VSS – a testimony of management failure….

05 Aug

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…..


Posted by on August 5, 2007 in General


6 responses to “VSS – a testimony of management failure….

  1. Mr Bojangles

    August 6, 2007 at 1:11 pm

    I think management is usually the last to admit that their own inadequacies are often major contributors to any flaws in their organizations. How many times have we heard senior people saying that there are no bad subordinates, only bad superiors – but being senior persons themselves did little to put their money where their mouths were.
    The gut reaction is to blame subordinates for any shortcomings, and rewarding them for their “poor” performance via a VSS seems to have become the standard operating procedure.
    There are many reasons for poor worker performance (lack of motivation, recognition, insensitive bosses, poor leadership, office politics, etc, etc) and management, especially in HR, has the duty and an arsenal of weapons at its disposal (counseling, retraining, courses, fair practices, etc) to address these issues. Instead, senior managers happily label such staff as deadwood when they themselves couldn’t string a coherent memo to save their lives (if you want an example of that, I’ll be only too happy to oblige) and look for the easy way out.
    I could go on, but by now, my drift should be clear. And any self respecting management would do well to take heed: Any organisation is like a septic tank – only the big chunks rise to the top. And, believe you me, in my working life, I have come across some goodly sized chunks.

  2. mohdzawi

    August 6, 2007 at 4:30 pm

    Agree fully with you on your opinion of VSS. The management must have identified the deadwood or the saboteurs but they never dare to use the stick to punish these people. Definitely the management has failed in their duty. What I would suggest is keep the allocation for VSS and sack the deadwood after building up cases on them. Use the budget to fight off any litigations. Any surplus from the fund must be used to motivate and reward the remaining staff to work harder in the absence of the deadwoods.
    More often than not management has been taken for a ride by the non performers and they have failed to dismiss them inspite of them being non performers.

  3. Dhillon

    August 10, 2007 at 4:38 pm

    My simple understanding of VSS is a payment made by companies to employees which are no longer required because the business can longer afford these employees. The payment made is because employee and employer has this psychological contract that the employment will be till retirement .However due inevitable reasons the contract fails and as result the employee is compensated with a payment that will to sustain their livelihood during the period of unemployment. The term VSS has grossly misused by some. VSS has been misconstrued to as clean up exercise to weed non performers .Another gross mistake is to removing least required because the function is no longer required even if the staff is performing .This staff will easily find a new job then it will be real misuse of shareholders fund. Therefore the first step before VSS is weeding ‘bad apples ‘ and than reallocation based on competency .Only then the last resort should be VSS.The most affected persons are the aging personnel without “niche ” of skill . Although VSS is common trend lately ,our workforce still carry the government mentality of “Kerja sampai pension”. As result the consequence is very painful. The only solution is a paradigm shift in the Malaysia workforce .I for see these mentality will sustain for sometime since we are trend setter .

  4. mymoon

    August 22, 2007 at 11:41 pm

    agree with your view on vss. Recently, the company i work for vss-ed some employees. These were the people who never performed, the deadwood. And they were paid handsomely for their exit. Now I am a resentful employee.

  5. m0ozman

    August 28, 2007 at 1:02 pm

    Realistically, in the Malaysian labor law, does the IR court really accept & allow for termination based on low Performance? An HR professor said that except for clear misconduct, 99.9% of the time the IR court would be ruling for the employee. If this is truly the case, what would be the remedy for employers & for that matter, the Malaysian government, to weed out non-performers in the SHORT period (i.e. 1-year)?

    A HR director from an Ozzie bank told me that once an employee enter their Consequence Program that their case is being build up for that duration. Normally, these employee would be leaving on their own accord. Isn’t this mala fide?

  6. mindspring

    August 28, 2007 at 6:57 pm


    The law is very clear – three strikes and you are out. I have tested this many times with good results.

    We fail at 3 levels, 1. managers are either too lazy, scared or not sufficiently trained at how to “bat.”

    Second, we loath the process. The thought of managing a case through the Ind Rel Dept and then on to court turns most management off……

    Third, its always easier to take the path of least resistance :
    Some CEOS/MD/Directors simply bully employees into submission
    Some leave it an dlet it fester and just transfer the problem about.

    My experience it, the system does actually work.


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