VRS -- the new quick fix

VRS -- the new quick fix
How quick is it, and what does it really fix ?

by hemendra k. varma



The most popular response to facing global competition in our country has been VRS --- lean, mean and thin. Pity, because that will still not solve the problem of poor systems, lack of innovation, sluggish response, narrow outlook, laid - back attitudes, insensitivity to customer needs & expectations, and an inexplicable divorce from changing market realities. Cutting the number of people only cuts the wage bill but it does little to cut waste, inefficiency & idle time which account for much greater costs.

Lashed and battered by the continuing recession for the past couple of years, senior management teams across the industry spectrum have been racking their brains to survive. The panacea, recommended, adopted and implemented (or under implementation) is VRS --- Voluntary Retirement Scheme. Under the scheme, employees are encouraged (sometimes cajoled) to voluntarily retire from the company under payment of attractive separation packages to entice them to take this “voluntary” decision.

How quick is it ? On an average, it takes 2 to 3 months to frame a “presentable” VRS, after collecting the data on VRS of “other” companies and fitting it to one’s own situation taking care to match the employees’ age and experience profile.

Once the scheme is framed & put up, it takes another 1 to 3 months for employees to be “persuaded” to “voluntarily” retire ! Depending on the relative negotiating strengths of the management & union, this period can even stretch more to allow for fine-tuning the VRS to save “Union Face” on the one hand, and keep the financial controller and “outside Board Directors” satisfied on the other .

The VRS now gets “implemented” ; despite the fine tuning and improvements, in 50 to 60 % of the cases the initial response is dull and sluggish and the formulators of the scheme spend nervous days, waiting for the clouds to part and the sun to shine again. In a number of instances the response is so poor that the scheme is scrapped with the management threatening action “as per law”

In other cases, where the responses is inadequate but not so small that the scheme can be withdrawn, the motions are gone through ; simultaneously, the whole rigmarole begins once again - formulation of an “improved scheme” & all the resultant action flowing from it.

It can be easily seen that this is nowhere the “quick” answer it is made out to be entailing anytime from 3 months to over a year for results to show. This does not include the time additionally taken up if legal wrangles arise.

It is not merely that this whole process takes considerable time. It has many other ramifications. For one, it takes up tremendous amount of top management attention --- the MD, Personnel & Finance Chiefs and the Functional Heads of Manufacturing & Marketing (if the VRS covers the sales/marketing employees also) are engaged in constant & continuous discussions during this period. This diverts attention from their regular work which suffers as a result. Indeed, if they could devote their “this” time to their normal work & responsibility, it would probably obviate the need for a VRS to a considerable extent !!

The full-time occupation of Personnel/HRD people on VRS exercise leaves them little time for any constructive and positive contribution to organisational overhaul, employee attitude correction / changes and development of morale and motivation.

Another effect that many organisation face, from the time the VRS idea is mooted to the time the last person leaves, is that the whole organisation goes in a kind of stupor or limbo with everybody’s mind focused on the “VRS in the company” with little or inadequate attention being given to their own jobs. This happens throughout the organisation, cutting across Management / unionised staff, long-serving/new/ young /old employees.

An atmosphere, not very different from “one day cricket matches” prevails with one group of people constantly “revealing / guessing” the new and additional incentives being thought of for people who opt for VRS while the other group is itching to “know/announce” the score ! Despite this excitement, however, there is a sharp drop in morale, for everybody knows that VRS is an admission of failure and helplessness ; this takes its own toll on motivation.

And what does it really fix ? The rationale for this scheme is that under these difficult conditions we cannot afford to carry any fat so let us shed this flab, at a price, which we shall more than recover in the “next so many months” by the savings on the wage bill. After that, it is pure profit all the way.

The underlying and unstated basic premise of this action is that “what is wrong” with the company is over-manning. Is that really true ? Is that what is wrong with all the companies attempting VRS ? Indeed, is that the only thing wrong with our companies ? What else can one conclude from this single-minded and single-point campaign in all organisations (big, medium or small) to apply this as the medicine for facing the recession.

How did people accumulate in the first place ? Must have been required at that time, is the answer. So what went wrong ? Technology made your products outdated ; your own systems and operating style made you inefficient ; failure to modernise and change with times made you uncompetitive.

In all such cases which account for over 95 % of the poor plight of struggling companies, it can be seen that “excess manpower” is not the real issue. Of course, shedding manpower has the dubious advantage of showing immediate results in terms of lower wage bills. It is, therefore, being touted as the best solution by, essentially, lazy and inefficient management who are out to protect their own skins and jobs by shifting blame on people who had nothing to do with decisions that brought about the original mess.

There is yet another and bigger danger to this VRS solution. First of all it diverts attention from the “real” problems. As a result, the “real” culprits go scot-free. Secondly, when this is universally accepted as the solution to the company’s woes, and because of its ability to show immediate results in terms of reduced wage bills, everybody heaves a sigh of relief on its successful execution and many genuinely believe that all the problems have been solved.

As a result the real problems are no longer the focus of anybody’s attention since VRS has been accepted as the answer to all problems. When people leave but attitudes remain, the old situation will come back very soon infecting the new set of people too. This only means that after some time, the whole process will start all over again -- one more round of VRS, bitterness, “stand-still” organisation and self-congratulation on completion of the exercise !

Does this mean VRS is wrong and should not be resorted to ? What about the companies that have successfully implemented VRS and, as a result made impressive recoveries ?

No, this article is not arguing that VRS should not be initiated ever. Not at all. My central thesis is that VRS is not the solution to all the problems ; there are many other problems that need to be tackled first and set right. VRS should be the last resort when all else has been tried and all possible improvements achieved and yet there is need for some more corrective measures. Instead, we all seem to be starting with it as the first solution, which, this article forcefully submits, is wrong.

In the same vein, my second argument is that when you do not tackle the “other problems”, adopting VRS will give you an immediate but short-term and illusory benefit which will soon get neutralised by the continuance of other problems.

Where, then, to start ? Find out what the real problem is, before prescribing VRS as the solution ! Is it that the company is not getting enough orders for its product ? Is that, in turn, due to product obsolescence, or poor product quality or customer dissatisfaction with service or poor /unreliable deliveries due frequent plant breakdowns / strikes / lockouts or high cost of your product ? Is it that you have a high turn-over of people resulting in relatively new and inexperienced employees manning your key positions ? Are you in a product category which is being lashed by heavy competition from cheap imports of superior quality products ?

How many of the above problems are traceable to “excess manpower ?” None, barring one, viz., high costs where excess manpower is but one, just one, of the cost elements. There could be so many others that could equally be contributing to high costs e.g. high material costs, high taxes/duties, high process costs due ageing plant & machinery, inefficient processes and work practices, high costs of major inputs like fuel / power, high rejection rates, unchecked wastages and leakages and so on.

Hence, it can be readily seen that shedding so-called excess manpower only addresses one part of just one of the reasons why the organisation is passing through difficult times.

What is the effect of VRS on people who remain ? In one word, devastating.

Some CEO’s & HRD Chiefs believe that once VRS is over and “we have trimmed our fat” we will be able to knit the remaining smaller number of people into a cohesive team. In practice, this never happens. Unknowingly, almost surreptitiously, all the remaining people become extremely suspicious about management intent -- the entire top management, in their eyes, loses credibility. They carry the nagging feeling that if this company can do it to so many people who have worked for so long - they can as well do it to us, tomorrow.

While this may not be their conscious thinking -- somewhere in their intellect lurks the fear that if the “trigger” for VRS is poor company performance then it can also happen at the next “hiccup” of the company, no matter how well or how long they have themselves been working. Many people, particularly the good performers, start looking for openings elsewhere and leave at the first opportunity that presents itself.

Another anomaly that is being noticed in a number of cases where VRS has been introduced is the re-employment of the “retired” people on contract basis at lower wages. Many companies pat themselves on the back for this “innovative” method of reducing the wage bill --- is it really so ?

First of all, the re-employment of “retired” employees gives a big lie to the contention of over-manning, thus knocking out the very raison de etre of the VRS. And if it is your wages that have overshot prudent limits, then it is not the employees’ fault --- why did you as a responsible management not resist it at the time these wage increases were agreed to, instead of taking the easy way out of “buying peace” when business was good ?

Indeed, a careful analysis shows that in many cases management has abdicated its responsibility to manage, being essentially led by the “current economics” of the organisation to take its people decisions.

Consider any issue, be it general discipline, employee flexibility for doing different kind of jobs when the need arises, adhering to production/work norms in the factories and offices. Managers are increasingly shying away from enforcing these aspects as it entails tough and trying negotiations and actions. Indeed, so long as the company’s earnings permit and there is no probing or pressure by top management, most operating level managers adopt the path of least resistance as their dominant operating style.

Thus problems are glossed over or ignored ; for those that have to be faced up to, “buying peace” is the next most-preferred option.

Little wonder then, that what plagues Indian companies today is a completely lackadaisical work-attitude and gross inefficiency, be it the factory or the office or the research lab. Is it any surprise then that a large number of erstwhile industrial houses are facing the spectre of complete annihilation ?

In such a situation, instead of doing a proper diagnosis and treating the root cause of the disease viz., poor management, such organisations are still viewing the situation in the classical hues of management versus union.

Owing to the “weak” position of the unions due to the shrinking employment opportunities caused by recession and cut-throat competition, management are revelling in “showing the unions and labour their proper place” for which VRS is a very potent and visible tool. Unfortunately in their eagerness to show “labour” or even any “employee” their place, what is being lost sight of is that the management, very soon, will be shown the door by the customer (!!), unless the organisation corrects its other deficiencies, primarily arising out of inefficient, ineffective and indeed impotent management.

Every organisation, faces cyclical ups and downs, some caused by changes in the environment, some due its own internal failings. In either case, companies that survive and grow are those that keep an unblinking vigil on their own performance and take early corrective actions.

Turning around a company does not necessarily mean turning out people --- this is often a symptomatic treatment that lets the disease continue undisturbed causing upheavals every once in a while. What it really calls for is turning over a new leaf in the way the company is to be managed.

VRS is no quick fix for today’s ailing organisations --- the truth is there are no quick fixes. Only organisations that are willing to go the long haul by firm, tough, bold and honest management practices will survive.

Mumbai
May 28, 1999