Good Practice Note | August 2005 | Number 4
Managing Retrenchment W
hether it is the pursuit of new markets or the desire to improve performance or productivity, companies must periodically review and adjust their business plans and processes. The injection of new capital, changes in ownership, or changing economic circumstances can often lead to reorganization and restructuring within a company. It is not uncommon for job losses to result, and in some cases it may be the only way for a company to move forward and thrive. Loss of employment may be caused by a range of factors from technological change to privatization to total closure of a workplace.
Good Practice Note
No one single international definition or universally used terminology exists to categorize such job losses. Terms used can include: retrenchment, redundancy, downsizing or lay-off. Throughout this Good Practice Note, we use the term “retrenchment,” which can cover a wide range of dismissals that do not essentially relate to the conduct or capability of the worker. These include » the closure of a plant, factory, mine, or other workplace, with the total or near-total loss of jobs » job losses arising from a reduction in staffing requirements due to efficiency gains or falling demand for the company's products or services » job losses arising from a downsizing in operations or restructuring of the workforce following, for example, privatization. Retrenchment may sometimes be a necessary part of securing future employment for large sections of
the workforce. However, the key to a good outcome lies in developing and implementing a retrenchment procedure that achieves the commercial aims of the process while minimizing the impact of job losses on workers and communities. Such a procedure, often encapsulated in a retrenchment plan, should be founded on widespread consultation (particularly with workers and their representatives) and should seek to ensure that the selection of workers for dismissal is based on principles that are fair and transparent and do not discriminate against particular groups. During the course of the process, efforts should be made to reduce the number of jobs that have to be lost and to mitigate the effects of the job losses on individuals, groups, and communities. The aim of this Good Practice Note is to provide guidance to IFC clients and the wider private sector operating in emerging markets on how best to plan and manage significant job losses. A well-managed process can help avoid a host of problems and result in better outcomes for the company, its employees, and the wider community. This note contains a range of good practice measures that can help companies think through the key issues, avoid common pitfalls and hidden problems, and design a comprehensive retrenchment plan. The development of such a plan is a requirement for IFC-financed investments where a significant number of job losses is expected.
Environment and Social Development Department
What’s Inside? 2 The Case for Getting It Right 2 Key Steps in Planning and Managing Retrenchment 5 Consultation Is Critical 7 National and Legal Requirements 8 IFC Requirements 10 Determining Selection Criteria 13 Non-Discrimination 15 Appeals and Grievances 16 Severance Pay 17 Beyond Compensation: Assisting Workers 20 Addressing Impacts on Communities 26 Preparing a Retrenchment Plan
The Case for Getting It Right
Morale and Productivity
It is evident that retrenchment will have a substantial impact on the workers involved. However, the effect can be much more widespread. Those employees who are left behind and managers who deal with the retrenchment can be affected by the process, especially if it is badly handled or creates unnecessary conflict. A poorly executed retrenchment process can lead to loss of productivity, low morale, and decreasing economic performance. While it will always be difficult to maintain employee morale...
References: International Labor Organization www.ilo.org Global Compact www.unglobalcompact.org OECD Guidelines for Multinational Enterprises www.oecd.org ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy www.ilo.org/public/english/ employment/multi/index.htm Labor Issues in Infrastructure Reform Toolkit — The toolkit provides practical tools and information to help policymakers and practitioners design, implement, and monitor labor programs in infrastructure reforms. Available from the Public-Private Infrastructure Advisory Facility (PPIAF), a multi-donor technical assistance facility aimed at helping eliminate poverty and achieve sustainable development through private involvement in infrastructure. www.ppiaf.org/Reports/LaborToolkit/ index.html “Restructuring with Workforce Reduction,” by Esser and Ozoux, ILO (2004). Provides guidance on managing the restructuring process in a socially sensitive manner. IFC Good Practice Note: NonDiscrimination and Equal Opportunity (Forthcoming). The fifth in the series of Good Practice Notes provides IFC clients and the wider private sector operating in emerging markets with guidance on avoiding discriminatory practices in the workplace and promoting diversity through equal opportunity. www.ifc.org/enviro The Management and Corporate Citizenship Programme, Job Creation and Enterprise Development Department, ILO. Contact: Dr. Nikolai Rogovsky at firstname.lastname@example.org
For more information, please contact: International Finance Corporation Environment and Social Development Department 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 USA
The purpose of the Good Practice Note series is to share information about private sector approaches for addressing a range of environmental and social issues. This Good Practice Note provides guidance and examples of basic good practice approaches that businesses have successfully applied in their operations. IFC has not financed all the projects or companies mentioned in the Good Practice Note. Some of the information in the Note comes from publicly available sources such as company websites. IFC has not verified the accuracy of such information nor the companies ' practices. This Good Practice Note does not represent a commitment by IFC to require projects it finances to take certain or all of the actions specified in the Good Practice Note. Instead, any issues arising in an IFC-financed project will be evaluated and addressed in the context of the particular circumstances of the project.
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