- Published: August 29, 2022
- Updated: August 29, 2022
- University / College: University of Bradford
- Language: English
- Downloads: 7
Downsizing or rightsizing is an expression used to describe the strategy of achieving competitiveness through reduction of workforce. Optimal utilization of resource is a sustainable proposition, both economically and socially. Low unit labour costs are an important consideration in attracting investment and generating more jobs, and thus contribute to the reduction of unemployment and poverty. If a company which was producing 1000 units with 100 persons is not able to do so with just 80 persons, it can be said that the company has downsized its manpower and improved its productivity. Doing more with less is denominator management. It will increase productivity but not necessarily result in growth. If the same company is able to produce 2000 units with 150 persons it has done both denominator and numerator management. It achieved both growth and productivity. In India in the pre-liberalisation era labour was protected in labour markets and capital in product markets. In the post-liberalisation both feel less protected. Companies feel compelled to resort to denominator management to become competitive before they could think of numerator management. However, as discussed later, labour laws in India make it difficult to adjust workforce. In such a scenario voluntary separations to attractive payments (attractive relative to legally intended retrenchment compensation) cash rich companies are able to reduce their workforce and in quite a few cases even close divisions/plants. The legal, financial, fiscal and social implications of downsizing through voluntary separations are becoming the soft option. According to section 2(00) of the Industrial Disputes Act (inserted through an amending act in 1953) asserts that retrenchment does not include voluntary retirement of the workmen.
REASONS FOR DOWNSIZING
The possible reasons for workforce adjustment and downsizing could be both external and internal.
Structural and other changes in the economy/enterprisesChanges in environmentChanges in technologyChange in ownership and control (including disinvestments, mergers, acquisitions, etc.). In the past nationalization usually resulted in maintenance of existing workforce or increase in workforce while disinvestments, mergers and acquisitions usually warranted reduction in workforceBusiness process re-engineering including reassessment of manning pattern, work simplification, etc. Outsourcing, contracting out, parallel production, lease license manufacturing, etc. Introduction of information technology (ERP, SAP, etc.)Product/process obsolescenceMaterial substitution (for instance, jute to plastics)Chronic sickness/corporate failureDecline in employment elasticity due to automation of routine skills
Improper/inadequate human resource planningWrong selection/recruitment/placementInadequate trainingInadequate/improper motivation/reward systemsSubstitution of labour with capital
APPROACHES TO DOWNSIZING WITH WORKFORCE REDUNDANCY
The approaches could be several. But any and every approach must incorporate marketable skills on a continuing basis. Learning should become lifelong pursuit. Individuals must own a greater share of responsibility and have the willingness to acquire multiple skills. Combine worker flexibility with employment security. Develop a multiskilled, flexible, adaptive and willing workforce to ensure internal changes in work practices/ hours, etc. and locational (worker mobility across divisions/locations, etc.), numerical (gang size not rigid), and functional flexibility (ability to perform several tasks as needed). Review job specifications at regular intervals to make skill requirements reflect the current and future needs. For example, a paper manufacturer in south India observed that, in the past workmen without much qualification were appointed on account of a commitment with the union to employ a son of a workman who retires/dies, and the educational level of the workman was not satisfactory. That the lack of basic education of the workman is a negative factor was realised and has been impressed upon the trade union, and SSLC (10 years of schooling) has been stipulated as the minimum qualification. Similarly, at the supervisory and other levels, qualified personnel have been inducted. In another case, a new clause was incorporated in the appointment letter: Company requires the employees to acquire new skills and you shall participate in such skill learning schemes. On successful acquisition and application of new skills, you shall be entitled to additional remuneration as per scheme. You shall also be placed on a job different from that for which you have been employed. Employment practices perpetuate and exacerbate obsolescence. Several Indian organisations follow the practice of giving employment to one of the heirs of the deceased/retired employee, usually regardless of qualifications, at the time of switching to or adopting modern, state-of-the-art technologies. The possible way to deal positively with obsolescence is to stipulate realistic job specifications and review them as job contents change. Also, opportunities can be provided to existing employees for acquiring new qualifications and skills. Downsizing and job reduction should be the last resort in economies where unemployment is high. It is irrational to talk about human resource development and yet have as one of its goals tithe progressive reduction of manpower. Entrepreneurship, self-employment and livelihood programmes, including intrapreneurship and outplacement, are all fine ideals. But one needs to be careful in prescribing entrepreneurship as a source of livelihood for the redundant and for the unemployable. These, one must add at the cost of repetition, must be preceded by necessary and adequate training and appropriate follow-up systems/services. Much has been made of the so-called illegal hurdles in the form of various clauses in the Industrial Disputes Act. Permission for lay-off, retrenchment and closure was considered elusive. The ILO Convention No. 158 on Termination of Employment at Employer Initiative suggests that technical, economic and structural factors constitute valid reasons for termination of employment. Strangely, in India, retrenchment is easy if there is transfer of ownership even within the family, but not so even in the event of the firms imminent bankruptcy. Public policy should insist on notice, consultation and higher compensation, not prior permission. Companies consider VRS as one option for labour adjustment (discussed in detail later in this chapter). Simultaneously organizations need to initiate action for reassessing workflow and work norms; otherwise the work of the people who leave the organization will either suffer or get contracted out. Competitiveness can be achieved through cost cutting and value addition. Cost cutting can be achieved not only through cutting labour costs but also through the involvement of labour in cutting the costs of other inputs. Labour costs in most enterprises do not exceed 10 to 15 per cent. Other input costs account for over 80 per cent to 90 of the total costs. Companies gain more by cutting 10 per cent of other input costs than what they can gain by cutting 50 per cent of labour costs. It is difficult to secure employees cooperation to cut labour costs because such a strategy of competitiveness would mean some of the workers losing their jobs or earnings or both. It is my to secure the cooperation of employees in cutting other costs because it means smart working rather than hard working. More so if the employees involved are assured of a say and stake in the resultant savings.
SOME DOWNSIZING ISSUES IN RESTRUCTURING
Companies should be careful enough to avoid downgrading the organizations in the name of or during the process of downsizing. Similarly, companies should endeavor to upgrade, not just upsize the organizations. Proactive approach to downsizing is preferable ‘to reactive way of responding to the pressures of downsizing.
Assuming alternatives can be foundInvolving everyone in ideas for savingExploring collaborative exchange and sharing of resourcesRestructuring roles, with involvement and trainingPreserving problem-solving resourcefulness in reducing personnelExploring new marketsUtilizing, expanding volunteer and part-time resourcesScanning for innovative models that simplify and economizeFocusing on pain (problem) instead of potentialAssuming beyond limits, helpless to copeClosest decisions at the topBlaming the regular sources of leadership and sources of support for the problemAssigning overloadsCutting the most vulnerable personnel (e. g. training personnel)Cutting back of innovation resourcesCutting out coordinator of volunteers and marginal part-timers, young, old times etc.
Proactive and Reactive ways of responding to Downsizing Demands
Corporate restructuring has become a global phenomena. Whatever be the driving force for restructuring, growth, maturity, decline, merger,’ acquisition, alliances; changes in ownership, technology, products, processes, materials, customer preferences, etc. the short-term implication for employees is downsizing. Starcher (1999) identifies the following five paradoxes facing business in this context: There is increasing evidence that those practices which provide more meaningful work and higher quality of life in the workplace have a very direct impact on profits through increased productivity, greater innovation, higher quality and reliability, and more skilled and committed people at all levels. Yet current management practices do not reflect this finding. In fact, there is evidence, which indicates that some practices may be moving in exactly the opposite direction. We read that human and social capitals are becoming all-important in the post- industrial economy. Human capital includes intelligence, values, technical knowledge, experience, and creativity, network of contacts, corporate memory, as well as professional skills and experience. Nearly all corporate codes of ethics or conduct state that people are out most important assets. Yet management actions often destroy the human tissue of their own organizations as they downsize, reduce training budgets, and divest whole communities within their group. Research shows that employee satisfaction translates into customer satisfaction. Employee motivation and loyalty are closely related to customer loyalty, and the most profitable customers are the long-term loyal ones. Yet many companies still treat their employees as their costs. The human side of downsizing is often carried out in a way that causes morale, motivation, loyalty, creativity, and productivity of employees to suffer. Surveys indicate that almost all large companies have downsized and many of Ahem have downsized several times. Yet these same surveys show that fewer than one in four downsizing really achieve their objectives of reducing costs, increasing productivity, and improving quality and customer service. Numerous studies have shown that over one-half of mergers and acquisitions do not achieve their objectives. Often the only beneficiaries are the shareholders of the company being acquired who cash in on over-inflated valuation, while acquiring companies realize very limited added value. Yet 1998 saw more mergers and acquisitions than any other year in history and 1999 have maintained this pace. In view of the above, enterprises need to seek adjustment and undertake restructuring only when it is essential rather than as a fad or for ushering in change for the sake of change. When restructuring leads to downsizing, they should assess the hidden costs of downsizing and pay particular attention to information sharing, two-way communication and consultation. There is a need to generate among the people in the organization ownership of the changes proposed. Negotiated changes and flexibility (Ozaki, 1999) are easier to implement than unilateral dictates from management through office circulars.
MEASURES TO AVOID DOWNSIZING OR MINIMISE JOB LOSSES
In addition to the above, several measures could be considered to avert/minimize job losses. There is a need for caution, though. Restrictions on hiring, for instance, if continued over several years, may have unintended consequences and dysfunctionalities in terms of critical skill gaps at a much later date. The following are some of the measures that will minimize, if not preclude, job losses: 1) Restrictions on hiring for a limited period2) Spreading reductions over time3) Internal transfers4) Training and retraining5) Voluntary early retirement6) Income protection7) Restriction of overtime8) Entrepreneurship9) Extra shift/extended work week if demand is not a constraint10) Counseling and outplacement11) Reduction of normal hours of work12) Priority of rehiring
VOLUNTARY RETIREMENT SCHEMES (VRS)
Voluntary retirement is legally tenable and, forms an integral part of public policy. In the wake of liberalization the Government has created a special fund called, National Renewal Fund (NRF) and earmarked nearly 90 per cent of the fund to voluntary retire over 100, 000 employees from the central public sector undertakings which have not been doing well commercially. The government service rules also provide for voluntary retirement of civil servants as part of the governments efforts to downsize the government. In the public sector the Department of Public Enterprises (DPE) has framed guidelines, which mot public enterprises owned and controlled by the central government follow. The guidelines in force during the 1980s and early 1990s were: VRS open for employees who have completed 10 years of service or 40 years of service; Management of the enterprise has the right not to consider any request under VRSTerminal benefits include: balance of provident fund accumulation, leave encashment as per rules, gratuity as per Gratuity Act, one/three months notice pay as applicable, ex-gratia payment equivalent to 45 days emoluments (pay and dearness allowance) for eachcompleted year of service, or the monthly emoluments at the time of retirement, or salary forthe remaining period of service, whichever is less, and, travel for self or family to the place of settlement as per leave travel entitlement. 4) Higher ex-gratia can be proposed only after the approval of the BPE. This rule, however, does not apply in the case of existing schemes, and, 5) The above rules apply to all categories of employees. During late 1990s some public enterprises began to offer three months basic and dearness allowance for every year of completed service. Some others extended membership of benefits like medical and holiday homes, to voluntary retirees till the date of normal superannuation. In the central public sector, Steel Authority of India Limited (SAIL) has introduced a scheme in 1999 for those with a minimum of 20 years in SAIL or above 50 years of age. The monthly benefit, apart from the other benefits mentioned under the DPE scheme above, are: 100 per cent of last drawn basic pay plus dearness allowance for those who completed 55 years of age, 99 per cent to those above 52 years and below 55 years and 80 per cent to those at or below 52 years of age. The monthly benefits are payable on a quarterly basis through cheque. One of the most attractive VRS schemes in the private sector was introduced by the Tata Iron and Steel Company Limited in 1998. It is called early separation scheme. If the scheme is voluntary it should be voluntary for both employer and employee. If the scheme is called early retirement scheme, management can legitimize discretion of accepting or rejecting an application. The following are the essential features of the TISCO scheme: Employees separating before attaining the age of 40 years and who have not completed 10 years of service as on the date of separation, will be entitled to get a monthly pension (basic and dearness allowance) equivalent to the last salary drawn by them till their attaining the age of superannuation (60 years). Employees crossing the age of 45 years will get salary equivalent to 1. 125 times of their last drawn salary (basic plus dearness allowance) till the age of 60 years. Voluntary retirees and their families are entitled to medical benefits till the age of superannuation and after attaining the age of 60 as per benefits available to retiring employees. Voluntary retirees who stay outside Jamshedpur and do not wish to avail company hospital facilities are entitled to Group Mediclaim policy of New India Insurance Company for a total coverage of Rs. 95, 000per annum, each for self and spouse subject to deduction of Rs. 100 per annum per head. Employees separating and desirous of starting some business or vocation are also eligible for a loan of Rs. 2 lakh or 50 per cent of the pension benefits, whichever is less. Since the financial outgo on account of VRS is spread over several years, on a monthly basis, the actual cost to the company is less than what it would have been had the company paid the entire amount in lumpsum. From the employee point of view, though the job is gone, income (last drawn basic plus dearness allowance) is protected till he/she attains the age of 60. Employees who opt for VRS are not entitled for future increases in pay due to wage revisions or dearness allowance. They are also not eligible for reemployment. However, some schemes provide that in case of those avail VRS during the pendency of wage revision, the benefits of such wage revision will accrue to the concerned persons also if a clause to that effect is incorporated in the VRS. While someschemes provide for adjustment of outstanding advances/loans against lumpsum of gratuity and other payments, some foreign banks waived in full or substantially the outstanding dues/loans of those who opt, for VRS.
COSTS AND BENEFITS TO THE COMPANY
A company introduces VRS with a view to reduce its surplus labour. If a company can reduce its workforce through retrenchment it has to pay compensation at the rate of 15 days salary for every year of completed service. Companies employing more than 100 persons cannot retrench their employees without giving (a) prior notice, (b) consultation with employees/union, (c) paying compensation under the law, and, (d) obtaining prior permission of the appropriate government. Experience shows thatgovernments rarely give permission to closure, lay off or retrenchment. Therefore companies began to introduce schemes to induce workers to retire voluntarily. Such inducement has to be, in monetary terms, much higher than the normal retrenchment compensation. How high should the VRS amount be is dependent on a number of factors such as the following: The relative health of the enterprise: If the enterprise is chronically sick and has a record of not paying salaries and other statutory dues, workers are agreeing to a lesser amount. In fact, in several small; sick units workers lost their jobs and still did not even get statutory dues like earned wages, and accumulated benefits under provident fund and gratuity legislations. Therefore, the tendency of workers in such enterprises could well be, something is better than nothing. In contrast, in companies which are growing and earning profits, employees would be reluctant to go on VRS because they feel no threat to their job and earnings, The real cost to the company is not the amount spent on VRS. The real cost could often be intangible and not easily amenable to represent in monetary terms. Firstly, for instance, if the scheme is not properly designed, the company may, instead of losing redundant workers, be actually losing workforce in areas where their continuance in employment in the company is critical. With the result, it may be forced to recruit workforce again to fill critical skill shortages. If the workforce redundancy problem persists after VRS; such VRS adds to the cost and entails no saving or benefit to the company. Secondly, even among the surplus categories more often than not it is the employees with marketable skills who choose to leave voluntarily. The less skilled, less motivated under- performers may not leave because they can not get better opportunities elsewhere. This may adversely affect the company competitive ability when the average quality of its employees in the post-VRS scene is lower than before. Thirdly, it is generally observed that while in the public sector VRS is usually voluntary, it is not quite so in most private sector enterprises. When a company introduces VRS every now and then or when it coerces some of its employees to compulsorily take VRS, it might affect the morale and motivation of theemployees who remain in the company.
COSTS AND BENEFITS TO THE EMPLOYEES
For the high skilled, high performers VRS is a golden parachute. Assume that if they make a secure investment of the VRS amount which gets them, on a monthly basis 60 to 70 per cent of their previous earnings and they are able to get another than where they can earn at least 70 per cent of the previous earnings. Their total earnings will be 30 to 40 per cent higher. Alternatively, if they become successfulentrepreneurs, they can not only improve their earnings, but also provide jobs and livelihood opportunities for many others: The above is not always the case. Given the social and family obligations in India it is observed that in a substantial number of cases the VRS amount is spent on repaying old debts or fulfilling family obligations like investing in children’s education, daughter’s marriage, meeting similar commitments on behalf- of other family members in an extended joint family situation or building a house. A study by Gandhi Labour Institute observed that the mill workers had to seek alternative jobs by become vendors on footpaths and in a few unfortunate cases; women were drawn into prostitution for the sustenance of their family.
COSTS AND BENEFITS TO THE COMMUNITY
When large companies in small communities resort to significant downsizing through VRS and other means, the costs to the community are substantial due to resultant area degeneration and consequential spread of unemployment, social unrest and law and order problems.
Managements want the freedom to adjust manpower as per changing business needs. Labour laws in the country do not make it easy to retrench or reduce workforce at employer’s discretion. Not only compliance with certain procedures and compensation as per law, but prior approval of the government is mandated by law. In the circumstances, employers have two options: negotiate with workers/unions and arrive at an agreed plan of action. An amendment to the Industrial Disputes Act which came into force in 1985 enables employers to hire employees on fixed term contract basis. The Defence services engage people on short-term basis and compulsorily retire a certain proportion of the recruits after the completion of the fixed term. In some management training, consultancy, public relations and such other firms that employ professionals andmore recently in some government appointed regulatory authorities, most staff members are being recruited on fixed-term basis. In the past certain employers in certain industries have begun to make a distinction between contract for service and contract of service and treat employees as independent contractors or working non employees. For this arrangement to stand the test of the law of the land, employers need to ensure that if contested, they should be able to prove that such contractors have business relation and not employmentrelation with them, and (b) that there is no one-sided dependence of the contractors on the firms, which engage them. In the wake of Palekar award, certain newspaper establishments and in the wake of reorganization of India Leaf Tobacco Company have successfully converted several of their employees into independent contractors. In the former case, the journalist employees have become freelance journalists engaged on retainership basis drawing a reduced fixed base income with additional earnings being contingent on the column space that their contributions occupy in the newspaper/magazine concerned. Till 1999 managements were able to introduce voluntary/early retirement schemes on their own volition, with or without agreement with the trade unions concerned. In 1998, the Kamani Employees’ Union challenged the management of KEC International in the Bombay High Court that VRS results in change of conditions of service and therefore cannot be introduced without giving notice under Section 9-A of the Industrial Disputes Act, 1947. Section 9-A of the Industrial Disputes Act reads thus: ” No employer who proposes to effect any change in the conditions of service applicable to any workmen in respect of any matter specified in the Fourth Schedule, shall effect such change without giving to the workmen likely to be affected by such change a notice in the prescribed manner of the nature of change proposed to be effected or within forty-two days of giving such notice.” Items 10 and 11 of the IVth schedule refer to the following respectively: “(a) rationalization, standardization or improvement of plant or technique which is likely to lead to retrenchment of workmen, (b) any increases or reduction (other than casual), in the number of persons employed or to be employed in any occupation or process or department or shift (not occasioned by circumstance over which the employer has no control).” While the single judge Bombay ruled that VRS attracts items 10 and 11 of Schedule IV and thereof Section 9-A of the Industrial Disputes Act, 1947 the division bench. of Bombay High Court subsequently set aside the judgment on consent terms between the company and the union. The facts which weighed the division bench were that prior to the introduction of the VRS scheme the company entered into an agreementwith the union where the latter agreed to the former to the rationalization/reorganization of the activities of the company. Since the VRS was introduced during the subsistence of the agreement the union was not justified in raising the dispute. In future if other unions raise similar disputes in different contexts where there is no prior agreement between the union and the management how the courts will decide time only will tell. Till March 2000 companies approaching income-tax authorities for tax exemption of VRS payments/ receipts had to undertake that they introduced VRS to reorganise the business. Now there is no need for companies to make such declaration because permission of income-tax authorities is no longer required. Voluntary retirement schemes come into operation when a company announces the scheme to its employees. Employees have the choice to opt for the scheme. Employer has the choice not to sanction. Courts held that voluntary retirement is on par with voluntary resignation and before the employee is discharged and dues are settled an employee has the option to withdraw his/her request for voluntary retirement.
TAX ASPECTS OF VRS
Section 10 (c) was inserted in the Finance Act, 1987 to exempt from income tax amounts received under voluntary retirement schemes duly approved by the Central Government, having regard to the economy and viability of companies introducing such schemes. Till 1992 this exemption was available only for voluntary retirees from the public sector and the government. With effect from 1ST April 1992 the benefit was extended to the employees in the private sector also as per guidelines framed under rule 2BA. Till 31. 3. 2000 the VRS schemes had to be approved by the income- tax authorities. In presenting the budget for the year 2000-2001 the Finance Minister announced that henceforth there is no need to seek approval of income-tax authorities and tax exemptions apply to all the schemes framed in accordance with the rules framed there under and upto certain limits. As of April 2000, the tax-free limit of VRS amount in the hands of an employee is Rs. Five lakh.
FACTORS HELPING AND HAMPERING VRS
The response to VRS depends on the degree of trust in the management and the transparency with which the management approaches. It is not the quantum of benefits under the scheme as the desperateness of the situation which determines the response. Response to VRS will be high in companies in crisis and among people with skills and experience which are in great demand. There are no quick fix thumb rules of success factors which can be generalised. Organisations which have attractive schemes for neutralizing dearness allowance (double linkage in particular), time-bound promotions, track record of substantive hikes in pay and allowances in successive wage revisions and good in-service benefits for employees usually find it difficult to induce people to opt for voluntary retirement. Therefore, quite a few organizations found it necessary to extend certain benefits, like children’s education, medical, holiday homes, etc. or give added weightage in service for computing pension (where pension schemes are in vogue) in order to induce people to avail what the management consider is the soft option for reducing workforce. Still, the response to VRS schemes is usually lukewarm, and managements in private sector are known to use overt and covert pressures and counseling services to persuade the redundant employees to exercise VRS option.
HOW TO GO ABOUT VRS?
Consider whether there is a need to introduce VRS. Introduce the scheme only when you recognize the dire need to do so. VRS may, at the outset appear, to be a soft option as compared to retrenchment or lay-off; but the human affects for all the employees could indeed be traumatic. Therefore, like retrenchment, even VRS should be the last option rather than the first. Before making or considering any employee redundant, the management which was instrumental in initially creating the job and recruiting the person should take responsibility to consider whether all avenues to productively retrain and redeploy the person are exhausted. Identify who will be covered and who will not, who may opt and who may not. Does the scheme cover all levels across the organization, or a few levels/ skills/sections/ departments/divisions only? Even if the introduction of the scheme and its implementation are at the sole discretion of the management, it is essential to share the information with the Union(s) as also the employees through normal channels of communication even before the scheme is introduced. Due regard to the concerns and suggestions of Union/employees regarding the subject will go a long way in making the scheme comprehensive and workable. Awareness is imperative to build a receptive climate and ensure employee/union cooperation. Educate the supervisors and managers at all levels about the need, features and process of implementation of the scheme. Communication and counseling’ skills of supervisors and managers play a vital role in the success or failure of the scheme. It is desirable to consult/involve the Union in designing the scheme. But the administration of the scheme should be the responsibility of the management. There have been, of course, instances, where the Union and the management jointly identified surplus labour who could be considered first for availing the scheme. The scheme should be administered in a phased manner to avoid massive reductions in workforce suddenly, which may adversely affect the morale of the employees who are still part of the organization. Besides, the scheme may then have grave implications to the cash flow in the organization. The following core features of the scheme should be given careful thought in the context of the profile and needs of the organization and its people: Assessment of manpower ii present and ideal to meet the challenges of the competitive environmentCoverage of persons/skills/categories/ sections/ departments/ divisions background and potential of persons who would opt for VRSIdentify jobs/categories where VRS should be refused minimum qualifying period of service and/or age of employees for the purpose of determining eligibility under VRSReview of financial position of the company including wages and other service conditions and benefits of employee’s quantity and basis for computation of compensation for those who opt for VRSEffect of VRS payments on company finances and payback period for the company if VRS is considered an investment linkage, if any, with other retirement benefitsMethod of payment (lumpsum or installments)Process of design and implementation of the schemeCommunication, consultation, counseling and other support servicesStructures for administering the VRSReview and monitoring mechanisms8) The VRS scheme design should cover the following aspects: PreambleShort title of the schemeApplicabilityEligibilityEffective Date of the schemeDuration of the schemeDefinitionsCompensation amount and benefitsMode of exercising optionProcedure for application, acceptance, and withdrawal ‘Vesting of entitlement and benefits under the schemeMode of paymentDeductionsOther liabilitiesTax exemptionsDue dates for paymentsTerms and conditionsIssue of service certificateTreatment of pending agreements/wage revisions in progress, etc. Procedure for redressal of grievances/ settlement of disputes, if anyIt is desirable to conduct a labour market survey of the region before a voluntary separation scheme is introduced to find out ways and means of using local resources physical, natural and human ii and generate alternative sources of employment and livelihood. Based on such a survey and a reassessment of organizations internal needs, opportunities for intrapreneurship and entrepreneurship could be explored so that those who retire voluntarily gainfully use their skills and experience to become self- employed and generate, in turn, employment for others, particularly the new entrants into to the labour market. British Steel and British Coal in the U. K. had set up a subsidiary to augment industrial activity in areas where they had to close plants that led to massive lay-offs and workforce reductions. Hold communication briefing sessions, financial and Psychological counseling sessions for self and family members, and promote awareness about alternatives ways of sound investment and business opportunitiesManagements and unions would also do well to undertake studies of those who opted for voluntary retirement after a gap of time so that the findings can be gainfully used to bring about possible modifications in the schemes with a view to ensure that they benefit all concerned. They should also consider, for instance, whether lumpsum payments are good or payments over a period of time are more desirable. Organisations which have had to introduce VRS for a second time should consider whey the need recurred. If VRS are not accompanied by appropriate review of organization and methods with a view to simplification and avoidance of redundant and wasteful practices, workforce reductions would entail more work for the remaining workforce. Productive organizations should seek to make people work `smarter’ rather than work `harder.’ The latter types of programmes hardly work in the long run. Realise that while introducing VRS, organizations are announcing loud and clear that they are willing to pay hefty amounts to get rid of unwanted employees, but not to those good performers who may want to leave on a cordial note for better prospects. Consider what would be the implication of such a policy on the morale of the good performers and what the organization needs to do to sustain and retain such people? To sum up, there should a proper mechanism for monitoring the effects of VRS to give the organization feed back on a variety of aspects including the following: Financial costs of the scheme and its effect on the wage bill and operational costsCash flow requirements and gaps, if anyWho is availing the scheme; those who are considered redundant or those whom the organization needsHow does one know whether the efforts to retain the discretion with the management about who can avail the scheme do not, in the long run, prove counterproductive? What happens to whose who avail of the scheme, and what happens to the morale of those who remain in the organization? What lessons, if any, did the organization learn, to minimize, if not avert, the need for another VRS in the (not too distant?) future? Take workers and union and line managers into confidence, from the beginning and explain the rationale, content and process of the scheme.
Q1. Why VRS is considered a soft option? How does it help overcome the legal hurdles in downsizing employee strength? Q2. Discuss how can a company go about VRS? Q3. What are the costs and benefits of VRS to a company? Q4. What are the costs and benefits of VRS to the individual employees concerned? Q5. Write notes onTax aspects of VRSDifference between downsizing and downgradingDistinction between upsizing and upgrading