1          Introduction

 

In 260 BC, one of the bloodiest battle in the history of China was fought in Changping.  The Qin army was led by General Bai Qi.  The Zhao army was led by General Zhao Kuo.  Both generals were well versed in the strategy of war, including the famous The Art of War written by Sun Tze.  The battle resulted in the glorious victory for the Qin army, having annihilated 400,000 Zhao soldiers, which was practically the entire armed forces of Zhao. 

 

What is the decisive factor in the outcome of the war?  The answer lies in the generals' application of theory.  General Bai Qi was a veteran in battle, having came to the rank of General through years of experience in military.  On the other hand, General Zhao Kuo was inexperienced, his application of theory was mainly in the form of debate with his father.

 

Similarly, theory of Human Resource Management works well in some companies but not in others.  It all depends on how flexible the company is in applying the theory.  In this paper, we will discuss the theory of Retrenchment.  We will also see how the Port of Singapore Authority applies the theory.

 

2          Retrenchment

 

2.1       What is Retrenchment?

The word ‘retrenchment’ is not defined in Singapore’s Employment Act (Cap 91).  The definition of retrenchment as given in the Indian case of Pipraich Sugar Mills v Pipraich Sugar Mills Mazdoor Union AIR 1957 SC 95 is: “Retrenchment connotes in its ordinary acceptation that the business itself is being continued but that a portion of staff or labour force is discharged as surplusage.”

 

Simply stated, retrenchment means employer terminates the service of employee because there is no longer work available for the person.

 

2.2       How to Retrench?

Human Resources Management theory on Retrenchment can basically be divided into the following 3 parts:

2.2.1          Alternative to Retrenchment

2.2.2     Retrenchment Process

2.2.3     Post Retrenchment Process

 

2.2.1    Alternative to Retrenchment

When there’s excess manpower in the company, the company should consider the following alternatives, and to view retrenchment as the last resort:

a.                   Natural wastage

b.                   Restriction on recruitment

Natural wastage includes normal and ill-health retirements, death in service, resignations and disciplinary dismissal.  A combination of natural wastage and restriction on recruitment is the most humane form of workforce reduction.

 

c.                   Restriction on overtime

This method is only applicable in company where overtime is a norm.  Substantial savings on overtime payment may help a company to save jobs.

 

d.                   Wage reductions

Wage reduction is a method practiced by hotel industry in Singapore in 2003.  That was the year SARS caused the hotel occupancy rate to hit rock bottom.  As the situation was expected to be temporary, hotel managements took a company wide wage reduction approach.

 

e.                   Terminating the use of temporary and casual staff

f.                    Redeployment of excess manpower

When a company faces excess manpower, staff supplies by agency, temporary and casual staff, and foreign workers under short term contract should be terminated.  After that, it can initiates a redeployment exercise of excess manpower to fill posts vacated by temporary and casual staff.

 

g.                   Retirement measures

h.                   Voluntary redundancy scheme

Retirement and early retirement measures should be utilized with other methods of workforce reduction, such as voluntary redundancy scheme.  When the redundancy compensation is computed based on length of service and last drawn salary, it may induce employees to take early retirement.

 

2.2.2    Retrenchment Process

“To every thing there is a season, and a time to every purpose under the heaven.”  So says the Bible in the book of Ecclesiastes 3:1.

 

A time will come when a bleeding company decides that retrenchment is the only solution to keep it afloat.  Retrenchment is perhaps one of the most traumatic events in the history of any company that ever experienced it. 

 

While there is really no Standard Operating Procedure on Retrenchment, good human resources practices should include the following:

a.                   Legal implication

Section 45 of Employment Act states “No employee who has been in continuous service with an employer for less than three years shall be entitled to any retrenchment benefit on the termination of his service by the employer on the ground of redundancy or by reason of any re-organisation of the employers’ profession, business, trade or work.”

 

While it is clear that employees with less than three years’ employment are not entitled to retrenchment compensation, what about those with more than three years of service?

The Court of Appeal in the case of Bethlehem Singapore Pte Ltd v Ler Hock Seng & Ors [1995] 1 SLR 1 stated “Section 45 cannot be read to imply that in the case of employees with more than three years’ continuous service with an employer there is legal compulsion on the employer to pay retrenchment benefits.”

 

Thus, all retrenchment compensation is on ex-gratia basis.

 

b.                   Consultation with employee and/or union

Consultation with individual employee, employee representation or union (in unionised company) is a matter of good employment practice.  Consultation should begin at the earliest opportunity, ie as soon as company’s plan is expected to result in retrenchment.  While the company is not required by law to subject to union agreement, it is best to be open and include union in the process of retrenchment planning.

 

c.                   Multiple selection criteria

LIFO (last in, first out) is generally accepted to be a fair practice, even though it is not best.  LIFO system ignores the competency of junior employees.  Multiple selection criteria that includes LIFO, competence, conduct, attitude, attendance, experience, productivity may be a fairer method.  Fowler (1999) advocates the use of weighting to be given to each factor and how employees are to be assessed or rated.

 

d.                   Compensation

In Singapore, retrenchment compensation is ex-gratia, unless it is provided for by:

·         An express term in the contract of employment

·         An implied term in the contract of employment

·         A term in a collective agreement applicable to unionised employees

 

e.                   Employee assistance

Employee assistance in the form of pre-retrenchment courses, use of job centres, contacting other employers and publicising the availability of the displaced employees are appreciated by the employees.  Some examples of pre-retrenchment courses are: advice on making job applications and attending interviews tactics, information about employment and training schemes, taxable status of retrenchment and other benefits, advice on management of debt, information about options for the investment of retrenchment lump sums compensation.

 

f.                    Public Relation

Retrenchment is always a potential news item.  Public opinions to a great extent is shaped by media.  Thus even a well-managed retrenchment exercise can attract the most negative publicity when the company ignores the public interest and refuses co-operation with the media.

 

The media should be informed of the impending retrenchment after the news has been released to the unions and employees.  For employees to hear about possible retrenchment for the first time by reading the newspaper is a disastrous start to the retrenchment exercise.

 

2.2.3    Post Retrenchment Process

“A time to break down, and a time to build up.”  Ecclesiastes 3:3.

 

Indeed, the period after retrenchment is a time to build up.  This is a time when a company shows it cares for both the survivor and the retrenched employee.

a.                   Care for Survivor

Survivors are in need of support and counselling.  Survivors may feel shocked, embitter towards management, fearful and guilty about still having a job whilst colleagues are being retrenched.  Morale of the survivors usually depends on how the company treats the retrenched employee.

 

b.                   Care for Retrenched employee

Retrenched employees lose more than just a job, they lose self-esteem and sense of financial security.  Even the most confident employees need advice and support in accepting the realities of the situation. 

“A distinction can be drawn between two aspects of redundancy counselling:

·         helping employees understand and come to terms with the fact that they have lost their jobs

·         the provision of specific advice and assistance with personal financial planning, career replanning, and job search.” (Fowler, 1999;185)

 

3           PORT OF SINGAPORE AUTHORITY (PSA)

On 1 Apr 1964, the Port of Singapore Authority (PSA) was formed.

 

On 1 October 1997, PSA corporatised and was succeeded by PSA Corporation Ltd, which is a wholly-owned subsidiary of Temasek Holdings, the Government’s investment arm.

 

In line with the trend of globalisation, PSA ventured overseas in 1996 with its first overseas port project in Dalian, China.  In the next six years (1996-2002), the company built up an impressive stable of foreign ventures in countries as diverse as Brunei, China, India, Italy, Portugal, South Korea and Singapore.

 

3.1              Events Leading to Retrenchment

In 2001, PSA lost its number one customer, Maersk Sealand, to Port of Tanjung Pelepas (PTP) in Malaysia.  In 2002, it lost its number two customer, Evergreen, to PTP.

 

The Straits Times (Singapore) reported on 15 February 2003 that PSA will clear all non-port businesses, including airport handling, cruise terminal, exhibitions and cable car operations to Temasek Holdings.  This move is believed to be part of a wider restructuring at PSA.

 

3.2              Retrenchment

Singaporeans woke up on 18 February 2003 to read “PSA Corp to let go of 800 workers” in The Straits Times (Singapore).  Abstracts of the report:

a.                   “Many workers learnt about the impending layoffs after Deputy Prime Minister Lee Hsien Loong broke the news at a dialogue with union leaders on Saturday.”

b.                   “PSA had been able to stave off retrenching workers for a long time through managing other costs besides manpower expenses.”

c.                   “And when workers were made redundant as a result of improved work processes, they were redeployed.”

d.                   “Of the 800 staff who are affected, 500 will be retrenched while the remainder will leave the company through retirements, resignations, transfers to other PSA subsidiaries or when their service contracts expire.”

 

The Straits Times of 20 February 2003 stated “Morale sinks as port workers await layoff details”.  It continued to report that port workers “feeling bewildered, angry and nervous.”  Unknown factors include who would be retrenched and compensation package.  PSA did not comment on why it announced the retrenchment while negotiations with the two port employees unions were still going on.  PSA spokesman said that the earliest that workers would know about the fate would be end of March.

 

The Straits Times of 21 February 2003 reported that The Port Officers Union was sending out information kits to members that week which include tips on how to cope with the impending layoffs.  The other union, Singapore Port Workers Union, said it was to focus on re-training for laid off workers.

 

The Straits Times of 22 February 2003 carried the report “Deals struck on layoff benefits; Agreement reached after intense talks; workers should be finding out from this weekend if they have been laid off.”

 

The Straits Times of 23 February 2003 revealed the severance package:

a.                   Workers with less than 3 years’ service: half month’s pay for each year of service

b.                   Workers with more than 3 years’ service: a month’s pay for each year of service, subject to a maximum of 25 years

c.                   Workers with more than 25 years’ service: extra training grant amounting to a quarter month’s salary for every additional year they worked above 25 years.

d.                   All retrenched staff: One month’s termination notice or salary in lieu of notice

e.                   Medical Benefits: covered for hospitalisation and treatment of catastrophic illness until end of year provided they are on medical co-payment scheme.

f.                    Pro-rated annual wage supplement for 2003

g.                   Payment for outstanding annual leave

 

The Straits Times of 25 February 2003 “PSA gives out the pink slips”.  Mixed emotions of retrenched staff, some cried, some too shell-shocked, some happy with the golden handshake.  The report continued “Buddies have been assigned to provide emotional support and department heads have been told to be compassionate and give workers time to tidy up and say their goodbyes……. Everyone received $20 as taxi fare to take his belongings home.”

 

The Business Times of 25 February 2003 reported that PSA would spend the next few months providing counselling and job search support for the retrenched workers.

 

3.3       Bad Publicity

If this was just an examination on Retrenchment 101, PSA would have scored rather well, considering that this was the first retrenchment in the history of PSA.  Despite the fact that Both the Straits Times and The Business Times carried objective reports, the public reaction to the retrenchment was so bad that government had to step in to defend PSA.

 

The following is quoted from a speech by Prime Minister Goh Chok Tong at the May Day Rally at National Trades Union congress Centre, 1 May 2004:

“When PSA had to retrench 500 workers, the new Chairman, Stephen Lee, felt the pain. It was the first time PSA had to let go of so many staff. But it had no choice. It had to cut costs, reduce wages and increase productivity or see more shipping lines leave Singapore. PSA learnt its lesson from the loss of Maersk and Evergreen. It was not going to make the same mistake.
During the retrenchment exercise, the atmosphere was tense and emotional. The Industrial Relations Officer who handled this, Jessie Yeo, even cried. She was emotionally stressed…….PSA has regained its competitiveness because it took decisive actions. It restructured and changed its business model. Last year, it chalked up record container volumes, though not profits. It is confident of its future. It can beat back any competition. It has decided to build five new berths to meet the growth in demand for its services. That means jobs for Singaporeans.”

 

4                    ANALYSIS OF PSA RETRENCHMENT EXERCISE

4.1       Analysis of Pre-Retrenchment Action

The human resources management theory on retrenchment advocates retrenchment as a last resort, after company considers alternatives such as natural wastage, restriction on recruitment, restriction on overtime, wage reductions, terminating the use of temporary and casual staff, redeployment of excess manpower, retirement measures and voluntary redundancy scheme. 

The Straits Times of 18 February 2003 confirmed that:

“PSA had been able to stave off retrenching workers for a long time through managing other costs besides manpower expenses.”

“And when workers were made redundant as a result of improved work processes, they were redeployed.”

“Of the 800 staff who are affected, 500 will be retrenched while the remainder will leave the company through retirements, resignations, transfers to other PSA subsidiaries or when their service contracts expire.”

Thus, we conclude that PSA indeed done well in seeking alternatives to retrenchment, and that retrenchment is really the last choice.

 

4.2       Analysis of Retrenchment Process

Retrenchment process involves understanding and complying with the relevant laws in the country, consultation with employee and/or union, making use of multiple selection criteria to determine who to retrench, computed an adequate compensation package, prepare employees mentally, emotionally and financially to deal with retrenchment, and last of all, to manage public relation.

 

The Straits Times of 22 February 2003 carried a commentary on “How not to handle a retrenchment exercise”.  It highlighted the untidiness of PSA retrenchment exercise, stating that PSA held the press conference to announce the decision, even though the management was unable to provide critical information.  It also analyse why PSA was unable to handle retrenchment better:

a.                   Lack of experience

PSA all along was a statutory board with staff enjoying a virtual iron rice bowl.  61 heads of departments had ‘zero’ experience in retrenchment, and had to undergo crash course on how to deal with axed staff

b.                   Sheer lack of preparation.

Both PSA and the two unions did not even consider retrenchment as a possibility.  The collective agreement did not have a retrenchment-benefits clause. 

 

Mr Lim Boon Heng, Minister and Secretary General of National Trades Union Congress commented on PSA management of public relation on 20 August 2005.  “Then there is the problem of how to manage the media.  The media wants to have answers to all their questions, and management has to be ready.  The union has to be ready also, but suffer from even less time to deal with the issues.  Let me cite an example.  When PSA announced that it would have to retrench, management gave itself two months to work out the details, and to negotiate with the unions on the terms of retrenchment.  But the reporters went hunting for stories.  The situation was untenable.  So the management and unions had to speed up the negotiations.  What they had provided two months to do was then done in four or five days so as to contain the unnecessary damage that the news reports had done.  The complexity of the exercise included the concerns of not one, but two unions.”

 

Thus we conclude that PSA had done a bad job of managing publicity, even though it managed to work out a generous compensation package in a short time frame.  PSA was exemplary in gaining the support of unions.

 

4.3       Analysis of Post Retrenchment Process

The human resources management theory on post retrenchment process focus on caring for survivor and retrenched employee.

 

The Business Times of 25 February 2003 reported that PSA would spend the next few months providing counselling and job search support for the retrenched workers.  Nothing is said about caring for the survivors.  On the contrary, the Business Times of 25 July 2003 reported that PSA announce across the board wage cuts.  The experience of survivors really illustrate the truth of the saying “Out of the frying pan into the fire”.

 

Thus we conclude that PSA had shown support for retrenched staff, however the treatment of survivors left very much to be desired.

 

5          CONCLUSION

Can the strategy of war work well in practice?  General Bai Qi would say “YES”, and General Zhao Kuo would say “NO.”  It takes a truly wise and experienced general like Bai Qi to use the strategy of war to the best advantage.

Can the theory of human resources management work well in practice?  Some managers would say “YES” and some would say “NO.”  It takes a truly wise and experienced manager to put the theory of human resources management to the best advantage.