Industrial Relations And Labour Laws
Humar Resource
Director, Target Hr Solutions
Richa Gour Chauhan
Human Resource
Teaching-professor [hr]
Office Administration
Hr Recruiter
Hr Professional
Hr Professional
Management Representative
+4 Others

Hello Members,

Would like your views on the subject matter.

When an org. faces financially crises, the first thing which comes to the mind is “lets lay-off some of the employees !!! ” But is it the solution for the problem?

Lets consider this, we have excess employees in the organization and we want to cut down on this number. Now the general suggestion is, first select the guys who are not working at all or are a burden on the organization. Now the problem which arises over here is :

If you sack these guys they'll go to the union n will make a scandal of the whole stuff. Infact some of these guys are the ones who are big shots in the UNIONS !!! So, rather than coping with only financial issues we have to cope up with these scandals too....

Now if we talk about the good employees or the assets to the org., so as the organization's financial condition is not very good, they would have already planned to leave the org. and join some good org. with good financial backup. Thus making the org weaker.

So we have seen the effect of manpower !!!

According to me, one should always get to the root cause of this financial crisis.... Whats are the reasons behind these crisis ??? Is it competition, poor quality or less quantity of production, delay in production, sour relations with suppliers/vendors or customer..... etc.

Why cant we cut on the extra unnecessary expenses which every company goes through?

For example, I have seen at many big manufacturing industries, they hardly pay any attention towards electricity ! Their electricity bills usually runs into lakhs of Rs. every year, but then also say “its necessary as you see its a production house !!!”. I have seen that they waste electricity by switching on all the lights of the whole unit at the day time when ample amount of sunlight is available! No one cares enough to switch them off !! They are not only wasting their money but an important resource too !!

Any organization can come up from the financial crises by cutting down on such EXPENSES.

My question is that,

Is retrenchment/lay-off the best remedy for a financially weak organization??

Please provide me with your view.


16th January 2008 From India, Mumbai
Dear Richa
Festival Greetings.
You have asked a wonderful question after providing all the details abt how a financially sick company suffer to retain talents in their company. There is a saying that when the "ship sinks rats will jump".
These companies to think why they have gone sick before taking any cost reduction measures. Also for a fairly old company, employees age may be at the verge of retirement, thereby they also fails to get employment in the market.
Lay off / retrenchment is a tool to downsize the company strength to allow the company to survive and take profits.
This is a vast subject we can discuss more on this in the days to come
HR Professional

17th January 2008 From India, New Delhi
Hello Trisha,
Greetings to you too !
Thanks for the compliment & for providing me with your views.
I just mentioned one way of reducing the cost. There are other ways too. People generally leave their PCs, ACs and other official equipments switched on even when they are not in the office. One can save power and expenses by taking care of it. Another resource is stationary. People waste paper, printouts and similar stuff. Saving them can also reduce expenses by a great degree !!
I know its a vast topic and thats the reason why I have kept it for an open discussion. Would really appreciate to know everyone's view on it.
17th January 2008 From India, Mumbai
Dear Richa,
No individual(s) is bigger than or more important than the organisation.Given the situation where the co. is overstaffed the most suitable remedy would be to retrench or lay off.One has to be practical in such cases even though it is not so easy to severe people from organisation for whatever reason.The consequences,psychological and other wise can be devastating for not only those who leave but also for those who stay back.Within the frame work of the co.'s stated policy try and do your best as to lessen the burden of those being sent off giving reasons - All this for the sake of the organisation & its survival .

17th January 2008 From India, Bangalore
Thanks RGS for your valuable comments.
I agree with you that in worst situations one has to lay-off the employees , but what if as a aftermath a scandal is made by the Union ? And believe me this is exactly what happens in practical life . So the management has to deal with 2 adverse situations now.... One is the financial condition & other being this SCANDAL ..... Plz suggest what one should do...
17th January 2008 From India, Mumbai
Dear Richa,

The situation you have mentioned is indeed delicate and needs to be handled with utmost care.First & foremost every problem has a solution.Now organisations which are having surplus employees should opt for :

1.Golden handshake scheme.



4.Pay cuts .

Most of the above may not evoke the desired response initially but once reality creeps in and the seriousness of the situation is understood things will fall in line.The first option is not for you because of huge amount of money involved ,the other 3 options can be tried out.

Retrenchment involves termination of service while lay off does'nt.In lay off emloyees can be called back once the co. has recovered and has the ability to provide employment.It is temporary severance of employment due to factors beyond the co.'s control.

Coming to pay cuts ,a good no. of co.'s abroad,have used this option and succeeded.Here the money that was involved in pay cut is made good when co. is doing well.A clear understanding bet. employer & employee is a must and the unions should be taken into confidence. Rgds,RGS.
18th January 2008 From India, Bangalore
Dear RGS,
Thanks for your suggestions. It really helped me in getting to know the inside of the topic.
Can you or any one can plz through some light on the other money saving ways....
What you are suggestion, Retrenchment/Lay-off/Golden handshake scheme/Pay cuts all are related to MANPOWER. I want to know about the money saving things which can be done without effecting the employee. Like I have quoted about wastage of electricity, stationary, fuel etc.
Please help me out in telling the Cost-cutting ways which wont effect any employee !!
18th January 2008 From India, Mumbai
Hi Richa,

I am little bit agree with RGS's comments. In my views, retrenchment would not be a milestone which the co. look at that time because being financially unsound, it will difficult to handle the post retrenchment scandals. Yes, Lay-off, Pay-cut may pull co. out of the situation if its done with confidence of union.

And a practical sour truth is that the HOD or other higher designated employes are generally not use to reduce the expenses on meetings, production, & other departmental expenses such as if the strategy meet can be done in company itself why its been done in Hotel & even out of the country.

To retain a talent in the company its necessary to conduct an internal ssurvey periodically on which basis company could go ahead. Employees are the most important assets of the organization and could not be retrenched bcoz of company's weak financial condition. While company was financially sound, employees were loyal to it . Now if they are retrenched, they feel cheated themselves and cannot be loyal with co. at all.

I think the best option is to identify the unlike expenses and reduce them.

Yes, employees who are proved that they are not assets of the co. can be retrenched with a proper guidelines and lows. In that case they should be given proper allowances as per the IR/labour lows.

I believe before retrenching, one should get its feasibility study done by the IR experts which would avoid the headache of post retrench scandals.

Best Regards

18th January 2008
Hello Haider,
Thanks for your views...
I agree with you on the point that HIgher authorities never pay attention to their bad deeds. But thats where the HR comes in the picture. Its HR Personnel's duty to raise these topics......
I completely agree with your point
"Employees are the most important assets of the organization and could not be retrenched bcoz of company's weak financial condition. While company was financially sound, employees were loyal to it . Now if they are retrenched, they feel cheated themselves and cannot be loyal with co. at all."
And thats the reason y I would like to know about other ways of saving the money for the organization.
Can you plz through some light on your line "I think the best option is to identify the unlike expenses and reduce them. "
Plz explain me what all you include in "unlike expenses".
18th January 2008 From India, Mumbai

financial crisis is different and high cost of electricity bills, paper wastage. is different..





A financial crisis is a situation wherein the expenses are greater than profits....

bcoz of

market conditions,


outdated product, technology, design

the city economy

etc etc etc

so to come out from financial crisis there are two options to balance the profits and expenses,,,,,


either reduce the expenses so that they come to less or equal to profits


or increase the profits with new INNOVATIVE ideas so that they become more or equal to expenses...



18th January 2008 From India, Pune
Thanks Ravi for putting up your view.
I completely agree with your point. You have given us two options to bring a sick unit on its feet. They are
either reduce the expenses so that they come to less or equal to profits
or increase the profits with new INNOVATIVE ideas so that they become more or equal to expenses... "
Ravi to be precise on the same, Over here I want to know only about the FIRST option. The Second option can have ample stuff in it like with innovative ideas, one can also go for aggressive marketing. And so on the list continues.
So plz tell us your views on Option One.
18th January 2008 From India, Mumbai
Already in most of companies, cost cutting, reduction is widely implemented and the company does not wait till it gets into a financial crisis,, and then implements cost reduction process..(power saving, paper saving, saving in raw materials, etc etc etc etc)
So even if it is in financial crisis it must have already implemented cost reduction and it might already have reached a point wherein no further cost reduction would be possible.
Like in technology there is a limit upto which the size of mobiles, IC, semiconductors can be compressed…
Other cases of using option one is an airlines which saved millions by removing one ingredient in the dish served to passengers ,, this ingredient did not affect the reduction in quality or quantity of dish served..
So for most cases it is viable to concentrate on option TWO…
18th January 2008 From India, Pune
Hello Ravi,

It can be a new thing for you but in real life your assumption of

"So even if it is in financial crisis it must have already implemented cost reduction and it might already have reached a point wherein no further cost reduction would be possible."

is not true !! The companies actually wait to cut down these costs till they start facing the losses !!!

You talked about an airline, so here is the complete detail about what you wanted to indicate :

Continental Airlines said that it is cutting out more customer service items - for example, there will be no more plastic knives served with breakfast trays in coach class. This will save the airline potentially $85,000 a year. Continental had gross income of $8.15 BILLION dollars in twelve months - can you believe that they are obsessing over an item that is one thousandth of one percent of its income?

Is this the most important vital step they can take to return to profitability?

Is there nothing more valuable or important that Continental can focus their oh so highly paid management attention on (CEO Gordon Bethune's weekly earnings, in 2001, were almost exactly equal to this new savings)? Well, yes, unfortunately there is. No longer will you automatically get an entire can of soda if you ask for a drink!

More views are imost welcome.......


18th January 2008 From India, Mumbai
no the airline im talking about is some other airline i cant remember... but coming to the financial crisis I will come back to u later..
18th January 2008 From India, Pune
Dear Richa,
Whenever a co. is in red the first casualty is HR whether anybody likes it or not because of the huge amount of money saved.Then comes all the other options.A good many things r said about HR being very valuable etc etc ...but let's face facts.Most co.'s including very big names have been on a downsizing /rightsizing/smartsizing spree.....This says it all.
19th January 2008 From India, Bangalore
Dear Richa,

First of all there should be transparency in company’s financial position (profit/loss). Each and every employee should know his company's financial position.

If there is a good relation between the employer and employee, employees will definitely understand the company’s financial problems and try to co-operate with the management to overcome the crises.

Termination of employees will never solve the problem, but makes it further worst.

Whenever the financial situation of a company starts alarming the management should start investigation to know the causes of loss. Immediately a message has to be sent to all the sectional-heads instructing them to pass on the companies financial situation to the ground-staff, and seek their suggestions to overcome from the situation, as these people are directly dealing with company resources.

If there is healthy relation between the management and employee, in my opinion no one wants to leave / change the job immediately, except the fresher. As changing of a job indirectly involves change in personal/family life. So, employees may cooperate with the management and suggest the ways and means to overcome the situation.

For example:

Employees may get ready to work overtime without any extra pay.

They may wait for their wages for 2-3 months, or they may be ready to take half salary per month till the company stabilizes and remaining after overcoming the financial crisis of the company.

They may try to get better yields / output of their work.

Minimize the wastage of company resources like power, stationery, utilities, raw material losses etc.,

They may sacrifice uniform & shoes and company transportation, food subsidy/canteen.

All the above is possible when the management promises the employees to compensate their efforts once the company overcomes the financial crises, and when the employ trust the management.


19th January 2008 From India, Hyderabad
Dear Richa,

This has been a really GOOD QUESTION and feel that some of views and EXPERIENCES would be useful to you.

- Though "EMP SEPARATION PLAN" or "LAY OFF" seems to be best remedy for a weak org however after certain examples even I changed my views and would suggest to have a better foresight.

-When INDIAN RAILWAYS was on loss "Lalu Prasad Yadav" took a different perspective increasing more Sales of Domestic Products/ Introducing more Trains and increasing profitability. -This led him to become a Management GURU.-

- Equally we need to see on other aspects of Cost and Loss.

- Productivity Vs Expenditures.

- Analyze JOB ROLES and figure out if that profile is REALLY REQUIRED.


- Also includes monitoring of RESOURCES - stationary/Electricity/Ac/Travel/Reimbursement etc.

- Downsize of employees can be seen as the LAST OPTION.

-Also when Financial checks are increased automatically some attritions happens and carefully retain the BEST of them and balance rest.


20th January 2008
Hello BashaMSP & MBG,
Its a very informative & brilliant posting done by you! Thanks a lot for the same!
You have suggested some really good options which an org. can go thru n have massive savings, without harming the HR !!
Would really appreciate to know some more stuffs on the same line.
21st January 2008 From India, Mumbai
Retrenchment shall be the last step which shall be taken only when all other weapons to bring the company at least break even are exhausted. There are so many revival package available in the organised sector. If the company is incurring losses for a consecutive period of five years, then the case may be referred to BFIR for declaring it as 'sick unit'. A sick unit gets some concessions and even waivers. Meantime, a revival project shall be prepared in which reduction of man power may be suggested. Once it is okayed by the authorities, it is easy for you to reduce man power by introducing VRS like tools.

Laying off is just a temporary arrangement. It will not work because of restrictions imposed in ID Act like no. of days lay off, intimation to the Govt and prior sanction from the Govt. and so on.

Financial weakness will get intensified once it is made known to employees and outsiders who deal with the company. The chances of draining out of good employees and reduction of credit will be the result if handled carefully. But once you declare a revival scheme, you can hold it for the time being.


21st January 2008 From India, Kannur

Before we talk about cost cutting , we need to understnd two aspects of any business

1. Value addition

2. Cost

Traditionally we focus on cost cutting whenever there is a crisis.

An organisation faces the problem only because they never focused on value addition in the early stages.

After finalising avenues for value addition to overcome the new crosis, then the management must decide on cost cutting. The word cost cutting is very old and does not deliver the real meaning. We now talk about TCM That is Total Cost Management

It is a continuos process. If you talk about cost cutting.. whether it is electricity or stationery you sav once

If it is Total Cost managemnt, then you retain the savings forever

CII offers lots of information on this subject and there are m any companies who have implented this in India

Now look at what i said about business first It changes to

1. Value Addition

2. Total Cost Management

In total Cost Management, we analyse in details the costs.Then attack these costs which will bring in major results. It could be material, manpower costs, electricity transportation, travel. advertisements etc. You must attack all these costs after analysing. Your fixed cost may look very big if you do not add value. You also can not increase value unless you have minimum fixed cost. Having built up minimum fixed cost, then it is the responsibility of the leaders to take the value addition high.

21st January 2008 From India, Chennai
Dear Madhu,
Please note it is BIFR and not BFIR. BIFR stands for Bureau of Industrial and financial Reconstruction.This is the help sought from Govt. as a last resort to put the co. out of red when all other measures fail.
21st January 2008 From India, Bangalore
Hi All,

I thnk if you llok at this is a general prospective. If a company is making Losses it is for the higher Management who is to be blamed for creating a situation that the Org is in.

Lay off's and Retrenchment of workers cannot solve the problem. the Organization needs people to work and take them out of the soup.

In the corporate world we have examples wherein the top Management have hired turnaround specialists. these people who have given a new prespective to the Management of the same org with the same people and have created profits.

We have for Eg Thermax in Pune which posted a loss in crores when the CEO expired for some years until Mrs Aga ( His Wife ) took over and has created one of the most Admired Company in India.

We cannot overrule the fact that we can get profits by cutting cists in other areas but let us look int the major points which account for the profits of the Company.

Labour by far and large generally doesn't account for more than 20% , Electricity and stationary around 5% ( higher in case of Forgings and Mining ).

the major ones to effect is good Sales and marketing whcih needs a major shfit in paradigm , thinking and understanding. You need a turnaround Management guy who can guide you and streamline the process that the Org needs to to gain higher Profitablity .

21st January 2008 From India, Pune
Hello Richa,
Cost cutting is necessary for every company . But we have to see that it does not hampers the competetiveness of the organisation. Cost cutting by just retrenchment or lay off or pay cuts or golden handshake may not be useful in any way .
In retrenchment or lay off the company has to give compensation as per the indstrial norms. In case of golden handshake we r hampering manpower. Or in other words we can say we r loosing competent and loyal employees. In case of pay cuts , most employees themselves will try for another job. Hence in short in all the 4 methods we r hampering our manpower which will not lead to cost cutting but inceasing the cost of the company.
Hence we have find the root cause why the company is facing financial crisis and work acc to it.
21st January 2008 From India, Mumbai
Thanks Usha, Sandeep, Rohini, Madhu and Siva for ur valuable contribution.
Sandeep gave an example of " Thermax" in Pune & its CEO Mrs.Arnavaz 'Anu' Aga.
Can we have some more similar Examples where the higher mgt. have done wonders to a sick unit. And the ways explaining how they have done it...
22nd January 2008 From India, Mumbai
I have a good book which has some examples which can really explain in case study format how they planned and achieved the impossible.
These are all fortune 500 companies who did this with some intospection.
Hope you all read it ...................
........It is a freeware.....................sandeep_sable
22nd January 2008 From India, Pune

Attached Files
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File Type: pdf sucessful_business_mnagement_589.pdf (1.77 MB, 392 views)

Dear Richa
You wanted more examples of turnaround.
1. Mr M V Subbiah of EID Parry and Murugappa Group did lot of exercises in turning around T I Cycles and EID Parry in 1980s. The exercises included legal battles, Team Building, Motivation, disciplining, Performance appraisals, cost reduction and Value additions. Attractin and retaing talent was a great exercise they also concentrated.
2. More recently, TELCO was in deep trouble. Tata Motors has emerged as very successful overcoming the major crisis they faced in 1997 if I am right. Rattan Tata ably supported by Ravikant and his team did this major turn around Cost cutting and Value additions were done simultaneously
22nd January 2008 From India, Chennai
HI Richa,

What I feel is that cost cutting may help paying these employee for a period but cannot be a solution to the problem.Now a days every organisation is cost concious which leaves less scope of lowering it any further.While you mentioned saving electricity,paper wastage; these are good practices and should be implemented to all organisation irrespective of the financial status but definately these would not be able to run the company.

Root cause analysis of the situation is necessay to understand the reason of the poor financial status and then working on the problem area would help.If the performance of the employees are the cause,one should definately take appropriate action to make them productive or part off with them and get better workforce.If the crisis is due to some other cause it is better to take employees in confidence through the leaders,brief them about the situation,tell them the plan of action and show them the picture of stages of recovery and profitability......these kind of situations are temporary and can be overcome together.....if you beleive the people you have are your strength retain them and if they are burden they should be retrenched......afterall business is all about being productive and cannot be for charity............may be a part earned through the business be kept for charity..............its the world where if one is fit will survive otherwise will die out of competition....all the practices and policies of hr is to attract talent......and not just a resource......productivity matters......others' views are invited.
23rd January 2008 From India, Delhi
I have always felt that If a company needs to cut flab it NEEDS TO CUT FLAB. The questions is transparency in the process of Identifying people and the COMMUNICATION which goes out to the people who are on the D-List.
16th October 2008 From India, Mumbai
Hi Richa Please find enclosed an attatchment for salary cut that i made for my company. Hope it helps you. Regards Tanwi
27th January 2009 From India, Delhi
I'm monitoring these discussion and I hope I could also gain some pointers on cost-reduction measures. I can share other options such as compressed workweek schemes, thereby reducing workdays per week and subsequently requesting service providers paid from monthly to daily. I hope these helps or applicable to others.
28th January 2009
Greetings To All,
It's A Very Good One!!!
Usually Companies/organizations Give Pick And Drop Facility At Their Door Steps(FOR EMPLOYEE). But If The Company Give A Single Stop For All The Near-by Region We Can Save A Lot On Transportation/logistics.
At The Same Time They Should Also Keep Concentrate On The Minimum Distance For The Pick And Drop Of Their Employees.
Optimizing The Production Unit Also Helps The Organization.
28th January 2009 From India, Hyderabad
Dear RGS.
Have a nice day anf dont' worry be happy. i standing help if any time.
u have asked a wonderful question after moving all the details about how a financially sick company suffer all the que. in their company.
you coose 1st step as given hereunder.
1. No recrutment.
2. No Overtime.
3. Lay off
4. Pay Cut
bur no retrenchment of employee b'cause they are heart of company.\\
warms regard.
Paresh Vyas.
Advocate & Labour Laws Consultant (M)
28th January 2009 From India, Mumbai
hi richa how r u, and thank you for ur dioscusion for the topoic of retrechment and lay off, i am hemadri joshi hr manager from v m patel organisation
17th February 2009 From India, Hyderabad
Hi All,

In this situation we can have a look on MSRTC. I dont know the exact details but according to my knowledge few years back MSRTC was in a huge losses.

The situation continues for few years and then few steps were taken and results are like it got stability at one point where the expenses were very much predictable then it started moving towards equilibrium of expenditure and income and now it is earning little profits also.

And the most important and interesting thing is that MSRTC did not opt for retrenchment.

Hereunder are the steps taken by MSRTC to overcome the situation:

1. Pause in Recruitment and introduced VRS.

2. No promotions for few years.

3. Increments of all the employees were on hold for few years.

4.Cutting in expenses like power, fuel, stationary etc etc was implemented with more efficiency.

5. Introduced various schemes to attract passangers and increase revenue.

6. Vast improvement in delivery services.

7. Recruitment on contractual basis

Because of zero recruitment, VRS and retirements automatically manpower reduced then internal promotions took place with small hikes in salary then when it came upto the equillibrium, the recruitment had started on a contractual basis at junior level on low payments like stipend.

And at the same point of time, introduction of various schemes attracted passangers and other schemes in space rented for advertisements and the most important improvement in quality of services delivered helped them out to increase the revenue.

If any organisation can survive say for 5-8 years then strategy of MSRTC can be opted rather than retrenchment. If management is able to pick up the alarming factors for finincial crisis then situation can be handled in other ways and retrenchment or lay off may be opted when all there is no option.

This is my observation and not the case study of MSRTC.

Thanks with Regards,

8th October 2009 From India, Pune
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