In times of economic uncertainty, organizations may need to consider workforce reductions to remain competitive. While layoffs may seem like the most straightforward approach, offering voluntary redundancies (VR) can be a more strategic option for HR leaders to consider.
what is voluntary redundancy?
Voluntary redundancies give employees the option to leave the organization with a severance package. This approach allows employees to make a choice about their future, rather than being forced out of their jobs.
Why would a company offer voluntary redundancy options? Here are five reasons you should consider it before making a round of layoffs:
1. gain increased control
One of the most significant benefits of voluntary redundancies is the increased control they offer. By offering incentives for voluntary departures across certain groups of employees, instead of having to impose layoffs, organizations can fine tune who is selected. This often creates less disruption by managing each individual case, rather than putting a larger group through a homogeneous process. This can also help to target specific departments or roles that are overstaffed or no longer aligned with the organization's goals.
Additionally, by offering voluntary redundancy packages, the organization can control the timing. Retaining some volunteers for a specified period of time (in order to qualify for the full voluntary redundancy package) can allow for smoother and more complete transitions and succession planning. Employers can plan to keep people until key deliverables in their role are completed, for example.
2. protect your employer brand
One of the most significant concerns HR leaders may have with voluntary redundancies is the perception of unfairness among remaining employees. Because they give employees a choice in whether to leave the organization or not, voluntary redundancy programs are often perceived as fairer than traditional layoffs among your workforce.
Employees who do not wish to leave can choose to stay and keep their jobs, while employees who feel that it is the right decision for them can choose to leave with a voluntary redundancy package. This can help limit negative brand perception and productivity disruption among your remaining workforce.
Additionally, voluntary redundancy programs can be seen as a positive step by employees, as they demonstrate the organization's commitment to treating employees with respect and dignity during difficult times. Providing outplacement as part of a VR package helps departing employees transition more successfully and sends a positive message to remaining employees that their colleagues were well supported in their decision to leave.
3. return to normal more quickly
Offering VR can be a more efficient way to achieve the desired level of workforce reduction than traditional layoffs. Because VR avoids the need to follow lengthy consultation and selection processes (depending on prevailing employment laws in the territories concerned), voluntary redundancies can be completed more quickly and with less disruption to the organization than traditional layoffs.
This results in a quicker return to normal operations, and can be true for both those managing the layoffs and your remaining workforce.
4. realize cost savings
Even though the VR package must be attractive to employees to achieve its goals, offering VR can actually be more cost-effective for the organization than traditional layoffs. By offering incentives to employees who volunteer to leave, it may be possible to achieve the desired cost savings by releasing a few higher paid employees than a larger number from the broader population with varying salaries, as is often the case in a traditional round of layoffs.
Offering VR can help to avoid the costs associated with traditional layoffs, such as severance pay, unemployment insurance and potential legal fees. In VR scenarios, for example, volunteers will typically work their full notice, rather than paying for lost productivity for those who are involuntarily laid off, and there's reduced risk of legal challenges for discrimination or unfair selection, as individuals are choosing to leave.
Importantly, VR also helps to avoid the costs associated with employee morale and engagement dipping during layoffs, as employees who are treated fairly and with respect during difficult times are more likely to remain committed to the organization in the long term.
5. avoid additional attrition
Finally, voluntary redundancy programs can actually help to retain the organization's most valuable employees. By offering voluntary departures, the organization not only provides a strong employee experience for those they’re offboarding, but can also create new assignments and career paths for those who are staying as it reallocates work.
This can help to retain employees who may be critical to the success of the organization. They will want to continue being engaged for the long term, when they might have otherwise considered leaving for a new role elsewhere.
the pros and cons of voluntary redundancy
While voluntary redundancies can offer significant benefits for organizations, there are some common concerns that HR leaders may have. Some of the most significant concerns are the perceived lack of control and the risk of getting either too few or too many volunteers.
Well managed VR programs do offer a high degree of control. You control the eligibility criteria, which parts of the organization are offered the program, the timing of different departures and a lot of flexibility over negotiating individual packages.
If too few volunteers come forward, the level of cost savings sought may not be fully achieved. That may mean that the organization has to move to a round of compulsory redundancies (layoffs). However, this will almost certainly be smaller than without the voluntary redundancies, bringing less disruption, and starting with a round of VR demonstrates the organization’s desire to minimize the impact of layoffs.
Having too many volunteers poses a different challenge. The organization is not obliged to accept all applications for voluntary redundancy and, having made the decision to apply, some employees may be disappointed not to be accepted. This can result in their disengagement from their work and some may ultimately choose to leave anyway.
Here, HR leaders have options to address the challenge. With a VR process, you enter into individual negotiations with each employee whose application you choose to accept. Some will not agree terms, thereby reducing the overall number who will take up voluntary redundancy.
Another option is to start the headcount reduction process with applications for early retirement. This will reduce the eligible population and you can subsequently adjust your criteria for offering VR, depending on how many applications you receive for early retirement. This then minimizes the risk of a VR program being over-subscribed.
Finally, some HR leaders may be concerned about the potential cost of offering incentives for voluntary departures. However, as outlined earlier, offering voluntary redundancies can actually be more cost-effective than traditional layoffs, as they can help to avoid the costs associated with severance pay, unemployment insurance, and potential legal costs through wrongful termination claims.
Additionally, VR programs tend to be received better internally than layoffs. This minimizes the risk and costs associated with negative publicity as it’s more likely to maintain the morale and engagement of those who remain.
a compassionate approach to downsizing
Of course, VR may not be the right approach for every organization or situation. HR leaders should carefully consider their unique circumstances and the potential benefits and drawbacks of offering voluntary redundancies before making any decisions. However, voluntary redundancies can offer significant benefits for organizations, both from a business perspective and an ethical and reputational perspective.
While layoffs may seem like the most straightforward approach to workforce reductions, VR offers many benefits. Organizations can increase control over the process, achieve the desired level of workforce reduction more efficiently, and avoid the costs associated with traditional layoffs. Voluntary redundancy programs can also help to retain critical employees who are valuable to the organization's success and demonstrate the organization's commitment to treating employees with respect and dignity during difficult times.
For our complete guide to managing transitions ethically and with compassion, download the outplacement e-book.