Liquidity crunch affecting retrenchment packages

Published: 30 August 2013

Zimbabwean employers have been pressured by different negative factors in the economy to retrench in order to keep their companies operational.

The major challenge that companies have been facing is of raising retrenchment packages for their laid-off workers.

This is mainly due to the low productivity levels industrial sectors fuelled by the liquidity crunch in the economy; there is little money for companies to award retrenchment packages.

It is an unfortunate reality that many companies have been applying for retrenchment; the levels of retrenchment over the first half of the year have been rising as a result of companies closing.

I have had the opportunity to participate in some sessions of the retrenchment board hearings on behalf of the employers and what I noticed is that most employer representatives would not be thoroughly prepared as the employee representatives would be.

This has led to the failure of these employers to defend their position of failing to meet the packages requested by their counterparts.

With this continued liquidity crunch within the economy, a poorly executed retrenchment process can worsen the position of a company and can lead to loss of productivity, low morale, and decreasing economic performance.

While it will always be difficult to maintain employee morale during a retrenchment exercise, there is likely to be a better response to a process that that employees and their representatives can understand and contribute towards.

Below are some suggestions and issues that employers should seriously take into consideration when embarking on a retrenchment processes.

• Consultation
This is a critical issue that should be done thoroughly. There is need to engage workers and their representatives.

Consultation may also include local, regional, or national government agencies (most frequently the Labour Ministry).

• Strategic disclosure of company information
Most companies fear to disclose some information on the performance of their companies and this has led them to poor retrenchment submissions based on limited information.

It is widely appreciated that there is a need to protect the company by being selective when disclosing company information but at the same time too much refraining of information may be disadvantageous in a retrenchment process.

In that, workers that are being retrenched may perceive that the company can afford to pay high packages and they will fight for their packages putting the company in a desperate position.

What is of importance is that companies should strategise when disclosing their information to the stake holders involved in retrenchment.

According to a report by IFC In order to let worker representatives know what is happening early in the process, it may be necessary to require that they keep the information confidential until, for example, disclosure has been made to markets, other financial partners, or shareholders.

This can be a difficult route to take, as the representatives may feel an obligation to talk with the workforce but it is essential.
- herald