Why do companies offer massive redundancy packages?

mikemac

Something I’ve always wondered. I can understand giving annual bonuses to staff, especially if they hit targets.
But why give a big redundancy package to someone who is leaving, what’s the point?
And especially if a company is in difficulty and needs to lay off staff, then cashflow is vital.

It just seems strange that anytime a big company with union representation lays off staff, then the union is under pressure to negotiate a generous package for staff.
But why don’t companies just pay statuary minimum? It's not as if they are out to motivate anyone.

I'm not looking to start a flaming debate about greedy unions or employers, I'm just confused by it all

cronos

Because you cant just fire someone legally. You have to offer them enough money that they will want to leave. Otherwise the only way to get rid of an employee who has done nothing wrong is to go bankrupt.

They are motivating people to leave

board om

micmclo wrote: »

Something I’ve always wondered. I can understand giving annual bonuses to staff, especially if they hit targets.
But why give a big redundancy package to someone who is leaving, what’s the point?
And especially if a company is in difficulty and needs to lay off staff, then cashflow is vital.

It just seems strange that anytime a big company with union representation lays off staff, then the union is under pressure to negotiate a generous package for staff.
But why don’t companies just pay statuary minimum? It's not as if they are out to motivate anyone.

I'm not looking to start a flaming debate about greedy unions or employers, I'm just confused by it all

its a legal thing. it isnt becuase they want to, it is becuase they have to. it is usally only paid to employees who are working for the company for a certain amount of time. so persumably they have certain rights becuase of their length of time in employment with the company. so essentially the company have to compensate them for their loss. it is basically a pay off more than anything.

Iago

As well as the above, the main reason they don't mind paying redunancy packages is the way they write it off from both a tax and earnings point of view.

Say the company wants to get rid of 100 people, average salary 40k. They offer a redundancy package of 20k each to leave which costs them €2m.

When they write that off over 3-5 years they are actually saving €4m a year in salaries + an extra €400-€800k a year in bonus payements, and XX in pension, healthcare etc.

Short term loss for long-term gain.

AARRRGH

I think what micmclo is asking is why do they pay more than the statutory payments.

I've often thought that myself.

I guess it's to make the people who aren't being made redundant less worried about the company's financial situation.

mikemac

Thanks all.
Yeah, I'm fully aware that staff being made redunant have to get statuary reduncancy, as long as they are there over two years afaik.

What I was realy confused by is why pay more than statuatory minimum?
So if you're entitled to two weeks pay per year of service for example, why pay three or four weeks ?

Fiona24

Im just after getting redundancy from a company, the reason they offer more than statutory is because there is a legal obligation to go through redundancy negotiations. This is what we were told. I was in a non unionised company so we nominated a group of employees to go into talks with the company. Obviously we were not going to agree to 2 weeks wages as we were all out of jobs. You have to fight to get the best deal considering it isnt easy to get a job in Ireland at the moment. You also must look at protecting benefits such as your pension and life assurance with the company etc.

Eoin

There's a difference between lay-offs and voluntary redundancy packages.

If it's just a cost cutting measure, rather than a company about to fold scenario, then even a very good voluntary leaving package can save the company money after as little as a year or two.

They will often target people close to retirement because those people have less to lose than someone in mid-career - but not too close where they may be thinking of retiring early anyway.

For instance, if you take someone 10 years from retirement on €50K a year and offer them 150K or so plus additional pension contributions, then the company will be saving money after as little as 3 years or so. It's win-win.

If the HSE did this with all the middle-management clogging up the system, then after as little as 3 years (and an admittedly very big initial outlay), you could see a massive improvement.

BurnsCarpenter

micmclo wrote: »

Thanks all.
Yeah, I'm fully aware that staff being made redunant have to get statuary reduncancy, as long as they are there over two years afaik.

What I was realy confused by is why pay more than statuatory minimum?
So if you're entitled to two weeks pay per year of service for example, why pay three or four weeks ?

Surely it's because they want to do the right thing and reward their longterm staff for the hard work and commitment over the years.....right?

DublinDilbert

They may also want to ensure a "transfer" of business to another site goes smoothly and there is no disruption in supply of product to their customers...

With large companies this is generally the case, they don't want their customers effected, but want to move production to a new (cheaper) location. As it takes time to tare down and set up machinery they will generally need to build a few weeks buffer stock up, they need their current (soon to be redundant) employees to do this....

In many industries the company may well be under massive contractual obligations to keep supplying product, for example the Automotive industry, hence would be hit with massive penalties if supply was even stopped for a week.

Keano

DublinDilbert wrote: »

They may also want to ensure a "transfer" of business to another site goes smoothly and there is no disruption in supply of product to their customers...

With large companies this is generally the case, they don't want their customers effected, but want to move production to a new (cheaper) location. As it takes time to tare down and set up machinery they will generally need to build a few weeks buffer stock up, they need their current (soon to be redundant) employees to do this....

In many industries the company may well be under massive contractual obligations to keep supplying product, for example the Automotive industry, hence would be hit with massive penalties if supply was even stopped for a week.

This is the case with my current employers. The business is moving to India, China and Mexico. The announcement was made last October.

We are getting quiet a generous package plus statutory and if we were to only receive staturoy the place would have been gone by now.

Instead, offering the employees a substantial package ensures a smooth transition, which is happening at my employers

tvr

I visited a number of companies which have closed down for various reason. One thing that always struck me when looking at the books was the level of redundancy being offered and given. In most case the payments were huge.

I thought to myself if even 70% of the employees grouped together all of their payments , in most cases they could buy most of these places outright from the closing coompanies. In general even the total basket cases a structured management buyout would save most of these places, yes you would need to cut the other 30% of employees or so to generate a healthy profit but most people these days are sitting on their assess. You could also probably hammer out a nice fas/state grant aswell to keep these places open.

Anyway back to topic, yes I honestly don't see why companies pay so much but I do see your point re smooth transfer etc...

damnyanks

so the companies reputation isnt damaged. Last thing they want is to be seen as a bunch of mugs.

I'm working in a bank who made a bunch of redundencies recently because of the whole credit crunch lark. Some guys on my team who were let go had only been working there about 9 months but got 6 months salary (roghly the max you can get if they'd gone to court about it)

Eoin

eoin_s wrote: »

If the HSE did this with all the middle-management clogging up the system, then after as little as 3 years (and an admittedly very big initial outlay), you could see a massive improvement.

Sorry for the thread resurrection, but I thought it was interesting to see that the HSE could well indeed by going down this route:

http://www.rte.ie/news/2008/0515/hse.html

In its proposal submitted to the Government, the HSE suggests that 200 senior management and 800 clerical and administrative posts would go.

The HSE said €30m would be needed to fund the redundancy programme.

The_Conductor

eoin_s wrote:

Sorry for the thread resurrection, but I thought it was interesting to see that the HSE could well indeed by going down this route:

http://www.rte.ie/news/2008/0515/hse.html

Feck, thats a tax-free lumpsum of EUR30k each......
Thats a lot of money. While I don't begrudge them the money- surely upper management should be fired for their total and utter incompetence?

DublinWriter

cronos wrote: »

They are motivating people to leave

Exactly. In a company of, say, 1000 employees, they might offer a voluntary redundancy programme for 100 workers.

The bigger the package, the greater the incentive for workers to take the offer.

Eoin

smccarrick wrote: »

Feck, thats a tax-free lumpsum of EUR30k each......
Thats a lot of money. While I don't begrudge them the money- surely upper management should be fired for their total and utter incompetence?

That's a whole different issue though.

The fact of the matter is that the HSE is stuffed to the gills with unneeded middle management and administrative staff. This is because they amalgamated all the health boards, but because it's close to impossible to fire civil servants, they didn't get any of the benefits that such a re-organisation should see. Brendan Drumm himself has said that he has 2,500 staff who aren't sure what their job is (or something to that effect).

€30K tax free per person is peanuts - the tax payer will realise savings within 2 years. Hopefully this will directly benefit the patients as well.

The_Conductor

Not entirely true- the HSE is not the civil service, in actual fact the staff there have rights far exceeding the rights of civil servants Civil servants can be demoted or fired quite easily now, thanks to rights they gave up during the benchmarking process. They also cannot appeal any labour related issues to the Labour Court or the LRC. Annual leave and other employment rights tend to be statutory minimums. This differs greatly from the HSE- where no-one appears to be answerable to anyone else, and from the place where they had one national director and 4 assistant national directors 8 years ago, they now have 4 national directors, and 19 assistant national directors. Its like a dinosaur that just keeps eating- putting on weight, but getting no-where at all.

When they amalgamated the health boards, the Department of Health said it would lead to cost efficiencies and staff reductions of almost 12,000 staff, through reduction of duplication of functions and non-filling of posts as people retired/died. Instead their staff complement grew by just under 30,000. There are now more people working in the HSE, excluding agency staff, than there is in the rest of the public sector, civil service/Gardai/teachers/armed forces/state bodies included, combined.

Eoin

Wow - I knew it was bad, just not that bad. I don't really disagree with any of your points, but I do think that this redudancy deal would be a good thing.

The lack of accountability is endemic all the way up to the very top, but this is unrelated to the voluntary redundancy deals.