The following account is excerpted from my book, "Sizing Down: Chronicle of a Plant Closing," to be published this month. It details lessons I learned during the process of preparing for a plant closing at the Signetics semiconductor plant in Orem, Utah. Signetics became known as Philips Semiconductors (based in Sunnyvale, California) in 1993. Philips is a division of Philips Electronics NV.
Here, I discuss the management decisions that helped retain the company's essential human resources and contributed to its overall viability. I also outline problems we could have avoided by paying closer attention to such issues as flexible work schedules, release dates and productivity incentives.
Many of the steps we took in planning for the plant closure were both necessary and effective in preparing for the year that followed. While several of these steps or processes were straightforward and, for the most part, fulfilled their purposes, as the downsizing progressed there were some interventions required that were neither foreseen or facile to implement.
Preparing an employee retention plan.
One of the first concerns for the managers of a plant that's closing is how to retain key employees until the plant actually closes. This became a particular problem for our plant because we had only one year before the doors actually closed. Because the plant was a high-tech manufacturing facility, our technical and engineering people were crucial to the continuing operation of the plant for the remaining year. At the same time, these were the people we knew would have the easiest time finding work elsewhere. The number of calls from headhunters to employees shortly after the closure announcement reinforced that concern. How would the company be able to provide enough incentives to these individuals to entice them to stay?
The corporate staff, grappling with this issue, came up with a retention package that would apply to all employees who remained until their completion dates. Given the plant employees' high average years of seniority, double severance pay as a completion bonus seemed a reasonable retention package on the surface. As the plant staff began to review the list of key people, it was clear that not all these individuals had enough time with the company to make this generic package attractive. The plant staff proposed another retention bonus be applied to selected individuals. Because the corporate staff had already prepared a severance budget, there was apprehension about considering more money. After negotiations, the corporate staff finally relented. But they did insist on a cap on the number of people who would be offered the additional retention bonus.
Despite the incentives, some key engineers chose to accept other offers, leave the plant and forfeit their bonuses. This was expected, given the higher job-security needs of some. As these key people left, however, it became important to retain those who would take their places. Rather than forfeit the amount budgeted for the people who left, the plant staff made a good case for holding onto the plant retention bonus budget—as long as the forecast amount wasn't exceeded and employees weren't added to the list who didn't meet the original criteria established for more incentives. About 70% of those designated to receive the additional bonus stayed until the end, making the program vital in keeping critical employees.
Another consideration became essential in retaining employees. Virtually the entire engineering staff of one product division worked at the Utah plant. Originally, the plan was to offer them transfers to corporate headquarters in California. It became apparent that few, if any, would even consider relocation there because of cost-of-living factors. However, the vice president resisted providing financial provisions to make this move more attractive. When the engineering managers told the vice president they wouldn't support a move unless he reconsidered the location, he realized he faced losing most, if not all, of his engineering resources. The Utah engineering staff made a proposal which claimed the New Mexico plant was the only viable option for employees and sought more relocation incentives. After some heated discussion and negotiation over numbers and the budget, corporate finally approved a plan that would facilitate transfer of nearly 85% of the engineering group.
The most important element in planning for employee retention was the ability to negotiate. Budgeting finances is vital. But at the same time, there must be budgetary leeway to accommodate issues that arise and the influences of market forces.
Above all, it's crucial to monitor the forces affecting displaced employees and their decisions to stay with the company or leave. Sometimes the rationale behind these decisions isn't as logical as we might hope.
Formulating an effective employee communication process.
The plant staff anticipated there would be numerous questions from employees soon after the closure announcement. We formulated a schedule for the closure stages, including operations phasing down. Some preliminary written questions and answers enabled employees to prepare for how the timing of a reduction-in-force would affect them. We held meetings with employees on each shift to review information and elicit concerns.
We researched answers to the questions provided timely responses to employees. Because most of the first wave of employee concerns dealt with benefits-related issues, meetings were held within a week to provide information on this topic alone. Each month, we held employee communications meetings. Along with monthly operation meetings, these kept the employees abreast of any new developments.
The employee communication meetings proved an invaluable means of keeping in touch with employees' feelings and allowing employees to express their fears and problems and seek affirmation that they weren't alone. The meetings also served to break down barriers between management and workers. As time passed, the meetings became less useful as an information tool and more beneficial as a venue for employees to air their frustrations. Sometimes just gathering as a group comforted people.
As questions were asked and answers communicated, an information packet took shape. Many employees asked the same questions at different times, so the packet became a tool to ensure consistency was maintained. There was a real effort to answer all questions, in a timely way, and to minimize misinformation. The information packet became an ad hoc downsizing policy manual and was helpful to supervisors who fielded many questions. We learned that communication was crucial in helping employees cope during this difficult period. If employees are to make good decisions about their plans, finances and development opportunities, then timely and relevant information is vital. Communication must be frequent, open and honest, and should allow for give and take. The easiest way to build resentment is to bluff an answer to a question. Management must take pains to focus communication on what matters most to employees. Any self-serving behavior by management will trigger instant hostility and distrust and lead toward a downward spiral of productivity and morale. Depending on the stage of the reduction-in-force, once this occurs, there may never be a chance to recover. We learned that managers and workers pulling together as a team during the downsizing can be both cathartic and liberating, providing them with a sense of empowerment and accomplishment. This cooperation definitely helped employees weather difficult times, it provided them leverage in securing re-employment and it helped make a success out of what most would consider a disaster.
One area about which the company failed to communicate effectively involved forecasting work schedules and staffing needs. Some good people left early when they grew frustrated at not being told when they could expect their release dates. In some cases, this was unavoidable. But more often than not, a date could easily have been projected early on, which would have avoided both the need for negotiations and the mounting anxiety about the unknown. Although we in management couldn't have prevented individual extensions beyond release dates, we could have done a better job of keeping these to a minimum. Particularly in the fab operation, more initial effort in planning and communicating with employees to project area phase-downs, and the subsequent need for certain job functions, may have precluded the need to send some people home early to wait out their release dates with pay. This would have prevented a major morale problem.
Providing outplacement and retraining services.
The plant staff sought and obtained approval from corporate to provide both outplacement and retraining services to employees. We recognized the comfort these services would provide, so this was one of the first announcements we made to employees after the announcement of the closure. As part of the closure schedule, the retraining program was set to start up the following month and then continue throughout the year, as needed. A formal onsite outplacement center opened at the same time the first operation began to shut down.
As the first step in preparing employees to seek re-employment, classes were offered in career management, job-search strategies, interviewing and preparing a resume. An online system allowed employees to enter their resumes on a computer and to eventually transfer them to the outplacement center for refinement and printing. Eventually, nearly 85% of all employees attended the outplacement training classes.
Next, we administered a retraining needs-assessment survey to determine the type of training most employees desired. This was coordinated with a local college technology center to pinpoint employees' interests and match them to the kinds of jobs available in the local market. Because of the constraints of the retraining budget allowance, the classes were targeted to support the greatest employee needs. Most of the classes were computer software and programming classes. Because not all the employees' needs would be covered by these classes, we offered an additional program to provide flexibility for the few employees who identified different career paths. Through this program, called career reimbursement, employees received $600 as a reimbursement pool if they could provide evidence of another kind of training or educational program that led to their targeted career objective. Through these two retraining services, all employees could benefit from retraining tailored to fit their needs.
Both programs were used extensively. Although most employees found jobs through means other than the onsite outplacement center (mainly through networking with former employees or friends), the center was useful in providing resume services, and coaching and counseling, to employees who weren't confident about their job-search abilities. The center promoted the company's workforce to other employers and greatly heightened the community's awareness of the plant's impending reduction-in-force. By acting as a focal point for employment information and contacts, the center became a convenient place for employees to pursue job searches. Although some graveyard-shift employees complained about the lack of availability of the retraining classes and outplacement center for their shift, these services were the greatest single factor in helping employees work through the anxiety of the closure.
We achieved this advantage through early negotiations with corporate to obtain a liberal budget for these services. Our research and effort to make a case for such services paid off handsomely, for both the company and the employees. This is one function that companies planning to downsize can't afford to treat lightly. If possible, companies should err on being too liberal and offering too many services to employees. In the long run, the gains far outweigh the expenses.
Managing the unknown.
Not surprisingly, our company failed to pay attention to unanticipated events. This is an aspect of planning which most companies faced with plant downsizing or closure also neglect. For example, as I mentioned earlier, if at the outset the plant had forecasted a specific work schedule by operation, and revised it as needed, there could have been more precise planning of release dates for employees. As it was, only a general schedule had been created at the point when notification letters were sent to employees. Consequently, extension letters, rather than adjustments of release dates at some earlier point, became necessary. Careful thought should go into planning for contingencies, such as how exceptions to policy might be regarded. The company received many requests from employees for exceptions to continue working beyond their release dates. Each request evoked prolonged debate among managers. Guidelines could be spelled out and communicated in advance. With some forethought to granting exceptions, some rules of thumb can permit a smoother decision process and a less volatile atmosphere between managers and workers.
Also, some of the plant's problems with employee theft and unauthorized use of company property could have been avoided. The process used to track property passes to employees was sorely inadequate; it should have been revamped long before the need to retrieve company property became apparent. With early anticipation, a system could have been set up to control property coming and going from the plant. Some theft would have been likely, regardless of careful measures, but much more could have been done to discourage dishonesty and solicit cooperation among employees. Although the company didn't experience much employee sabotage, companies that announce reductions-in-force or closures must be prepared to take measures to avoid or control this problem as well.
Obviously, no company or manager can be expected to anticipate and plan for every contingency that may occur during a downsizing. Nevertheless, measures can and should be taken early in the process to avoid potential problems. A task force can be established to look into areas where problems might arise and plan as much as possible for contingencies. Assign probabilities to each potential problem, and take steps to avoid the problems or minimize their impact. Above all, the plant managers should be prepared to deal with exceptions to and deviations from the expected. A number of planning models and tools are available commercially to help managers deal with contingency planning. One lesson our managers learned was to be flexible and not rely too heavily on precedent. As the plant manager himself stated, a plant closure can sometimes be extremely liberating for a manager considering the best course of action.
Make sure requests are dealt with consistently and equitably.
Employees made a number of special requests during the closure period that raised the issue of how to maintain equitable treatment of all employees and still accommodate special circumstances or needs. Typically, the requests were related to bonus and severance or job accommodations to allow for new employment negotiations. For example, one group of engineers had managed to secure employment quickly after the announcement was made. Up to that point, no release dates had been established. Each of these employees asked that he be granted a sixty-day release date at the time of the request. This was troublesome for management, who had not yet forecast the need for the engineers' work, and it advanced the concern that other employees, once they found employment, would want to follow suit. The company could simply have turned down the request on the grounds that if management allowed any individuals to negotiate special deals, there would be no end to them.
The need for a general guideline quickly became apparent. Fear of potential class-action suits and litigation loomed large. Normally, this fear is well-grounded and is good cause for circumspect decision making. Nevertheless, circumstances in a downsizing or closure are not, and should not be considered, normal business operating procedure. Individuals will lobby hard for their interests, especially during a difficult time when easy answers and rational decisions aren't appreciated. Management has more to lose by being overly conservative than by striving to be more compassionate about employees' needs. Granted, me-too employee requests will follow whenever an exception to normal practice is allowed. Management must nevertheless weigh the pros and cons of each request and rule its merits. Despite legal counsel (undoubtedly received from corporate headquarters) to take a hard line and be consistent on policy administration, management must share employees' perspectives and give consideration to individual employees.
As the downsizing progresses and needs for employees' work changes, so will the need to review prior positions on policy or practice. It may be more practical to arrange for job accommodation requests later in the downsizing process than earlier. Employees should understand this and try to bring their personal needs in line with those of the plant. Employees who fail to heed business realities and department needs should pay the consequences when they advance their separate requests for special treatment. In general, both employees and legal services will regard business needs as legitimate guidelines in determining whether to grant individual employee requests involving exceptions to policy. Managers should be careful to ensure that requests aren't refused or granted on the basis of illegal discriminatory factors such as age, sex, race or disability.
Finally, managers should be prepared to provide the rationale for each ruling on individual employee requests. These considerations should involve a group of managers so as to better represent all viewpoints, and ensure that each decision meets the reasonable person rule. This may not guarantee that fault won't be found with the decision, but it certainly will increase the chances that employees will find the rulings equitable.
Maintaining morale and productivity.
Depending on the length of the downsizing period, it may be a struggle to maintain previous levels of employee morale and productivity. At our plant, as soon as employees discovered their work was fruitless and wouldn't lead to future returns, they tended to stop putting forth an honest effort. This will be more true for some employees than others, but it's a real factor once reductions-in-force announcements are made.
Since our plant closure period was rather extended, this became a significant problem, given that product schedules were to continue as normal for some time. The plant endured a short period after the closure announcement during which both morale and productivity suffered—and then rebounded. Once reality set in, the plant experienced several months of almost business-as-usual atmosphere. Then, as the final weeks approached, morale and productivity took a turn for the worse.
Because morale and productivity tend to have a linear relationship, management should focus on building a positive work climate. By fostering a climate of support, particularly for employees who are experiencing difficulties, plant managers can help create a sense of community among employees that will allow them to vent their frustrations and share their fears. Team meetings are a good forum to discuss these concerns. It's important that employee concerns not be taken for granted or deprecated in any way. Informal get-togethers within work groups or departments should be encouraged, if not actively organized, by the company. These informal parties can provide an upbeat climate with the right balance of work and distraction—and can be very cathartic. Recognition committees can plan activities to celebrate continued examples of excellent performance during the downsizing process. Award ceremonies can also help to maintain a sense of accomplishment and achievement.
As employees cope with increasing family and financial pressures, flexible work arrangements should be considered as a way to provide some slack. If necessary, additional compensation programs may be instituted to encourage productivity or work attendance. Signetics was able to offer an enhanced overtime-pay program to provide incentives to employees who put in additional hours to accomplish scheduled production needs.
Supervisors need to be sensitive to the special needs of their employees. If employees are treated with respect and provided sound incentives, supervisors can be the most effective tool to ensure that employee morale will be maintained until the end.
Managing transitions and the adaptive process, month by month.
Each employee ultimately found his or her own way to cope with the plant closure. Some employees had a relatively easy adjustment period. At the other extreme, many employees continued to have difficulty coming to terms with the closure and its impact on their lives. These employees faced more stress and anxiety as they resigned themselves to circumstances they didn't like. They felt helpless to pull themselves out of a cycle of bitterness and despair. Most employees went through a transition process that began with initial shock and denial, and progressed to making changes and plans that would lead to new beginnings. This transition process is not unlike what people experience when a serious disease or death occurs in the family.
Interestingly, these stages seemed almost to correspond by month with the events that took place during the final year. After the announcement in January, most people were astounded and struggled to recover from the shock of the news. Through February, most employees felt some degree of anger and hostility toward the company or plant that would do such a thing to them. In March, employees made every attempt to bargain and negotiate with the company to ensure that they would receive all available benefits and special offers, assurances of what they could expect if they stayed to the end. By April, a number of events and experiences at the plant left many employees feeling alienated from each other, from management and from the company. From then until June, the plant experienced its lowest point in both morale and productivity.
Perhaps the turning point came when job prospects and recruiting efforts by other electronics firms were advertised or promoted through the outplacement center. Hiring activity had always tended to pick up each year in the late spring and early summer when families were more willing to move. Maybe the advent of summer helped pull employees out of their despair and gave them renewed hope and energy. It even might have been the plant's focus on recognition and morale-building activities in June that contributed to the renewal process. No matter what the cause, after that point only a few employees continued to suffer from inertia and disillusionment.
July brought with it the first set of departing employees, primarily those who were relocating to the New Mexico plant. As the engineering services area began to shut down in August, employees began to reconcile themselves either with unemployment or new employment elsewhere. Not until September did most of the remaining employees confront the consequences of their actions, plans and decisions, or their failure to take steps. At this point, they knew full well they could no longer postpone facing the future. As October activities in the plant commemorated its history, employees found that nostalgia brought both acceptance and reconciliation. At times, however, when employees watched others leave, they realized their own lack of preparation. Remembering happier times at the plant, some employees momentarily re-experienced the pain of the downsizing process.
Efforts by plant managers in November and December showed particular sensitivity to employee needs. Each area of the plant tried to be more flexible and understanding as the last of the work was completed and work demands diminished. In many cases, local area celebrations and informal discussions with co-workers and supervisors helped provide an outlet for frustration and anxieties and facilitated networking. The last plant communications meeting reinforced the great efforts and success of plant employees to the end. Almost everyone felt a sense of relief and camaraderie that we had all made it through.
By helping employees understand and become aware of the transition process and stages they'll experience, companies can contribute to a healthier and speedier adjustment period for most employees. This education can also help them discern what is normal and what is not. If counseling resources are available from the beginning (our company offered these through our employee assistance program and through classes on managing transitions), employees will tend to feel less victimized and not blame the company for their troubles. Counseling also will help them feel empowered and become more proactive in dealing with the necessary business of re-employment.
Who should control policy decisions?
In a plant the size of ours (900 employees in four operations areas), the issue of locus of control may arise. Should every decision concerning the downsizing be made centrally by plant management? Or should some decisions rest with separate operational areas within the plant? This can be a difficult issue and can turn volatile when employees decide they don't like the answer they get from one or the other. In the extreme, departments can turn against each other, leading to general confusion and disharmony.
A plant steering committee, in which each area is represented, can create a forum for discussion of issues that affect plant policy and practice. At Signetics, this group was most effective when meetings were held regularly and all members attended. In the beginning, meetings might be held three times a week. Later on, a weekly or biweekly meeting may be sufficient. The steering committee should decide which issues have broad, plantwide implications and need central control, and which issues don't affect other parts of the plant. Those issues that affect only specific operational areas may be returned to the departments for local decision-making.
Some examples of issues that may surface where locus of control is relevant are time-off practices, work schedules, pay practices, recognition activities, safety and health practices, release date extensions and special requests.
The issues of pay and safety and health practices had far-reaching impact on the plant and, therefore, were decided centrally. Issues such as time off, work schedules and recognition activities can be determined at the local department level, although some coordination may need to take place plantwide. With regard to release dates, extensions and special requests, the plant found that general policy and guidelines needed to be set by the central plant steering committee, but interpretation could be made case by case by local area management.
Some factors that may be relevant when determining locus of control are timing and implementation. At the beginning of the downsizing period, it's important that areas show unity and consistency in applying policy. It's at this point that most of the important downsizing issues will surface and be decided.
Later, as areas slow down and issues become more mundane, local areas should be given maximum control to manage employees' needs. If the implementation of a policy or practice appears problematic, each area should be given discretion in how best to carry out the particular decision. If employers are given a chance to influence something they feel is important to them, they'll more readily support the decisions. In general, the more discretion that can be given to local areas, the more positive and supportive these areas will be on downsizing decisions and the more positive employees will tend to feel about how they have been treated overall.
SOURCE: Copyright (c) 1996 by Cornell University. Excerpted from the forthcoming book, "Sizing Down: Chronicle of a Plant Closing," by Louise Moser Illes, to be published by Cornell University Press in March, 1996. Reprinted by permission of the publisher.
Personnel Journal, March 1996, Vol. 75, No. 3, pp. 95-107.