Employee Relations in Economic Recession and Post-Recession Periods - Essay Example

Employee Relations in Economic Recession and Post – recession periods Introduction The of employee relations has been an issue that has attracted the interest of the academics, scholars and management practitioners since the first traces of employment contracts through the emergence of unions have placed emphasis on the exchange bargain between organizations and employees (Lewis et al., 2003). This interest has further grown during the last years where the economic crisis has fostered implications on the employee relations (Gennard, 2009) The economic crisis resulting from the collapse of financial markets is evident throughout the world in the economic indicators undertaking a negative trend (Hartley – Kite et al., 2009). Unemployment rates in the European countries have risen rapidly and the overall production output in virtually every sector (service, manufacturing, public) has dropped during the two year period 2008-2009 as compared to previous years (Gennard, 2009). In several cases, organizations are challenged not primarily by the need to generate profits, but predominantly by the need to survive. In that respect, firms have proceeded into a number of initiatives and measures in their attempt to reduce costs (increase efficiency) and simultaneously sustain part of their competitiveness, especially in the current turbulent market economies and environments (Gennard and Judge, 2005; Rose, 2004). According to Gennard (2009) employee relations have been at the spot of light during these years of recession, particularly in labor – intensive industries and sectors, where the pursuit of efficiency clearly pertains to the cutting back of costs allocated to the human resources. As demand decreases, production is pushed down and in turn the need for human resources becomes highly controllable (Hartley – Kite et al., 2010). As Farnham (2000) notes, economic recession and employee relations are largely interrelated in that the first clearly impacts the second within the overall organizational environment. Challenges in the Framework of Employment Relations Lewis et al. (2003) define employment relationships as fundamental exchanges between employers and employees under the agreement of providing mental and physical ‘labor’ on the part of the employees, whereas the employers abide to offer rewards for the ‘services’ provided. Rose (2004) further states that the overall discipline of employee relations does not simply pertain to the ‘physical’ employment contract but on the ‘psychological contract’ between the two parties (employees and employers). Employee relations are focused on the establishment of grounds in which both organizations and their employees gain benefits and ensure that their interests are met and satisfied. Within the framework of psychological contracts, Hartley – Kite et al. (2009) identify the most critical challenges faced by organizations; economic recession apart from the actual employment contracts have significant effects on the psychological underpinnings of the employee relations. Downsizing and cutting off costs are the two most common practices of organizations in their attempt to cope with the economic recession (CIPD, 2010). Downsizing pertains to the lay off of employees under the scope of concentrating more tasks on smaller workforces in order to gain efficiency. Cutting off costs on employees’ salaries, benefits and compensation and rewards is the second strategy identified by Rose (2004). In this case, organizations maintain their workforces but they modify terms on the employment relations and employment contracts. Both these practices entail a great deal of negative effects on the employees’ themselves. While firms during economic crises, strive for focus on improved productivity and performance, their employed activities can have reverse effects on the morale, empowerment, participation and motivation of employees (Budhwar and Fadzil, 2000; Farnham, 2000). According to Farnham (2000) the employment relations are differently conceptualized and contextualized in the different organizational forms and especially in the different sectors. The private sector for example is driven by the market forces and therefore engages into a profit-seeking behaviour; in that extend, employment relations become subject to the generic objectives (profit making) and thus are sensitive to the economic conditions of the industry. The public sector, on the other hand, is not underlined by the traditional view of profit maximizing purpose; the public sector is accountable to the political and state authorities but at the same time it is not driven by the forces of the market. Nevertheless, given the fact that, the public sector’s human resources account for as much as 70% of the total operating expenses, the need for efficiency in employment contracts and employment relations is evident. Gennard (2009) argues that the economic and financial crises have profoundly different impacts on the private and the public sectors; private organizations will proceed into efficiency solutions more eagerly and more drastically than the public enterprises. This paper focuses on the private sector organizations, and particularly on large companies that are reportedly more inclined towards undertaking radical measures (such as downsizing-redundancies etc) during the first traces of economic recession (Figure 1.0) Figure 1.0: Redundancies by Business Sector (Source: CIPD, 2010) Hartley – Kite et al. (2009) explore the challenges that organizations around the globe and with a special attention on the UK environment, face with regards to the current economic crisis and research on a number of different managerial perspectives the most important ones (Figure 2.0). Amongst the most important ones are employee engagement, talent management, redundancy and downsizing. The authors explain that all these are highly interrelated as they are products of the implied strategies and practices that firms deploy in their effort to efficiently and effectively cope with the economic recession. Figure 2.0: Fundamental “people issues” that organizations face during the economic recession (Source: Hartley-Kite et al., 2009) Appelbaum and Donia (2000) claim that, the most critical challenge of organizations in the case of downsizing, is redundancy. This report adopts this perspective and asserts that redundancy is a challenging ‘strategic practice’ on the part of firms due to the negative feelings and emotions that eventually causes to the employees remaining with the organizations. The surviving employees – in redundancy cases – are often exhibiting behaviors that do not fit the overall climate that firms wish to develop during economic crisis; a climate that fosters employee motivation and commitment. According to the CIPD (2010) redundancies result in low employee morale, low levels of motivation and engagement and even lower levels of trust. The lack of those feelings, as stressed by Appelbaum and Donia (2000) can adversely hamper their productivity and performance. Therefore, while organizations proceed to redundancies in order to strengthen their position through cutting back on costs, they are eventually faced with employees’ lack of support over the goals and objectives that are targeted (Gennard and Judge, 2005). The CIPD (2010) reports that firms that have made redundancies, are experiencing lower productivity levels and worsened performance on the part of the ‘remainders’ (the surviving employees). Gennard (2009) further argues that the redundancies in particular sectors (service sector and manufacturing) in most European countries have gradually created a ‘reverse’ effect on the firms; productivity gains that were sought to be achieved were actually not attained and at the same time the ‘efficiency’ objective was at stake as the employees that were maintained in the companies appeared to be significantly underperforming due to their lack of commitment, motivation and trust to the organizations. Gennard and Judge (2005) argue that the issue of redundancy is a twofold challenge for the organizations; on the one hand the challenge stems from the results of the redundancy and on the other hand it stems from the redundancy itself. Particularly, firms that downsize need to be strategic and accurate on the employees that are releasing and very positive on the employees that they are maintaining. This is actually the challenge that is generated from within the management’s decision and needs to be implemented by the management itself (Worrall et al., 2000). Redundancy, as Appelbaum and Donia (2000) explain is a complicated process that requires special handling and management attention so that the objectives can be effectively met; downsizing simply for downsizing is not a strategic move but rather a reaction to the economic pressures. In that sense, firms are challenged with the best practices in redundancy in order to ensure that the employees that are maintained are the ones that are economically beneficial with regards to future organizational performance (Worrall et al., 2000). In terms of the post – recession employee relations challenges, the report identifies as the most important the ‘survivor syndrome’. Appelbaum and Donia (2000), Farnham (2000) and Rose (2004) explain that despite the ‘odd’ and peculiar reverse feelings of the ‘survivors’, evidence suggests that the syndrome is indeed an obstacle to a post – redundancy or in our case post – recession period. Gennard and Judge (2005) state that survivor syndrome pertains primarily to the psychological contract between employers and employees and eventually creates feelings of distrust towards the firms due to the fact that issues such as job security become matters of question. Redundancy survivors perceive downsizing as a deviation from the employment contracts and therefore as unfair and unjust practices on the part of the employers (Rose, 2004); in turn, they loose commitment and engagement to the organization and gradually lower their performance and productivity levels. Farnham (2000) also argues that the consequences of the survival syndrome can cause likely movements of employees from one firm to another in order to search for more security. Thus in the post – recession period, organizations are faced with two simultaneously challenges; low morale/ low motivation of employees (which translates to poor organizational performance) and probability of loosing their employees once prospects for growth and overcoming the recession emerge. Coping with Redundancies and the “Survivor Syndrome” The fundamental issues that were identified in the previous section as predominant challenges that organizations face during economic recession as well as in post recession periods, within the framework of employee relations are redundancies and the post-redundancies effect; the survivor syndrome. According to Gennard and Judge (2005) firms need to highly invest in relevant strategies and practices in order to legitimize downsizing in the ‘eyes of employees’ and at the same time reduce the harmful to the organizational performance effects of the fostered syndrome of the employees that survive redundancies. Within the context of exploring best practices and management initiatives on the part of organizations, however, there should be a clear focus on the proposed solutions. Rose (2004) distinguishes the impact of redundancies on the basis of the firms’ sizes; the author suggests that coping with redundancies and lay offs of employees is differently approached in small enterprises and large corporations. Given the fact that in large corporations where collective employment contracts are actually more pervasive, along with the fact that in large organizations systematic effort on the part of management is necessary, the focal point of this report will be this particular business segment. Farnham (2000) indicates that in small and medium (SMEs) firms the process of redundancy and the appropriate management of survivor syndrome is more self-explanatory and evident; small and medium firms tend to create stronger bonds with their employees given the smaller size of the workforce and thus, management support and management attention to the needs, feelings and emotions of their labor is explicit. On the other hand, as Appelbaum and Donia (2000) posit, large corporations and organizations need to develop appropriate strategies and undertake strategic initiatives within the larger scale of the context of employee relations. Redundancies pertain to the downsizing of firms on the basis of several reasons that necessitate the minimization of the workforce or the reduction of the job positions/tasks (Worrall et al., 2000). However, as stated previously this is a critical challenge for organizations especially in times of economic recession where downsizing is very common but simultaneously a determinant factor for corporate performance at both the current situation and in future. Gennard and Judge (2005) propose that redundancies need to be implemented strategically and carefully as they intend to serve two objectives; cost efficiency and improved productivity. In an attempt to proceed to a cost containment strategy, firms should consistently evaluate the kind of workforce (with regards to skills and abilities) that is necessary for the future operations and the kind of labor that needs to be cut off for the better off of the organizations. Rose (2004) proposes a diagnostic tool for assessing and evaluating the employees that will be ‘dismissed’; the author states that owing to serve the objectives for survival and sustainability of their competitiveness, firms should evaluate employees on the basis of criteria predetermined and pre-specified and accordingly proceed to downsizing. Such criteria can be the employees’ fit to the overall work environment, the employees’ exhibited motivation and engagement to the organization (predominantly to the organizational survival) or the employees’ performance based on scores. Despite the fact that this appears to be a very effective approach, it has further implications on the consistency between the aims of the redundancy and the disposition of the employees. Gennard and Judge (2005) claim that during economic crisis (where redundancy is ‘compulsory’), all employees exhibit lower levels of motivation and commitment and generally develop feelings mistrust to the organizations as they fear that they might actually lose their jobs. In that sense, proceeding to redundancies on the basis of scores of employees’ behaviors and performance can often be misleading due to the already existing ‘negative’ feelings on the part of the workforce. Another solution to the challenge of redundancy is what Gennard and Judge (2005) identify as a best practice model; the LIFO (last in – first out). The authors posit that this method of evaluating and deciding upon which employees should be laid off is the most objective one based on the premise that the “last in” individuals show lower levels of motivation and engagement and are not highly involved in the organizations. This selection process, however, again has certain implications on the career development of employees: recruitment and selection practices is based on attracting talent, in turn laying off employees that are employed for their talent initially does not guarantee future successful performance nor survival during the economic recession (Gennard, 2009). There is no single recipe to overcome such challenges, but as Worrall et al. (2000) stress, organizations need to develop supportive management systems and supervisory controls from the very beginning so as to enable management selection to be efficiently and effectively implemented during any crisis implying downsizing. The literature on redundancies and the ‘survivor syndrome’ extends to other HR management fields such as effective change management. Redundancy by definition brings about changes in the organizational structure, the organizational environment and the work life of employees. In that respect, firms need to focus on introducing and appropriately managing change when downsizing and eventually laying off part of their workforce (Gennard and Judge, 2005; Lewis et al., 2003; Worrall et al., 2000). Appelbaum and Donia (2000) focusing extensively on the survivor syndrome following downsizing practices, propose that the essential issue on the part of management is the ability to introduce change through communication of the redundancy process and through close attention to the needs and feelings of the ‘surviving employees’. The authors indicate that as rewards, increases in salaries and giving away of bonuses to employees is non feasible given the recovery phase of the organizations, management should place emphasis on encouraging and supporting its workforce in realizing and understanding the reasons and the rationale that underlines downsizing. Communication with the employees at all levels is also credited by Farnham (2000) and Lewis et al. (2003) who generally argue that interaction between supervisors or managers with employees is significant in minimizing the ‘detrimental’ effects on the employees feelings (the survivor syndrome). Surviving employees have lost their trust and commitment to the organization as both employment and psychological contracts appear to be collapsing in such situations. Regaining trust from the workforce therefore is the ultimate objective of firms. Trust needs to be redefined within the framework of job security and credibility of the employer (Appelbaum and Donia, 2000). Job security stems from a number of organizations’ cultural characteristics and work environment practices; for example placing emphasis on the professional and career development of each of the surviving employees is a good starting point for generating positive feelings towards the firms and the management (Worrall et al., 2000). Commitment and engagement can be incrementally regained through the close support of management over the employees’ feelings, emotions, needs and expectations. Hartley – Kite et al. (2009) propose that supervisors or line managers need to engage into thorough discussions with their subordinates or the staff in order to ensure that the management will gain an idea of how employees feel; in that respect corrective action can entail the promotion of participation (on the part of employees) and empowerment. These two can actually provide the basis for improving employees’ morale and can eventually foster involvement and engagement once again. Appelbaum and Donia (2000) support that communication between management and employees, is the key to coping with the survivor syndrome. They state that communication should not be limited in the post – redundancy period but during downsizing as well so as to prevent the syndrome from occurring. Employees should be informed about the reasons of redundancy and management support plays a dominant role in this. Understanding why firms’ implement downsizing is the starting point in employees’ perception towards the credible, fair and just decisions of the firms (Worrall et al., 2000). Management should be oriented towards both communicating the factors that have contributed to the particular practice (downsizing) as well as the factors that have contributed to the selection process of the employees that were dismissed. Simultaneously, management needs to be directed towards understanding and valuing employees feelings by engaging into two way communication which gives the opportunity to the ‘survivors’ to freely express their views, beliefs and feelings. As Gerrand and Judge (2005) state, management support and communication to employees who generate negative feelings for the firms attributes sincerity and reliability to the firms themselves. In this way, management can regain trust and loyalty from its employees in the long run. Although communication is identified by the majority of academics and researchers (but also by managers and practitioners) as the most effective means of coping with the survivor syndrome; Worrall et al. (2000) make an important contribution by arguing that communication must be aimed towards preventing the syndrome rather than dealing with the syndrome. Communication is more successful when implemented at the spot and prior to extensive negative feelings of employees. Conclusions During economic crises organizations are faced with a number of challenges regarding their ability to proceed into cost – cutting solutions while at the same time maintain a high-performance oriented work environment (Gennard, 2009). This paper has focused on identifying and briefly discussing the issue of redundancy as the most important challenge that firms encounter during economic recessions, and the survivor syndrome as the most critical effect of the particular practice which is to be encountered by firms in the post – recession period. Coping and managing redundancies effectively and consistently is vital for the survival of the organizations and for the future performance with regards to competitiveness. Redundancies need to be based on integrated selection processes and careful consideration of both the objectives of the firms and the ‘rents’ of the labor force (Appelbaum and Donia, 2000). Moreover, the survivor syndrome which underlines a general negative work climate due to low employee morale and lack of trust and commitment needs to be effectively addressed by firms within the framework of close and proper communication between management and ‘surviving’ employees. 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