Redundancy alternatives: a stay of execution

Job losses continue to dominate the headlines as businesses scrabble to save money. But there are plenty of alternatives to redundancy which can both save you cash and ensure you hang on to your best staff through the tough times. Nick Martindale reports.

The first month of this year saw a wave of job losses on a scale not seen in the UK for almost two decades. Day after day, the likes of steelmaker Corus, car manufacturer Nissan, online portal Shop Direct and pharmaceuticals giant Pfizer announced swingeing cuts, while well-known names such as glass and tableware manufacturer Waterford Wedgwood, furniture retailer Land of Leather, and discount shoe retailers Barratts and PriceLess all headed into administration.

But according to research conducted in January by the Chartered Institute of Personnel and Development (CIPD) and professional services firm KPMG, companies are not being quite as ruthless as they could be. Half the companies polled said they had introduced recruitment freezes as an alternative to redundancy, 44% had terminated agency or temporary worker contracts instead of cutting in-house staff, while 15% had introduced short-term working. Further measures included making greater use of flexible working (19%), cutting bonuses (17%) and wage reductions (7%).

How hotel chain Malmaison plans to avoid job cuts

Malmaison Liverpool

As the economic climate has deteriorated, hotel chain Malmaison has implemented a number of initiatives with the aim of ensuring it does not have to make staff redundant.

In autumn 2008, the business introduced a recruitment freeze and has since sought to replace any leavers by redeploying people from other parts of the business and enlarging the remit of existing staff.

“We’ve tried to use it as a positive rather than a negative, saying ‘here’s an opportunity for you to really step up and here’s the training and development to help you get there’,” says Sean Wheeler, group director, people development. “People have really embraced that.”

In January 2009, the company offered staff the option of taking unpaid sabbaticals – with one person so far having taken this up – and announced a pay freeze, which will be reviewed on a quarterly basis.

“My stance is to look at everything else we could do without getting rid of people because our people are our brand,” says Wheeler. “When you’ve spent so long getting good people you’ve got to keep them even in the tough times. If you engage them and tell them what’s going on, you’ll get people to buy into it.”

Wheeler estimates there are still 14 jobs at risk, although he predicts that expansion in the sales and marketing teams means there will be a net loss of zero.

“In the past we would have probably reached for the chequebook,” he admits. “But redundancy is still a cost to the business.”

Many of the organisations looking at alternatives to redundancy can be found in manufacturing, and the car industry in particular. Car-makers Jaguar Land Rover and Vauxhall, for example, have offered staff sabbaticals in return for 80% and 30% of pay respectively, Honda announced plans to shut its Swindon plant for February and March, and Aston Martin moved staff at its Gaydon base to a three-day week.

“Companies are reducing pay settlements and looking at freezes or deferring pay increases as a means of containing labour costs,” says David Yeandle, head of employment policy at manufacturing body EEF. “What’s interesting is that this doesn’t seem to be generating enormous bad feeling among employees and their representatives.”

But other industries, are proving more reluctant to reach for redundancy. KPMG, for example, has asked all staff to volunteer to sign up to a four-day week or a four- to 12-week sabbatical period on 30% pay, which could then be implemented later on in certain parts of the business should conditions worsen.

“One of the main drivers is to make sure that should things deteriorate we can keep our team together,” says Rachel Campbell, head of people, who developed the idea.

“We’ve invested an awful lot of money in recruiting and developing a talented team, and we want a more positive, responsible solution than redundancy should we be faced with [a deterioration].”

Campbell says it is still too early to see how popular the scheme proves, but the business hopes to sign up “the majority” of its staff. “They know this is a tough market, so this gives them an opportunity to play their part in helping to protect their jobs,” she says. “We’ve been very clear that we don’t currently have any firm-wide redundancy plans, but if we want to be able to respond further down the line, at speed and in a positive way, we need to plan now.”

According to Gerwyn Davies, public policy adviser at the CIPD, HR has a pivotal role to play in selling the business case of such alternatives to the board.

The cost of making someone redundant per employee is more than £16,000, and that doesn’t include the productivity costs associated with lower employee morale and loss of skills,” he says.

“The investment that companies have made in training their staff over several years could be lost very quickly, and when the economy does recover it could be very difficult to replace those skills.

“But HR also needs to be aware of current budgetary pressures and constraints,” he adds. “The financials are imperative, so regular communication with the finance director and the board more generally is essential.”

Peter Reilly, director, HR research and consultancy, at the Institute of Employment Studies, says HR must ensure it retains a say in which people are retained.

“The goal should be to enhance the workforce,” he says. “The danger is that the number-crunchers control the exercise and take out so many heads that you don’t end up with the workforce you need.”

Yet Sheila Gunn, partner and head of employment at law firm Shepherd and Wedderburn, warns that companies could be on dodgy ground if they attempt to change working arrangements without consent.

“People are good at remembering the legal process around redundancy, but they have to be careful when they look at other areas,” she warns.

“I used to draft quite a lot of clauses around short-time working and there’s a very specific legal provision about how you do it. But I’ve not been asked to do that as much in the last 10 years or so.”

Gunn also warns that companies must follow collective redundancy consultation procedures whenever 20 or more people could be affected by any change in a key term of employment in a 90-day period, even if redundancy is not at that point being considered.

“If you don’t follow the right steps there are penalties that can be awarded of 13 weeks’ pay per employee,” she says. “HR departments need to work closely with legal advisers.”

In any case, such initiatives are by their very nature short-term, admits the EEF’s Yeandle. “Companies can batten down the hatches, cut costs, reduce pay and switch to short-time working, but they can only realistically do this for three to six months,” he says. “There will come a time when people would rather leave with some money and try and find something else.”

Read our Top 10 alternatives to redundancy

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