The decision to quit depends on (1) the employee’s level of dissatisfaction with the job and (2) the number of attractive alternatives the employee has outside the organization.14 The employee can be dissatisfied with the job itself, the job environment, or both.

In recent years, some employers have been using pay incentives to encourage employees to quit voluntarily. Employers use these voluntary severance plans, or buyouts, to reduce the size of their workforce while avoiding the negative factors associated with a layoff. The pay incentive may amount to a lump-sum cash payment of six months to two years of salary, depending on the employee’s tenure with the company and the plan’s design.

A retirement differs from a quit in a number of respects. First, a retirement usually occurs at the end of an employee’s career. A quit can occur at any time. (In fact, it is in the early stages of one’s career that a person is more likely to change jobs.) Second, retirements usually result in the individual receiving retirement benefits from the organization. These may include a retirement income supplemented with personal savings and Social Security benefits. People who quit do not receive these benefits. Finally, the organization normally plans retirements in advance. HR staff can help employees plan their retirement, and managers can plan in advance to replace retirees by grooming current employees or recruiting new ones. Quits are much more difficult to plan for.

Most employees postpone retirement until they are close to 65 because that is the age at which they are entitled to Medicare benefits from the government (see Chapter 12).15 Without these benefits, many workers would find it difficult to retire. It is illegal for an employer to force an employee to retire on the basis of age.

Many Fortune 500 companies have found early retirement incentives to be an effective way to reduce their workforces. These incentives make it financially attractive for senior employees to retire early. Along with buyouts, they are used as alternatives to layoffs because they are seen as a gentler way of downsizing. We discuss the management of early retirements in detail later in this chapter.

A discharge takes place when management decides that there is a poor fit between an employee and the organization. The discharge is a result of either poor performance or the employee’s failure to change some unacceptable behavior that management has tried repeatedly to correct. Sometimes employees engage in serious misconduct, such as theft or dishonesty, which may result in immediate termination. Recently, employee use of social media has become the basis for employee discharges. The Manager’s Notebook, “Social Media and Work Can Be a Terminal Mix,” explores this practice.

MANAGER’S NOTEBOOK Social Media and Work Can Be a Terminal Mix

Technology/Social Media

Social media, such as Facebook and Twitter, have become integrated into our personal lives and have been adopted as routine tools by many people. For both individuals and organizations, social media offers many benefits, such as being able to immediately reach out and connect with friends or customers. However, casual use of social media by employees has probably caused heartburn for a number of managers and has definitely resulted in some employees being discharged. Consider the following examples of actual employee terminations.

• ▪ A flight attendant lost her job after posting suggestive pictures of herself in her company uniform.

• ▪ Two employees of a pizza chain franchise were terminated after posting a video on YouTube in which one put mucus on the food and the other put cheese up his nose.

• ▪ Thirteen Virgin Atlantic cabin crew members were terminated after the airline learned that the employees had posted inappropriate comments on Facebook about their employer and about their customers.

• ▪ An employee of a car dealership was fired after posting criticism on Facebook of the dealership’s promotional event for including only water and hot dogs.

As the preceding examples illustrate, people have been fired due to their activity on social media. If you are like many college-age (18–24 years old) students, you might feel that employer monitoring of social media is inappropriate. However, employers have a right to protect themselves from defamation and from actions that might negatively impact the reputation of the business. Just where the legal line is regarding employee expectations of privacy and free expression in social media is something that will remain somewhat blurry until the legal framework evolves in this area. It is clear, though, that employers can’t use social media information to discriminate, and there would probably be a lack of legal support to use such information for any purpose that is not strictly business related. Other than these broad prohibitions, it appears that use of social media can be a basis for employee termination.

From a management perspective, it is important to note that, at present, most employers do not have a policy regarding the use of social media. Developing a policy could clarify expectations and prevent problems. A couple of key issues that could be addressed in such a policy include:

• ▪ whether social media can be used during work hours.

• ▪ what is acceptable for an employee to post.

Clarity regarding these issues could provide guidance to employees and lower the chances of the employer having to discipline, or even terminate, someone for misuse of social media.

Sources:Based on Abril, P. S., Levin, A., and Del Riego, A. (2012). Blurred boundaries: Social media privacy and the twenty-first century employee. American Business Law Journal, 49, 63–111; Cavico, F. J., Mujtaba, B. M., Muffler, S. C., and Samuel, M. (2013). Social media and employment-at-will: Tort law and practical considerations for employees, managers, and organizations. New Media and Mass Communication, 11, 25–41; Field, J., and Chelliah, J. (2012). Social media misuse a ticking time-bomb for employers. Human Resource Management International Digest, 20, 36–38; Jacobson, W. S., and Tufts, S. H. (2013). To post or not to post: Employee rights and social media. Review of Public Personnel Administration, 33, 84–107.▪▪

Managers who decide to discharge an employee must make sure they follow the company’s established discipline procedures. Most nonunion companies and all unionized firms have a progressive discipline procedure that allows employees the opportunity to correct their behavior before receiving a more serious punishment. For example, an employee who violates a safety rule may be given a verbal warning, followed by a written warning within a specified period of time. If the employee does not stop breaking the safety rule, the employer may choose to discharge the employee. Managers must document the occurrences of the violation and provide evidence that the employee knew about the rule and was warned that its violation could lead to discharge. In this way, managers can prove that the employee was discharged for just cause. Chapter 14 details the criteria that managers can use to determine whether a discharge meets the standard of just cause.*

An example illustrates how costly discharging an employee can be if handled poorly or without due process. Sandra McHugh won $1.1 million in damages in an age discrimination lawsuit against her employer.16 McHugh was forced out of her job because of her age––which was 42 at the time.

Layoffs are a means for an organization to cut costs. For example, the recent layoff announcement by Zynga, mentioned in the opening of this chapter, was based on financial considerations. Changes in online gaming and a reduction in revenues led Zynga to make the decision to let go hundreds of its employees.

A layoff differs from a discharge in several ways. With a layoff, employees lose their jobs because a change in the company’s environment or strategy forces it to reduce its workforce. Global competition, reductions in product demand, changing technologies that reduce the need for workers, and mergers and acquisitions are the primary factors behind most layoffs.17 In contrast, the actions of most discharged employees have usually been a direct cause of their separation. Although we can make these conceptual distinctions between a layoff and a discharge, the Zynga workers who endured being cut simply know that they lost their jobs, whatever the process is called.

Layoffs have a powerful impact on the organization. They can affect the morale of the organization’s remaining employees, who may fear losing their own jobs in the future. In addition, layoffs can affect a region’s economic vitality, hurting the merchants who depend on the workers’ patronage to support their businesses. Layoffs can also affect the perceptions of the safety and security of an area.

Investors may be affected by layoffs as well. The investment community may interpret a layoff as a signal that the company is having serious problems. This, in turn, may lower the price of the company’s stock on the stock market. Finally, layoffs can hurt a company’s standing as a good place to work and make it difficult to recruit highly skilled employees who can choose among numerous employers.

Let’s clarify the differences between a layoff, downsizing, and rightsizing. A company that adopts a downsizing strategy reduces the scale (size) and scope of its business to improve its financial performance.18 When a company decides to downsize, it may choose layoffs as one of several ways of reducing costs or improving profitability.19 In recent years many firms have done exactly this, but we want to emphasize that companies can take many other measures to increase profitability without resorting to layoffs.20 We discuss these measures later in this chapter.

Rightsizing means reorganizing a company’s employees to improve their efficiency.21 An organization needs to rightsize when it becomes bloated with too many management layers or bureaucratic work processes that add no value to its product or service. For example, companies that reconfigure their frontline employees into self-managed work teams may find that they are overstaffed and need to reduce their headcount to take advantage of the efficiencies provided by the team structure. The result may be layoffs, but layoffs are not always necessary. As with downsizing, management may have several alternatives to layoffs available when it rightsizes its workforce. Whatever the label, the result of downsizing or rightsizing is that people are losing their jobs.

Managing a layoff is an extremely complex process. Before we examine the specifics, however, we’ll examine an important alternative: early retirements.