Resize the Right Way
If you must reduce your workforce, tread gently. Follow a carefully crafted plan. And make sure you prepare for the worst.
By James E. Kemper and Ann K. Otto
Ohio University officials learned of a $2.7 million reduction in state government support during FY99 for the year and an additional $12 million reduction for the following fiscal year. At the time of this funding shortfall, full-time faculty and staff levels were at 4,100. The combined budget for the university’s main campus in Athens and its five regional campuses totaled $458 million, including a recent record influx of research dollars.
Whatever other strategies might be employed, the university’s executive officers recognized that a major budget cut could not be absorbed without a reduction in workforce. To meet the impending budgetary challenge head on, the president asked the institution’s human resources office to become a strategic partner in this initiative. Not only had HR staff built trust among the various employee groups throughout the institution, several staff members in particular had also demonstrated expertise in meeting management and group mediation. The result was a collaborative, principle-based approach that was sensitive to the varied needs and concerns of people who were affected.
Kindness Amid Harsh Reality
From the start, the president enlisted the help of senior human resources staff to organize and facilitate a planning retreat. Executive officers representing major administrative and academic divisions of the university were asked to participate in this strategy-setting session and to bring to the table their best ideas for cutting costs and increasing revenue. The primary objective was to develop a short-term (12 to 18 months) and a long-term (18 months to 4 years) plan for addressing the state budget reductions in a cooperative and collegial manner.
During the retreat, the executive officers identified reduced personnel costs as the primary action the institution must pursue and established the goal of a $10 million reduction during the next two biennial state budget cycles, or nearly four years from when planning commenced. The group specified one caveat for achieving this goal: The reduction had to be met without layoffs or bumping. (Bumping is an Ohio civil service term. Simply stated, a certified civil servant whose job is abolished has the right to bump the least senior employee in the same classification; the bumped employee also has bumping rights. In this manner, the elimination of any single job can result in multiple bumps.)
Among other major issues discussed was the growing cost of the College of Osteopathic Medicine’s medical center. Of primary concern was the rise in medical malpractice insurance costs. The increase had nearly tripled in recent years from $400,000 per year to more than $1 million. As part of its strategy for addressing the university’s budget cuts, the executive group decided to privatize the medical center and create a limited liability corporation in its place. In effect, this would abolish all 128 university positions at the center. Of these, 110 positions were classified, or hourly.
In moving forward, the executive group agreed on seven underlying principles to guide all action plans.
1. Foster institutional responsibility and individual accountability.
2. Practice open and honest participation by the various university communities, including governance bodies.
3. Communicate effectively.
4. Maximize revenues and reduce expenditures.
5. Protect the core mission of the university.
6. Recognize and preserve the student culture.
7. Preserve quality.
These principles would help keep all employees—especially key decision makers—transparent in their decisions and actions. The first three principles in particular would also serve as important markers for the committees to address the workforce reduction.
Reflecting on Ohio University’s workforce reduction and medical clinic privatization initiatives, university leaders offer these realignment lessons.
Sleeves Rolled Up
HR spearheaded the plan for eliminating faculty and staff positions—an effort targeted for completion in less than one year. Knowing that the volume and type of work required was beyond the capability of its office, human resources staff collaborated with the office of legal affairs, the College of Osteopathic Medicine leadership, and the classified senate (employee organization for hourly staff) in forming key subgroups to accomplish specific tasks.
- An HR team hosted open forums and developed a skills inventory for staff to aid retraining efforts. A senior staff member attended weekly executive officer meetings for more than a year while various initiatives were developed and rolled out.
- A communications committee with broad-based membership including classified senate members kept affected employees informed of their status and of decisions being made at the executive level. Communication strategies included a Web site, an employee newsletter, and meetings with departments and units.
- An Employee Assistance Program team developed training and career counseling programs to retool medical center staff and provided emotional support to employees.
- A classification plan team—created when the university discovered that its classification plan for hourly staff did not comply with civil service law regarding the technical aspects of bumping—initiated development of a new classification plan. (The plan now applies to all hourly staff across the university, not only those impacted by privatization of the clinic.)
- A committee comprised of the provost, the vice president for finance and administration, the chief legal counsel, the head of institutional equity, and the chief human resources officer implemented and administered a “soft” hiring freeze. This committee reviewed all requests to fill vacant, non-faculty positions.
Give Employees Options
The full action plan developed by the executive officers included various program options designed to treat employees with the greatest amount of dignity, respect, and compassion.
|End on a Harmonious Note|
The painful process of letting faculty and staff go becomes less stressful if you have a well-conceived plan for delivering unwelcome or unexpected news.
Early retirement incentive plan. An ERIP allowed employees universitywide to end employment, creating vacancies for others whose jobs were being abolished. Unique features of the plan included two years of service credit (added retirement time for eligible staff) and a $10,000 sign-on bonus. Because Ohio law requires an ERIP to remain available for 12 months, the bonus encouraged employees to sign on within the first 90 days. The board of trustees’ resolution allowing for an ERIP included a provision requiring that half of the positions that became vacant be abolished. Of the approximately 320 administrative staff eligible to retire, 192 chose to do so.
Extended employment group. An EEG option allowed employees to select one additional year of employment without assurance of continued employment. This applied to classified hourly and salaried staff positions. Employees were assured that the university would do everything possible to find them employment either within or outside the university. This spawned numerous skills-building programs. The university also strengthened a long-standing relationship with two area temporary employment agencies to establish cooperative, service-level agreements to ensure that current university employees were given preferential assignments.
Severance package. This option was designed to provide a nudge in the right direction to those employees desiring a career change. Employees were given six months of pay, extended medical benefits, and one year of tuition waiver at the university.
Rehiring. The university encouraged University Medical Associates, the new limited liability corporation, to interview current medical clinic employees for available positions.
With the one-year advance notice of privatization, about one-third of the 128 employees were able to leave the university on their own by finding other employment opportunities. The 85 remaining medical clinic employees selected these options: ERIP, 10; EEG, 43; severance package, 12; and University Medical Associates rehires, 20.
Ultimately, the university sustained the reduction of 128 positions and the abolishment of 79 additional positions outside the medical clinic through the ERIP. (The university’s two collective bargaining agreements were unaffected by the workforce reduction initiative.) The associated dollar savings amounted to slightly more than $6 million in salaries and wages and $2.1 million in medical and fringe benefits.
Teams other than those mentioned earlier had also been hard at work on personnel-related cost reductions and benefits plan design modifications. For example, the positions made vacant by the ERIP that were ultimately abolished reflected a savings of about $4 million annually to the university. Likewise, modifications to the benefits plan helped trim the overall benefits costs of existing faculty and staff by nearly $3.5 million. Among the changes for employees: increased cost sharing through raising some deductibles and increased co-pays. The university also absorbed risks such as the elimination of stop-loss insurance and lowering certain reserves.
The sum of all cost reductions totaled more than $15 million. As significant was the fact that the university weathered this downsizing initiative with zero negative outcomes. Layoffs were avoided, no grievances were brought forward, and employee trust and loyalty actually seemed to increase.
That’s not to say that the two-and-a-half-year period between initial problem identification and finding employment for all who had opted for the EEG wasn’t stressful. Emotions ran high, and motives were often questioned. Ultimately the university faculty and staff emerged with a strong sense of trust, collaboration, collegiality, and civility that is difficult to measure but evident in current relationships and productivity levels.
In addition to the wisdom gained through this resizing process (see sidebar, “Downsizing Do’s”), the success of Ohio University’s initiative proves several things. Shared governance and employee-representative bodies are important to institutional decision making. Good strategic planning can play a crucial role in addressing severe budget difficulties in ways that alleviate the concerns of individuals within the institution. There is great value in developing a multifaceted plan to address the varied needs of employees directly affected by staff reductions. And the possibility exists for an organization to downsize in a manner that improves its effectiveness—while maintaining institutional integrity and community loyalty.
JAMES E. KEMPER is assistant vice president for administration, human resources, Ohio University, Athens, and ANN K. OTTO is associate vice president, faculty affairs and institutional effectiveness, Northeastern Ohio Universities College of Medicine, Rootstown.
- IRS Releases Final Report on College and University Compliance Project
- NACUBO Seeks Input on Ethics, Fraud, and Controls
- FY13 Implementation Reminder for Independent Institutions
- CAO and CBO Collaborations: Leveraging Institutional Capacity to Impact Effectiveness
August 5-6, 2013
- 2013 Planning and Budgeting Forum
September 16-17, 2013
- WEBCAST: The Higher Education Accounting Forum Online
Wednesday, May 29, 2013 10:00 AM - 5:00 PM ET
- WEBCAST: Improve Your NFP Audit and Accounting Guide IQ
Wednesday, June 26, 2013 1:00 PM ET
- ON-DEMAND: OD: The Cashless and Paperless Business Office
- ON-DEMAND: Affordable Care Act: Implementation Roadmap for Colleges and Universities
- A Guide to College and University Budgeting: Foundations for Institutional Effectiveness, 4th ed. - by Larry Goldstein
- NACUBO's Guide to Unitizing Investment Pools - by Mary S. Wheeler
- Managing and Collecting Student Accounts and Loans - by David R. Glezerman and Dennis DeSantis