Redundancy fears haunt UK and US

by 11 Nov 2008

AS THE impact of the global economic downturn takes hold, companies across the US and the UK are bracing themselves for more redundancies over the coming 12 months.

Research from the UK has found that more than a quarter of employers (26 per cent) have contingency plans to make new or further redundancies in addition to those already planned.

“The spectre of redundancy is beginning to haunt the UK jobs market once again,” said John Philpott, chief economist for the Chartered Institute of Personnel Development (CIPD), which conducted the survey of 721 employers across the UK.

“Employers have held off from making large-scale redundancies until recently, but we are now on the verge of a torrent of bad news. The onset of recession is already putting jobs at risk, but many more are in the firing line as employers consider their next move in a fast-deteriorating economic situation.”

The survey found organisations that have already made or planned to make redundancies in the next three months are more likely to be considering further job cuts in the next twelve months. The news comes on the back of grim unemployment statistics, which show that redundancy activity has increased sharply in recent months.

Almost one in five employers have said they are going to enforce the Government’s retirement age policy – which allows UK organisations to make workers over 65 redundant without having to provide a business reason for doing so – more vigorously.

“Ideally, employers will do their utmost to limit the scale of redundancies, too,” Philpott said.

“With the average cost of redundancy to employers now running at more than £10,000 pounds ($22,861) for each person losing their job, there is a financial incentive for organisations to hold onto staff where they can. This is obviously easier said than done in such tough times, but the business performance of organisations will be strengthened if they have the right people and skills in place to prepare them for the upturn in the economy, whenever it comes.”

Dave Conder, the UK HR director for KPMG, said redundancy doesn’t have to be the only cost reduction option for businesses during difficult times. “Closing down recruitment avenues, deploying flexible resource management and simply having controls on optional spending will all help in the long run,” he said.

“Redundancy is sometimes a short-term fix to the problems that businesses experience in a downturn … There is no doubt many businesses will have to look carefully at their cost reduction options and weigh up the short and long-term effects to their businesses.”

In the US, further research has found that a quarter of US employers expect to make layoffs in the next 12 months, while another quarter have put hiring freezes in place.

“Employers are still sorting out the impact of the economic crisis, but changes are clearly in the wind,” said Paul Platten, global practice director of the human capital group for Watson Wyatt, which conducted the survey of 248 US companies.

“As they respond to the new environment, companies will have to balance how to control costs, maintain employee morale and prepare for future staffing challenges.”

A further 23 per cent of companies were planning organisation-wide restructuring, while 19 per cent were looking to restructure their HR function and a further 18 per cent had eliminated or reduced training.

However, more than a third of employers are planning to increase their communication around pay (37 per cent) and benefits (35 per cent), while three out of 10 employers (28 per cent) have reduced their merit pay budgets in the wake of recent financial developments.

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