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  • Writer's pictureKaChinging

Aftermath of Retrenchment

Updated: Dec 21, 2020

Previously, in the post "8 Quick Steps: My Bear Market Plan", I briefly mentioned about my company had a change of CEO which brought about a fresh new management team (turned out to be all his kakis) and the dismissal of 30% employees.

Although it was really unfortunate for those who were affected (at least they were compensated well), a topic that is seldom discussed is what happens the lucky/unlucky ones who remained? Is it truly a good thing like what my director explained to me? So, in this post/rant, I want to share about my experience and thoughts.

Why do companies retrench employees?

Reasons for firing people may differ between companies and their practices. Below are some main causes that I can think of:

  • Business has been doing badly: the revenue it brings in is unable to sustain current business operations hence the downsizing. It usually occurs during an economy downturn or when the company is facing intense competition.

  • Change of management: The top dogs may want to run the business differently compared to their predecessors. Processes get changed and certain roles become redundant.

  • Cheaper labour overseas: Manufacturing, call centers, logistics, engineering etc. Many of these local capabilities have been replaced with overseas counterparts.

  • Automation: The most frightening of all and will be further accelerated with COVID-19. I touched on this previously how automation shrunk 3 teams of 5 into 3 individuals in the banking industry. I observed a similar trend in other areas such as Quality Control where clients are looking to automate their inspection process thus reducing reliance on manpower.

  • Business unit becomes unprofitable: Lucrative business will naturally attract competitors. Intense competition will squeeze out the weaker players.

  • Acquisition: The acquirer might want to do things differently so they remove existing staffs and install their own people.

On the other hand, there are also companies whom believe in taking care of their employees and don't have a history of letting staffs go.

Hence, retrenchment is common tactic for companies to operate more efficiently or a last ditch resort to keep it afloat.

Is retrenchment necessarily a bad thing?

I believe it greatly depends on whether you are affected or not.

Why bad?

  • Loss of jobs: Particularly bad for folks with disabilities, families to feed and bills to pay. You can get a pretty good idea on whether the company you're at is worth your time based on their selection criteria. I had an ex-colleague who got into an accident leaving him with walking disability and even lost a loved one. Yet, the company chose to fire him.

  • Increased responsibilities: Who's gonna handle all the remaining stuff after your colleagues left? That's right, it's gonna be you and you will likely have to do so for little to no additional compensation.

  • Changes to organization chart: Your boss might be asked to leave and you have to work under someone else. Good or bad depends whether the new boss is willing to put in effort to understand your department's operation. Definitely bad if he/she is from a function that naturally conflicts with yours.

  • Forget about performance bonus/increment: It depends on how much cash they have left. Company is in survival mode and they might want to conserve cash instead.

  • Drastic drop in morale: Don't think anyone would like all the above changes happening within such short time frame.

  • Bad leaders choosing who to let go: Classic case of weak leaders abusing power to weed out internal competition or people who goes against them.

Why good?

  • Compensation package: The poor folks who were asked to go were compensated really well. 1 month for that month they worked, 2 months for notice period, additional 1 month for every 1 year of service in the company but capped.

  • New opportunities opened up: Yep, previously held positions free up so others might have the chance to fill the gap.

  • Your archenemy/bad boss is gone: If done properly, it can be some kinda cleansing to remove notorious troublemakers.

  • Bigger payout: Sometimes with lesser employees means more rewards to go around.

Why did you join the company then?

Well, the biggest problem was that the recruiter didn't come clean with me regarding compensation and career path. Partly my fault as well for underestimating the company's poor rating on Glass Door. Most of the bad reviews were from overseas offices so I thought it wouldn't really affect me working in the Singapore office.

Just FYI, the recruiter I mentioned was let go as well. What a "perfect crime" it became.

Then again, there is only so much anyone can learn about a company without having to work for them.. unless I'm severely lacking on my homework skills.

Even though I am working in a "good" company, at least I learn about what makes a bad company bad so that I would be able to identify one in the future. The same applies when I finally found myself working in a good company, I will learn about their good points.

Retrenchment is not necessarily a good thing for investors

After CEO announced in the earning's call that they will be looking to save $X millions through restructuring, market took this positively so share price went up.

Personally, I don't think retrenchment should be taken as good news for investors. Sure, one can argue that cash flow will definitely improve in the short term but let's think of it this way:

  • Loss of talents and experienced staffs: Let's assume we are fighting a war, does it make sense to cut your battle hardened soldiers because you are running out of resources? Now, these soldiers are real mad at you for dismissing them like that. Doesn't it give them a damn good reason to join your "enemies" (competitors)? Your enemies will now learn about your tricks at such cheap price and have an edge over every "battle".

  • The rot has festered: Retrenching employees is not a solution. Management must be able to identify problems with the business and take corrective actions else it will just continue to slump.

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