The media is sending out mixed messages on the state of the economy at
present. Many businesses are downsizing or restructuring, while others are
gearing up for mergers and acquisitions. In all these situations, a key issue
facing employers is how to retain key staff during critical periods.
Staff retention mechanisms
When downsizing, a business will often find it needs to plan carefully for a
critical period shortly beforehand. In these periods, providing services to
clients and customers ‘as normal’ is often a priority, and may be a legal
obligation. Where company expansion or acquisitions are in the pipeline,
individuals in key positions may fear they will not be retained at the same
status after reorganisation, or that their sphere of influence may alter
In these circumstances, employers often adopt staff retention mechanisms.
When downsizing, the most common approach taken by employers is to inform key
employees in advance what their severance payments might be, and add a ‘carrot’
to that package provided the individual works effectively and productively
through the key critical period. Mechanisms vary, but invariably involve
financial incentives. Two common examples of this are to increase salary and/or
bonus potential for the key critical period, or to pay some form of terminal
bonus at the end of it, in each case dependant upon the proper carrying out of
duties during the period.
The incentives paid to the individual are likely to be fully taxable under
the PAYE scheme, or at least subject to basic rate tax after a Form P45 has
been given and employment terminated.
Employers should also ensure that apart from any change to remuneration, the
normal terms of employment apply during any key critical period. The enhanced
terms should be forfeited if there is any voluntary termination or termination
for gross misconduct during the period. Companies should also ensure they do
nothing that would put them in breach of contract, rendering any
post-termination restrictions unenforcable.
In downsizing situations, the timetable for communication with employees may
be out of the employer’s direct control, due to the need to consult
individually and collectively at specific times.
Collective consultation should begin at least 90 days before the first
dismissal is intended to take effect, where 100 or more employees are being
dismissed within the same establishment in a period of 90 days or less. Where
the number is between 20 and 99, the period is 30 days. In such scenarios, employers
would do well to have their retention schemes ready to roll the moment the
consultation period begins.