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Article | Beyond Data

Employers cautious about growth, possible headcount reductions

2021 Severance Policies and Practices Survey report

Beyond Data

By Darryl Davis and Doug Gerke | April 23, 2021

Employers do not expect business results to worsen in 2021, but many are planning to reduce or freeze headcount, according to our survey.

One year into the pandemic and just about every employer has felt the broad impact of COVID-19 on daily operations, long-term planning, profits and more. Results from Willis Towers Watson’s recent 2021 Severance Policies and Practices Survey of over 650 companies show that, while the majority of employers do not expect business results to worsen further versus the past year, overall prospects for short-term growth and expansion remain cautious. In addition, over a quarter of surveyed employers indicated that they expect headcount reductions or alternative measures to avoid job cuts in the 12 months to come.

Global company actions regarding headcount
Global company actions regarding headcount
Graph one depicts global company actions regarding headcount. Companies around the globe, are considering headcount actions, including 22% planning for a formal hiring freeze, 16% planning alternatives to layoffs, and 13% reducing headcount.

Reducing headcount, freezing hiring, temporarily furloughing staff – these and other choices are not easy. Each has its own risks and may seriously impact the lives of some or all of the employees of an enterprise.

Terminating employment exacts the hardest toll and presents the biggest risks to the business but often has the greatest potential for righting ship quickly (or causing the ship to list further if poorly managed).

Along with the obvious human aspect, there can be a variety of regulatory, legal, cost, cultural and image-related considerations at play.

For employers conducting dismissals across multiple jurisdictions, the complexities can seem overwhelming in one location and deceptively simple in another. Global policies to observe only statutory requirements may seem straightforward in theory but fail to account for the myriad of possible intangibles that employers have to deal with at the local level, especially in places where what’s mandatory may be vague or non-specific. As a result, understanding everything that must be done (or at least considered) can be a challenge.

Global minimum severance payment entitlement patchwork
Global minimum severance payment entitlement
Graph 2 depicts the global minimum severance payment entitlements for collective dismissals in the countries surveyed. Mandatory entitlent is defined in Hong Kong, India, Malaysia, Netherlands, Philippines, Polan and the United Kingdom. Mandatory prefunded accounts are used in Italy. Options to offer a qualified pension exist in Mexico. Entitlements vary in Canada and China, and there are no mandatory payment provisisions in Germany, Singapore, Switzerland or the United States.

On top of that, depending on the country and specific circumstances, company actions may be subject to various influences or practical considerations beyond what’s prescribed by law (if anything). Just a few examples include the role of Works Councils (Germany) or unions in the selection of employees for redundancy, environments where mandates only apply to a subset of the workforce (Malaysia), and disparate impact analyses based on anti-discrimination laws (U.S.)

Therefore, unlike virtually all other phases of the employment life cycle, the exact requirements and costs relating to termination can be exceedingly difficult to quantify in advance. What’s more, in a worst-case scenario a company’s intended actions can potentially be wholly undone or blocked, leading employers to have to reinstate staff or being refused permission to undertake redundancies in the first place.

The 2021 Severances Policies and Practices Reports provide key insights to support organizations' decision-making process when cutting costs, covering topics such as the organization's method and calculation of severance payments, and other cash and non-cash package elements.

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