Sunday, January 25, 2009

Firms Urged to Try and Keep Staff

This story from the BBC should give everyone cause to pause.  While it came out a couple weeks ago, it only recently came up as part of discussions with UK personal.  While the idea is well meaning, the reality is that firms have to operate within budgets.  If they are not generating enough revenue, they cannot carry staff.  While no one enjoys laying people off, if cash-flow cannot cover expenses, choices must be made.  Even if they are driven by short-term thinking, if you cannot meet obligations, there is not long term.

Redundancies should be a "last resort" as firms trim costs in the economic downturn, the Chartered Institute of Personnel and Development (CIPD) says.  Planning for recovery by keeping staff is a better approach, it added, saying an average redundancy costs employers £16,375 before any savings are made. 

The CIPD has put together a formula to estimate the financial cost of redundancy:
(n × r) + (x × h) + (x × t) + ny (h + t) + wz (p - n)
n = number of people made redundant
r = redundancy payments
x = number of people subsequently hired
h = hiring costs
y = percentage quitting post redundancy
t = induction/training cost
y = percentage quitting post redundancy
w= average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
p = number of people employed prior to redundancies

Source: CIPD

Layoffs should be the last resort, but however compelling the equation is in theory, it doesn't change the difficult reality many firms face.  No one like making these types of decisions, but the decisions must be made.

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