. B&A promises that
will give advance notice and outplacement services (if needed) to the employees. There will be
two alternatives:
Get the advance notice
E.g. Company will give you one months notice period

Payment in lieu of notice

Company will pay in lieu of notice, e.g. one months pay, and you can leave sharp immediately
Therefore, the laid-off parties will have time to search for other jobs. To be fair, the

management will set out clear layoff criteria to follow. Honesty speaking, all of you are our
valuable assets. But under such economic reason, we feel painful to have this layoff decision. We
will base on the performance rather than the seniority principle. As B&A has conducted a welldeveloped performance review session half a year with all employees, it is reasonable that we
take the result of the performance review as a reference for deciding the parties to be laid off.
B&A will offer those a job-hunting service to ease these transition. With downsizing, we
understand that some employees may have to take on more job responsibilities and may be
overloaded with work. We will do all we can to ease this such as job redesign. You may address
you concerns to us at anytime.
Under such difficulties, hope all of you understand the reason behind downsizing. To get
it through the hard time, B&A needs all the support from you. After downsizing, we ensure that
B&A can remain its profitability. All the remaining position will be secured.