2. WHAT IS DOWNSIZING?
 A downsizing strategy
reduces the scale (size) and
scope of a business to
improve its financial
performance.
 A reduction of the workforce
is one of only several
possible ways of improving
profitability or reducing
costs.

3. WHY DO FIRMS DOWNSIZE ?
 Reduce costs.
 Reduce layers of
management to
increase decision
making speed and get
closer to the customer.
 Generate positive
reactions from
shareholders in order
to improve valuation of
stock price.
 Increase productivity.

4. DOWNSIZING STRATEGIES
 Early retirement
 Transfers
 Outplacement
 Buy-out packages
 Lay-offs
 Eliminate functions
 Cut hierarchical levels
 Drop divisions or
products
 Reduce work hours
 Lengthen shifts
WORKFORCE REDUCTION ORGANIZATIONAL
REDESIGN

5. CASE OF TATA STEEL
 Downsizing – August 2007
 The fifth largest steel manufacturer in the world,
has managed to have its staff strength in the last 13
years without giving much scope of tears.
 Director of TATA Sons, said when they company
decided to reduce the number of employees, it
evolved a VRS plan taking care not to cause any
heartburn.
 Early Separation Scheme (ESS), the humaneness
and effectiveness with which the company cut its
members.

6.  They offered them 1.2 times their monthly salary for
the rest of their service in the form of cheques. The
scheme also comprises of insurance rider – in case
of employee’s death, their family would continue to
get the benefit, he said.
 The number of employees has been reduced from
77,448 in 1994 to 52,167 in 2000 and to 39,658 in
2005.

7. DOWNSIZING EFFECTS : OVERALL
 Mixed effects on firm performance: short term cost
savings, but long term profitability & valuation not
strongly affected.
 Downsizing forces re-thinking of Employment
strategy. Lifelong employment policies not credible
after downsizing.
 Example : IBM abandoned lifelong policy after
several lay-offs in early 1990s.
 Firm’s reputation as a good employer suffers.
 Example : Apple Computer’s reputation as good
employer declined after several lay-offs in 1990s.

8. VOLUNTARY RETIREMENT SCHEME

9. WHAT IS VRS?
 The Voluntary Retirement Scheme (VRS) is
the latest mantra of many a corporate and
Public sector units.
 VRS is a scheme whereby the employee is
offered to voluntarily retire from his services
before his retirement date.
 Subject to certain conditions the company
offers VRS to its employees It is the golden
route to cut the excess flab.

10. THE GOLDEN HANDSHAKE
 The most humane technique to retrench the
employees in the company today is the voluntary
retirement scheme.
 It is the golden handshake for the employees and
the only option today for the companies to reduce
organization staff.
 The scheme which is formally permitted by the
Department of Public Enterprises and which
provides the lucrative way for the employees to
terminate their services and accept VRS.

11. THE GOLDEN HANDSHAKE
 As the name suggests the VRS is strictly voluntary i.e.
one can neither compel the workers to accept it nor
apply it selectively to certain individuals.
 One can however choose the levels, units and age
groups among whom one wants to offer VRS.
 The company can always accept or reject the
application for the VRS.

12. TRADE UNIONS & VRS
 Trade unions play a crucial role in introducing the VRS in any
organized sector firm. The scheme cannot be implemented
without, at least, the tacit approval of the representative union.
Sometimes without the consent of the trade unions, workers
legalize the VRS by accepting it in mass.
 Very recently, the entire workforce of Sri Ram Mills (1,400
workers) has accepted VRS while the major union opposed
the scheme tooth and nail. Other companies such as Ind Auto,
SKF Bearings, and Novartis have also been able to
successfully reduce their workforce through the introduction of
VRS. When the workers are convinced that the scheme is
sufficiently attractive monetarily and/or the company is in deep
crisis, they opt for the scheme.

13. MORE ON VRS
 Employers refer to VRS as 'golden handshake', trade unions call it
'voluntary retrenchment scheme', and for the government, it is
'unstated exit policy' which means that an exit policy which may not
exist on paper. VRS is one of the strategies introduced in the early
1980s in central public sector undertakings (PSUs) to reduce the
extra workforce.

14. TECHNICALITIES
 The Voluntary Retirement Scheme is a legal way to down
size and thus it involves certain technicalities.
 The VRS candidates must have worked for the
organization for minimum of 10 years and also the age of
the worker must be minimum of 40.
 Employees not complying with these conditions still can
apply for the early separation but it would not be counted
as the VRS legally. Thus these employees won't be able to
avail the benefit of tax exemption.
 The employees receiving VRS can get the tax exemption
for the amount of Rs. 5 lacs lumpsum.

15. TECHNICALITIES
 The Voluntary Retirement Scheme is given
tax exemption as per the following limits:
 Least of following :
 Last drawn salary × 3 × completed yrs. Of
services or Last drawn salary × remaining
month of service which ever is higher
 Rs. 5,00,000

16. TECHNICALITIES
 Employees not complying with these conditions still can
apply for the early separation but it would not be counted
as the VRS legally.
 Thus these employees won't be able to avail the benefit of
tax exemption. The employees receiving VRS can get the
tax exemption for the amount of Rs. 5 lacs lumpsum.
 Anyone receiving more than Rs. 5 lacs would be charged
under Income Tax Act

17. BENEFITS
 The normal benefits that an
employee gets:
1. Provident fund
2. Encashed accumulated leave
3. Gratuity
4. Salary for the notice period
5. Cost of transfer to the hometown

18. CONCLUSION
 These techniques that are suggested above give the
humane touch to the downsizing. This is very necessary
because it is not only the posts that are downsized but there
are human beings involved in this process.
 This process should convince them that the posts in the
organization have become redundant and not the person and
the organization still values the person.
 Since this process involves emotions and feelings, every
care must be taken by the management that the process
must be carried out in such a manner that it keeps the dignity
of the employees but at the same time achieves the objective
in a tactful manner.