In an article at Ethical Corporation, John Russell writes on the role of communication in company retrenchment issues, using the GM case as an example.
According to Russell, GM announced in November 2005 that it has lost $4 billion in the first nine months of the year and will have to lay off 30,000 blue-collar workers by 2008 to stop its slide into bankruptcy.
The author cites Dale Neef, managing director at Proactive consultancy and author of a book on corporate reputation, saying that redundancies are part of the natural cycles of business but they can be handled “in a decent way.” Neef believes the first priority is employee consultation because “many problems come from a lack of communication between employers and workers and from management not being straight with employees from the outset about their prospects.”
Russell points out that announcements of coming lay-offs could trigger unnecessary panic and, therefore, trust between employees and management is crucial and should have been developed over time.
The author advices companies faced with potential retrenchment to establish clear procedures early on. He cites the recommendation of Acas, a UK dispute resolution service, that any action should result from a formal agreement between management and employee representatives. The company should inform the employees of the reasons for retrenchment, the selection criteria used, the timeframe of the lay-offs, and the method for calculating any redundancy payments.
Russell says GM has a good record in communicating with employees while working with United Auto Workers (UAW), the union representing more than a third of the company’s global workforce. He quotes UAW spokesman Paul Krell: “Both sides have worked hard to build very open lines of communication. [We] have tried to avoid blindsiding one another.”
As alternatives to retrenchment, the author lists pay cuts; reduction of overtime or introducing short-time work; halting recruitment, especially of temporary staff; retiring those beyond retirement age; helping employees find alternative jobs within the company, with advice and training; voluntary redundancy; and early retirement.
He warns that voluntary redundancy and early retirement are expensive, though. Voluntary redundancy attracts employees who command higher redundancy payments while early retirement involves having to pay pensions.
Still, the author sees early retirement as GM’s best option in the short term, citing Krell’s statement that the company has already done this before, as has DaimlerChrysler to cut 26,000 jobs in 2001.
Russell points to the advantages GM has gained in its willingness to talk with the union. It has negotiated for the workers to pay $3 billion for the company’s healthcare costs, with retired pensioners receiving more than $8,000 a year having to pay up to $752 a year for family healthcare. Current employees will also have to give up $1 an hour in future pay raises to help cover health costs.
The author contrasts this with the case of Delphi, GM’s major parts supplier that filed for Chapter 11 bankruptcy protection in October 2005. Its negotiations with the UAW broke down and employees felt insulted for being asked to accept pay cuts while 486 executives are about to share $90 million in bonuses.
Russell also cites MG Rover in the UK which went bankrupt in April 2005. Its assets were supposed to be sold to set up a trust fund for its workers but nothing has happened after six months as an official investigation still has to be done into the company’s accounting.
In another case, UK caterer Gate Gourmet encouraged its employees to leave due to redundancies then brought in 130 temporary staff for the peak season workload. Seven hundred of the employees who gathered in the canteen to question the company’s decision were dismissed with a megaphone and locked out of the premises.
Indeed, good internal communication between management and the workforce pays off.