Ouch…… its a painful title.
I recall a conversation I was having with the CEO of a bank some time in the year 2001. He was mulling on doing a downsizing through a voluntary separation scheme. He asked me of my opinion about VSS’s and how best to sell it to the Board. Now this VSS was going to cost the bank a cool RM100 million or thereabouts.
My reply to him was:
a: recognize that VSS is a poor use of shareholders money and an absolute cash drain
b: the only winners in a VSS are the people who get the VSS
c: recognize that a VSS is the price to pay and absolute recognition of managements failure in managing
Of the three statements above, he agreed readily with statement a, was curious about statement b, and vehemently objected to statement c.
To understand why, let’s deal with them one by one:
a: To use $100 million to pay off “non performers” or dead wood is simply poor use of shareholder funds. That $100 million just walks out the door as the deadwood leave. And for the hard working people in the company, they would never ever be paid so much money for their positive contributions – be it through bonuses or pay increases which leads us to point b:
b: It is called “survivors syndrome.” When an organization hacks of a chunk of its employees, those who are left behind either feel sorry for those who got chopped off but did not get “fairly compensated” or resentful for those who got chopped and did not deserve to be compensated. Imagine a typical VSS formula = 1.5 x salary for every year worked, and assume you have been a lazy bum for 16 years – suddenly you get 1.5 X16 = 24 months payoff. That is equal to a 2 year bonus of which most hard working performers could never ever dream of getting.
Either way the remaining employees are affected either by sympathy or resentment, and then the realization sinks in that although a chunk of people are gone, all the work is till there to be done. Now, even more resentment kicks in as they feel they are doing more work for the same amount of money.
Of course Consultants who are advising companies will say “its okay, they are under worked anyway.” Well its precisely for that reason that consultants don’t run companies – becaue they live in dream land. If I am paid $1000 per month to arrange 100 books per day in the library, and tomorrow I am asked to arrange 200 books of course it becomes obvious to me my work has doubled. The fact that it is possible for me to do 300 per day is absolutely irrelevant, as I have never been held to that standard before. It simply is more work.
That is why I tell my clients – it is better to be a tad understaffed and do more work, than over staffed and do less. It is easy to go from more to less, but it is such an effort to go from less to more….
VSS’s have such a long and negative impact on performance that it can quite easily wipe out the promised benefits that the consultants computed simply because a spreadsheet never factors in things like slow downs and work to rule reactions. Any VSS must be matched with a generous pay rise for the remaining staff – no matter how stupid it may seem, if not survivors syndrome will set you back many many months.
c. VSS is recognition of management failure. Guess what:
– who hired these people? Management
– who allowed them to become “dead wood” and not manage performance ? Management
– who made them “surplus to capacity?” Management
– who did not run the business efficiently and prudently? Management
So if management want to do a VSS, sure, but management must first acknowledge it has failed and all those in senior positions must go – with no compensation as they have failed in their jobs. And the fist person to go must be the Chairman of the Board, then members of the Board followed by the CEO and his management. Why the Board – well if management has failed, then the Board has failed to manage. The responsibility to manage is with Management but the accountability is with the Board.
What we turnaround CEO’s do; is go in, blame previous management and then use shareholder money to buy our way out….
In any organization, good or bad there are 4 types of people:
a: Those who are willing to learn and capable of delivering results – grow them
b: Those who are beyond learning but still capable of delivering results – maintain them
c: Those who are willing to learn but cant deliver results – teach them
d: Those who are unwilling to learn and incapable of delivering results – sack them.
It is hard work, but if the top echelons start to feel the pressure of being accountable for performance, most people will quickly buck up.
As they saying goes, shoot a couple of lame dogs and the pack starts running well. Those lame dogs are at the APEX of the organization.
Senior Management prefer to blame the workers than take responsibility for their own misgivings. The reality is, workers come in and want to do a good days job. The fact that they have bosses who are poorly trained in “managing” very quickly morale goes down hill. Management cannot see the poorly trained manager but clearly sees the “low morale” workers and the natural conclusion is that workers are dead wood.
In the case of mergers this take on a different perspective. The goal of a merger is to integrate 2 business, and enjoy the economies of scale, which always means a downsizing. But as stated in point B. above, if you are going to pay people to go, don’t forget to pay those who stay…..