Economic trends and crime: The Effects of the Declining Economy
HR & Finance Issues in a declining economy
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Transcript of HR & Finance Issues in a declining economy
HR & FINANCE ISSUES IN A DECLINING ECONOMY
Ebonee Davis, Michelle Chapekis, Lianne Young, Jen Wroblewski,
Julia Siebert, Mallory Herr
“If there was ever a time to underscore the importance of HR, it has arrived. And sadly, if there was ever a time to see how few companies get HR right, it has arrived too…If their company is in a crisis perhaps they’ve at last seen the light. HR matters enormously in the good times. It defines you in the bad.”
-Jack Welch
WHY IS THIS RELEVANT TO ME? Highest rates of unemployment and layoffs
in more than 15 years 60% of 633 HR professionals said their
organizations expect to lay off employees in the next 12 months -- SHRM Oct. 2008
Current Company cutbacks:• Salary reduced 14.2%• Hours reduced 19.0% • Benefits reduced 12.7%• Forced to take unpaid leave 3.9% • Did not receive raise 27.0% • Did not receive bonus 18.5%•Laid off 15.1% • Other 22.9%
AGENDAI. Severance PackagesII. Non Monetary BenefitsIII. Early Retirement Buyouts/LayoffsIV. Real World Examples
a) General Motors b) Microsoft
V. In class severance package activity
SEVERANCE PACKAGES Benefit given when employee is
terminatedWorkforce reductionsPlant closingMergers and acquisitions Incentives for early retirement
To help bridge the gap of employment Sign a release of claims on the Employer
WHAT CAN BE INCLUDED? Employer’s Discretion
CompensationContinuation of insuranceOutplacement servicesBonus payForgiveness of loansStock optionsNon-monetary benefits
PAY CALCULATION 1 week of pay for every year of service Duration Pay out options Annuitized benefit vs. Lump sum
REGULATION Agreement between the employer and
employee ERISA (Employee Retirement Income
Security Act)“… only where such an undertaking or
obligation requires the creation of an ongoing administrative program” ~Schonoholz v. Long Island Jewish Medical Center
ADEA and OWBRA
TYPES OF SEVERANCE PLANS Private Sector Public Sector Chief Executive Officer & Senior Level
Execs. Union Employees
PRIVATE SECTOR Documented in the employee handbook, or
in a document with other employee benefits Only 39% of companies surveyed had details of
the plan in writing for the employee’s records Determined at the Employer’s discretion
Each employer varies 71% use number of years of service as the
determining amount 31% give one week of pay for each year of service 20% give two weeks of pay for each year of service
Not subject to ERISA Voluntary Program Lump sum
PUBLIC SECTOR-GOVERNMENT Regulated under ERISA
Classified as “welfare benefits plan” Varies by state Amount is paid in the beginning Determined by years of service Full pay out is 26 weeks
CEO & SENIOR EXECS. SEVERANCE PACKAGES Determined by a committee
Board of Trustees Performance is the primary factor Compared to the market Allowed extra perks
Continued membership to country clubsBonusesStock optionsAdministrative assistance
UNION EMPLOYEES: UFCW, FELRA Determined by a collective bargaining
agreementBetween the union representatives and
employer Vesting Schedule Based on:
Hourly rateYears of serviceEmployee’s age at the start of
employment
NON-MONETARY BENEFITS “There’s a cost to treating people
unfairly” In 2001, 53% of firms provided
outplacement to all officers, senior executives and executives
- In 2008, 67% of firms provided outplacement to that group
In 2009, 72% of firms provide outplacement services to displaced employees
OUTPLACEMENT SERVICES Outplacement Consultant Use of Outplacement Office Resources
Printing and sending resumesMail and telephone use Job finding workshops
Can negotiate for more complete package
AT&T BENEFITS Career Transition Centers, Workforce
Management Program“Give managers support to find jobs as they
leave” Individual counselingResource libraryTax and insurance planning$10K for education and relocation expenses
MANAGEMENT WANTS TO REDUCE THE SIZE OF YOUR WORKFORCE
Early buyouts, early retirement, layoffs
How companies target who to layoff/buyout
EARNINGS & PRODUCTIVITY OVER THE CAREER
A (t)
W (t)
V (t)
V(t)=value of productivityw(t)=wageA(t)=value of worker's time
T im e
V,A
, W
C areer w ith firm
WHO SHOULD THE FIRM LAYOFF? The “keepers” are the ones in midcareer Want to get rid of the 2 extremes:
Just starting out at firm Nothing legally prohibiting the discrimination of
young peopleOlder workers
ADEA prohibits selective layoffs of older workers Need a way around it… buyouts!
WHO SHOULD THE FIRM BUYOUT? Buyout older workers when the value of
their productivity is less than the value of their own time
Buyout the workers that will ask for/require the least
DO THE MATH
W = wage (how much they get paid)
V = Value of workers productivity (what the employee is worth)
A = Value of the workers time (how much their leisure time is worth to them in $)
Buyout?
$18 $20 Doesn’t matter! Keep! (They produce $2)
$23 $25 $30 Keep, but they will retire (unless you bump their wage to $30)
$24 $20 $21 Buyout! (He’s getting paid more than he’s worth; the value of his leisure time is pretty close to his wage…
HOW TO BUYOUT? Workers with firm-specific human
capital want a bigger buyoutAn across-the-board buyout offer will be
more attractive to workers without training (young and untrained) - good!
Low productivity people may be worth less to the firm due to wage compressionBut high ability people will have more
outside opportunities, so you get adverse selection with an across the board buyout - bad!
INCENTIVE EFFECTS
If buyouts are offered to low ability people, high ability people have incentives to shirk - won’t be as productive if they know there’s a buyout at the end of the road
To avoid the incentive problem, surprise buyouts
The firm might also want to buyout younger workers rather than laying off if reputation is an issue
REAL WORLD EXAMPLES Buyouts and Severance Packages at General Motors and Microsoft
TODAY’S ECONOMYTODAY’S ECONOMY Employers cut 5.1 million jobs
663,000 in March alone Workforce reductions
Cut short-term costs Increase chance of survival
OptionsLayoffs (severance), buyouts, early
retirement
REAL LIFE EXAMPLE: GENERAL MOTORS 7,500 employees left the company
Buyout and early retirement Offered to ALL US 62,400 hourly
employees$20,000 cash and $25,000 voucher
Hard to get employees to leaveCompany almost bankruptUAW reduced job security provisions
REAL LIFE EXAMPLE: GENERAL MOTORS Keep management and executives
Leadership talent Blue-collared workers
Easy to replaceOffered incentives to ALL workers
Other auto companies doing the sameFordChrysler
MICROSOFT LAYOFFS
Chief Executive Steve Ballmer states that Microsoft is facing "a once-in-a-lifetime set of economic conditions”
2-3% of Microsoft's 96,000 jobs worldwide will be eliminated over the next 18 months (starting January 2009)
WHY MICROSOFT IS HURTING
“The economy is resetting to a lower level of business and consumer spending” – Steve Ballmer, CEO of Microsoft
Consumer spending is down Netbooks and Linux Decline in sales of Microsoft’s Windows
operating system for personal and business computers
COST CUTS Layoffs: 1,400 full time positions cut in
January, 872 from HQ in Puget Sound region
Freeze in pay but employees still eligible for stock awards and cash bonuses
Cuts on contract labor Delays in construction Reductions in marketing and travel
budgets
SEVERANCE AND BENEFITS
"We still have fresh-ground coffee makers, free soda pop, and I ride a Microsoft Connector bus from my home ... to work in Redmond.”
"It is still the best place in the world for a techie to work. It's just a little sadder, a little more sober, and a lot more focused on weathering this storm."
Outplacement services Microsoft Alumni Network Employees eligible for 60 days of pay as
well as severance pay that is calculated on tenure and level
There was one small problem…
OOPS……
CLASS ACTIVITYCLASS ACTIVITY
Now it’s your turn:You are an executive at Dunder Mifflin and you are closing the Scranton branch. You need to decide who to buyout and what kind of severance package to provide for your employees. What elements are you going to include and how are you going to determine them?Think about what we have discussed today…
QUESTIONS?