VSS / Redundancy Doing it Right!!

3. Some of the Points for Today Employment Separation Scheme Voluntary Separation Circumstance of VSS Why VSS and not retrenchment How to undertake a VSS effectively What’s the market benchmark for VSS payment The Pitfalls in a VSS exercise THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

4. Total displacements - 44,343 workers • 19,891 workers (44.9 %) through VSS • 24,452 workers (55.1 %) via normal termination process. Sector spread • Financial and Insurance – 39.8% • Manufacturing – 20.8% • Transportation and Storage sectors – 14.7% • Balance of issue of workers’ termination by MAS and O&G © 2017, i-HR Consulting Sdn. Bhd. 2015 Termination Landscape Source: Bernama, MalayMail and MOHR

5. Total displacements - 37,699 • 14,848 workers (39.4 %) vis VSS • 22,851 (60.6 %) were laid off (retrenched) MOHR - reported to the Labour Department (JTK) in 2016 • 32,552 local workers (86.3%) • 5,147 foreign workers (13.7%) Sector spread • Manufacturing – 45.9% • Wholesale & retail – 20.7% • Financial and Insurance – 12.1% • Mining and Quarrying – 6.6% © 2017, i-HR Consulting Sdn. Bhd. 2016 Termination Landscape Source: Bernama, MalayMail and MOHR

6. Results related to the dismissal of the case by the Industrial Court of Malaysia involving payments to the appellant, 2016 Reinstatement with Back wages RM 11,412,805.00 Compensation in lieu of reinstatement RM 3,251,383.00 Other Compensation RM 11,115,745.08 Total RM 25,779,933.08 2016 INDUSTRIAL RELATION COURT STATISTIC *Reference to January - December 2016 Source: Industrial Relation Court Malaysia Reference : Statistik Pekerjaan & Perburuhan Siri Bil. 1/2017 © i-HR Consulting Sdh Bhd 2016 Ex-Gratia Values Compensation for re- employment RM 29,227,331.83 TOTAL: RM 55 MILLION+

8. Employment Separation Employee separation is a sensitive issue for any organization as it is about an employee leaving the organization after several years of service. Thus, the permanent separation of employees from an organization requires discretion, empathy and a great deal of planning. An employee may be separated as consequence of resignation, removal, death, permanent incapacity, discharge, retirement, expiration of an employment contract or as part of downsizing of the workforce. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

9. Types of Employment Separation • Voluntary separation refers to the separation of employees on their own request or done voluntarily with mutual consent. • Resignation, retirement, ISS, MSS,VSS. Voluntary separation • Involuntary separation means the separation of employees for organizational reasons which are beyond the control of the employees. • Termination and Retrenchment. Involuntary separation THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

10. MOHR Requirement in a Retrenchment Exercise Hold discussions with employees or trade unions regarding the impending termination To offer voluntary separation/retirement scheme with best possible compensation rate To pay compensation or termination benefits to eligible employees and retire workers over the age of normal retirement age To give notice of termination of service as stipulated in the employment contract or Employment Act 1955. To help employees find alternative work before termination is made in collaboration with JTKSM under the Ministry of Human Resources; To implement the principle of 'FWFO' (Foreign Worker - First Out) within the same job category during termination i.e. Foreign workers are terminated first before local workers To implement the principle of ‘LIFO’ (Last - In - First - Out) if termination involves local workers and within the same job category. However, employers can also implement termination based on certain criteria fairly. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

11. Voluntary Separation Scheme VSS (Voluntary Separation Scheme) Strategy employed by organization aimed at reducing or right sizing the manpower strength in the company. A scheme where the organization makes an offer to the employees to end their employment in return for a reasonable compensation being offered based on their length of service. The key word in this exercise is Voluntary. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

12. Types of Voluntary Separation ISS (Individual Separation Scheme) its similar to a MSS (Mutual Separation Scheme) • Offered to an individual where the employee and employer negotiates a deal to end the employment contract in return for a reasonable compensation) VSS (Voluntary Separation Scheme) • Offered across the board and announced to all employees. Those who applies will be considered but the employer still has the prerogative to decide to accept the application or otherwise. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

13. MOHR Viewpoint THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd. TheGovernment hasadvisedcompaniestoadopt voluntary separationschemeinsteadof normal retrenchment of surplusemployees,which oftenwerehostileandconflictprone, particularly wheretheworkmenwereunionised.Astheterm suggests,theemployeesaretoparticipateinit voluntarily.

14. What U need to do? Report to the nearest JTKSM at least 30 days before any action described below is implemented using Termination Form (Form PK), according to type of termination to be implemented by the employer: - Retrenchment; Voluntary Separation; Temporary Layoff; Termination Form can be obtained free of charge from any Labour Office throughout Peninsular Malaysia or can be downloaded from section Forms Download Termination Form was gazetted as P.U. (B) 430/2004 on 11 November 2004 and any employer who fails to comply is guilty of an offence under section 63 of the Employment Act 1955, and if found guilty could be fined not more than RM10,000 for each offence. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

15. Circumstances to conduct a VSS When there is a plan to reduce manpower as part of a business or cost restructuring plan. When a company shuts down part of or fully its business operation. When a company closes down any of their department, branch offices or subsidiary operation. When there is a merger of two or more companies. When a company has been bought over by another company. THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

16. Steps in Business Manpower Planning Process (1) Environmental Scan - External Threats and Opportunities - Internal Strengths and Weaknesses (2) Identification of Business Issues • Business climate • market share • product success and failure (3) Development of Business Courses of Action • Discover new markets, product acceptability • Increase sales /revenues • Increase spending or cost cutting (4) Aligning HR Plans and Strategies • What are implications for staff/employees Organization Business & Manpower Planning Process THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

17. Strategies to decrease staffing level Strategies for redeployment Strategies for Training and Development Strategies for reduction of in force (RIF) Aligning HR Strategies with Business THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

18. VSS (RIF) – An Implementation Approach •Review future business strategy •Study Organizational structure •Workforce analysis Due Diligence •Business plan •Target population/jo bs/functions •Financial feasibility Business Proposal •Present to stakeholde rs the business proposal •Obtain approval i.e. budget Stakeholder & Management Approval •Project management team •Communication plan •Legal implication •Media strategy Implementation Plan • Rollout • Communicate • Documentatio n & Compensation • Labor Office Execution Management THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

20. What does the Federal Court say? “…....anemployeewhoonhisownwill,acceptsthe benefitsof theVSS,resigns,signsfull andfinal settlement andwalksaway cannot then turn around andask for any other benefits” (TheFederal Court of Malaysia, Section 63of theContractsAct 1950) THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

21. What is MTUC saying There were many cases where workers were made to choose between two unpalatable options in so-called VSS schemes. Gopal [Malaysian Trades Union Congress secretary-general N. Gopal Kishnam] cited a case where workers at a factory were given two choices: either sign on to a new employment agreement where they will no longer be union members or take the company’s VSS. “Staying on with the company is even worse because there will be no union to protect their interests and their welfare will not be covered by a collective bargaining agreement. “So can you call something like this voluntary? In such cases, the remedy left to the worker is to take the VSS offer and file a complaint at the industrial court.”- Malaysian Insider,1/7/2015 THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

22. What is MEF’s Proposal to MOHR Proposed, among others, that workers should not be allowed to take their employers to court if their dismissals were not related to misconduct. Dismissals i.e lay-offs because of company retrenchment, or if the business ceases operations and dismissals due to voluntary or mutual separation schemes (VSS and MSS) should not be allowed to be referred to court. “If a company ceases operations, where is the misconduct in that? Workers who are retrenched should accept the termination benefits and move on. “Now, we have a lot of cases where an employee accepts VSS and then takes the company to court,” as mentioned by Datuk Samsuddin (MEF) THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd.

23. © 2016, i-HR Consulting Sdn. Bhd. THE ART & SCIENCE SERIES Post Separation Situation Management Launch Trust Building Program to address survivor syndrome Provide targeted business support trough workforce capacity building programs Review and align organizational design i.e. structure, job profiling, designation, headcount rationalization and etc Strengthen performance management culture through realigned performance appraisal and rewards

24. • Focus on actual surplus employees • Focus on right fit • Potentially hostile • ‘Hard approach’ • Managers find it tough to handle • Able to take off the right number • Contractual compensation or in law • Productivity can be disrupted • Potential claims for unjust dismissals • May end in reinstatements • Potentially additional compensation • Impact on corporate image • Industrial actions by employees • Focus reducing the right number • May not attract the right fit to stay • Amicable • Easy and less traumatic • May have difficult to achieve number • Needs an inducement or sweetener • Less disruption to productivity • Less claims on unjust dismissals • Less exposure to reinstatement • Less exposure to more compensation • Corporate image is least impacted • No cause for industrial actions THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd. Retrenchment vs VSS

25. PITFALLS in a VSS Exercise • Failure to plan organizational requirement based on future needs • Failure to establish selection criteria on manpower needs • Incomplete manpower records and information • Failure to serve the appropriate notice • Disregarding the opinion of union • Failure to develop an effective communication strategy • Failure to THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd. consider the sentiments employees • Failure to Office • Income of remaining inform the Labor Tax impact on compensation payment. • Lack of market information on VSS compensation trends. • Ensuring all documentation are prepared in accordance to the regulation

26. Case Study Discussion

27. Case Study ABCD Sdn Bhd • Trading since 1999 • “Good” board makeup and representation • “Good” (supposedly) management team • Strong historical financial performance (Both Gross and Net Margins) • Healthy cash-flows with adequate reserves • Manageable debt levels • Staffing - exceeds 1,000 (FT) Request for Team i-HR: • Conduct thorough HR Audit, Productivity Index Analysis and Diagnosis of Business • Propose solution and way forward

28. Case Study Week 1 • Exposure exceeds RM32 Million • Discrepancies in policies to suit Snr management • Board unaware of “management” practices and HR Practices • Unwarranted historic increments, bonuses, and “benefit provisions” • POOR DOCUMENTATION

29. Case Study The Piece De’ Resistance •Termination Benefits Policy •“Good Reason Clause” 1.Any material change in reporting lines 2.Any diminution of responsibilities or increase in responsibilities 3.Any reduction in compensation or benefits 4.A transfer of work location beyond 20km from HQ 5.Any case of constructive dismissal 6.Upon medically boarding from prolonged illness 7.Position made redundant or you are retrenched 8.Retired Prematurely •Compensation for loss of employment 2 months per yr of service •Plus Allowances

30. Case Study The Process – “Some of it” • • Doing it right – managing sensitivities and emotions Interviews, discussions, assessments, job and skills mapping, manpower planning done in a right and harmonious manner - without violent objection Due process was followed through appropriate communication, submissions to the board for signoff on corrective actions for the business •

31. Case Study The Outcome • Total compensation paid for rightsizing = RM7.2million. SUCCESS DELIVERED AT 22.5% of INITIALLY ASSESSED IMPACT • Annual cost savings of RM10million per year achieved for business • Outplacement program delivered • Business became leaner with good HR and Management practices for the future Right-sizing is not a bad / fearful strategy or practice – when done and managed right.

32. Confession of a VSS Employee • In VSS or MSS exercises, the payout is usually much better than the minimum stipulated in the Employment Act. • I was involved in a VSS exercise in 1999. My employer, a government agency (now called a GLC) offered us a VSS and the majority of my then colleagues protested. We thought that by objecting, we could continue working there! But it was impossible as the company had been in the red for many years and that reason was made known in our VSS offer letter. • We were also given only two weeks’ notice to decide after which the offer would lapse and then we could be subjected to the lower rates of compensation (as per existing labour laws) or even get zero compensation if and when the company closed shop. • Two of my friends working in different public listed companies, both with more than 20 years of service, were not paid a single sen when their employers went into liquidation.

33. Confession of a VSS Employee • There was no more money in their companies’ accounts so even though the law says that workers’ dues take priority over other creditors, my friends were laid off without any compensation at all. • So in March 1999, after 25 years of service, I got my last pay packet and joined the thousands of unemployed in the job market. • Those were indeed scary times and being in my mid 40s, it was even tougher as I had to compete with young fresh graduates for the limited number of job vacancies available. Upon leaving, I budgeted my expenses tightly as I did not know how long I would be jobless.

34. © 2016, i-HR Consulting Sdn. Bhd. THE ART & SCIENCE SERIES Confession of a VSS Employee • Those were indeed scary times and being in my mid 40s, it was even tougher as I had to compete with young fresh graduates for the limited number of job vacancies available. Upon leaving, I budgeted my expenses tightly as I did not know how long I would be jobless. • Now 16 years later and in my third job since being retrenched, I must say that having the compensation sum in my bank account gave me more confidence when I attended interviews as I did not have to appear like a desperado needing a job so badly that it showed. • I portrayed myself as someone wanting to work because I could not stand staying at home doing nothing after having been a career woman all my life.

35. Confession of a VSS Employee THE ART & SCIENCE SERIES© 2017, i-HR Consulting Sdn. Bhd. • That carefree confidence did the trick and I landed my first post- retrenchment job just 28 days after being laid off. Clinching the other two job offers after that became easier as I was just someone very experienced looking for greener pastures and could therefore bargain. • Now past retirement age, it is comforting to know that I am still good enough for my boss to want to continue keeping me on. • For someone who, once upon a time, had been considered redundant, I must say that still holding on to a full-time job now is indeed an achievement. • So, for you guys out there, since you have no say over this subject of retrenchment, why not just accept the VSS or MSS and move on? Better opportunities may be waiting for you outside.

37. Thank You All

VSS / Redundancy Doing it Right!!

VSS / Redundancy Doing it Right!!

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