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During the 2008/2009 financial crisis, I was made redundant for operational reasons. I was able to avert it. Ironically, as a consultant during this time, I successfully carried out a downsizing on the part of the company.
There is something important to learn from both perspectives.
Dismissals and severance payments take those affected by surprise in almost all cases. They are like thunderstorms – they announce themselves, but we try to ignore them. We hope that they won’t hit us, that they will pass us by. But when thunderstorms, redundancies and severance packages come, it’s better to be prepared for them.
Accept the situation.
If costs rise, sales fall and return expectations are fixed and cemented, then something has to give.
Companies have no influence on interest rates, inflation or energy costs.
Entrepreneurs have a major influence on their personnel costs.
Capacities in the German car industry are too high.
In 2017, car sales in Germany reached 3.6 million (16 million in Europe). In 2022 it was 2.3 million (13.7 million). For 2024, 2.2 million (13 million) are planned. The export surplus to China is already negative, i.e. the Chinese sell more cars in Europe than we sell in China.
Even if the press is still puzzling over its condition: The supertanker “German car industry” is clearly in a precarious situation. The facts are clear.
The industry must become smaller and reduce excess capacity. Every company in the automotive industry with a downsizing program is acting in a commercially responsible manner.
These are the hard facts. “Hope for the best and be prepared for the worst” is currently the best maxim for everyone in the industry. It’s time to put on your life jackets.
It is not personal.
The offer to terminate the contract comes as a surprise to anyone who is attached to their job. It affects the good and the less good. It affects the beginners as well as the old hands.
You’re probably asking yourself: Why me? What have I done wrong?
The answer is: nothing.
But the environment has changed. The ship has listled and needs to be righted again. In this situation, you are first and foremost a personnel number.
Let me briefly explain how a downsizing program is created.
Profit and loss simulations” are created for wind-down programs. Depending on the assumptions, a distinction is made between “best case”, “worst case” and “realistic case”.
A minimum profit threshold is set at the beginning. The sales forecast for at least three years is entered in an Excel spreadsheet or similar. All current costs and investments are then entered, with cost increase rates and depreciation.
The Excel calculates how many costs need to be saved in order to achieve the profit target. This is the “tension”.
The list of employees is then taken, including personnel number, gross salary with all allowances, number of years with the company, social status or maintenance obligations (married, number of children, etc.) and age. In some companies, it is also noted how critical the employees are for continued operation. Names are not important.
The content of this Excel list is brutal in its factual orientation and deliberately impersonal.
It is difficult to enter into such an Excel whether you have repeatedly pulled the potatoes out of the fire, inspired the team and inspired customers in recent years. There is a good chance that many of the things that are important to us as people and that define us as individuals will fall by the wayside.
That is frustrating. But absolutely logical.
This data can be used to calculate scenarios for savings in personnel costs.
First, the severance payment is calculated (more on this in a moment). Then you can calculate how much personnel costs can be saved with a fixed severance budget. Basically, employees who have been with the company for a long time and have many children often have a high salary, but also have to be compensated more expensively. Employees who have been with the company for a short period of time are often easier to compensate, but their salaries are lower.
The selection is based on criteria. The aim is to right the ship.
Be prepared for quick action.
Employment law in Germany (like most MADE IN GERMANY law) is very complex.That’s why you need the best employment lawyers to be able to assert your interests in an employment dispute.
Labor judges know this. They tend to balance interests and rule in favor of the economically weaker party, the employee.
This is because employers hire the best large law firms, which are very intimidating. In addition, the programs take a long time to prepare and give the employer a time advantage.
Good employment lawyers often work for large companies because their bills are much larger than those of an individual client.
The long-term preparation of the severance program and the involvement of the best lawyers creates an information imbalance in favor of the employer. As an employee, you get the short end of the stick.
However, anyone can find a lawyer who can win a case. The labor judges view the commitment to one’s own interests with benevolence. That’s why the biggest bottleneck at the moment is getting access to high-quality employment law advice.
Find legal counsel.
A good employment lawyer improves your negotiating position considerably. Statements from the HR department such as: “This offer is only valid if you sign immediately and refrain from a legal dispute” appear unfair and call for a competent legal review. From a game theory perspective, they are never the best offer to be made to the employee, as the employer is clearly playing the information asymmetry card.
This is because the HR department has to manage an enormous amount of complexity in large severance programs (see the simulations above, plus the negotiations with the works council, etc.). In my experience, a good lawyer always finds points of reference and counterarguments and changes the information imbalance from a game theory perspective.
Avoiding delays and costly legal disputes is worth money to the employer. He can calculate this in the simulations.
The following rule applies: as soon as the storm comes up, and at the latest when the ship starts to lean, you should look for a life raft (= competent legal counsel, tax advisor and coach).
By the time the offer is on the table, it’s almost too late.
Because when it comes to downsizing in Germany, anyone with an employment contract needs legal advice, a tax advisor and ideally a coach.
A good offer is > factor 2.
What the lawyer tells you is roughly this (note: be sure to verify with a lawyer). (This text is not legal advice): In the event of dismissal for operational reasons, the employee is entitled by law to a severance payment of half a month’s gross salary per year of service.
This factor applies to everyone: the small business with 80 employees, the medium-sized company with several thousand employees. But also for large corporations with over a hundred thousand employees.
A monthly gross amount is calculated by adding up all income plus benefits and allowances for a year and then dividing by 12.
Staff reduction is subject to approval.
This means that the employer negotiates a “package” with the works council. The most important parameter in the package is the “factor” by which this monthly gross amount is multiplied in order to gain the approval of the works council and the employees for the staff reduction.
The parties pursue different interests in the negotiations:
- The employer wants to save as much personnel costs as quickly as possible by using the least possible means (severance pay).
- The works council wants to represent the staff (especially the remaining staff) as well as possible and win many votes in the upcoming works council elections.
- The employee either wants to keep his job or receive the best possible severance package.
The factor depends on the size and economic strength of the company. For large companies, the factor is usually between 1.0 and 3.5, which is difficult to verify as this factor is kept secret. It depends on what the employer can currently afford, how strong the position of the works council is and who negotiates better.
The last resort, if an agreement is not reached, is mass labor court proceedings that drag on for several years.
Against this background, every employee can also renegotiate their package if there is no agreement or if they do not agree with the outcome of the negotiations.
Good legal advice, including tax advice, restores the balance of information. A clear personal goal makes it easier to recognize risks and opportunities and leads to a superior negotiation strategy.
Severance payments can be taxed over 5 years.
An extraordinary payment entails a higher tax burden. The tax advisor can help you find a suitable strategy according to your professional plans and personal situation.
Just this much can be said: there is the option of the “fifth rule”. In order to avoid the unfairly high tax burden, the legislator provides for taxation over five years. This is particularly attractive if you don’t switch to a similar job.
And here’s the catch – the real consideration you should put a lot of time into.
Take the opportunity to invest in your future.
The severance payment is intended to compensate you appropriately for having to give up what you thought was a secure income. You can use this money to realign your professional career.
This makes particular sense,
- If the changes in the automotive industry reduce your chances in your current job in the medium and long term.
- If you are skeptical about the economic future of your employer.
- If you derive little joy and optimism from your current job.
- If you want to change or improve your career, location, health, family or financial situation.
- If you feel too young for a passive retirement.
- If you want to fulfill a dream.
The basic rule of investing is: only invest in something you understand. If you want to invest in your professional future, then it makes no sense to start a qualification.
The best way to learn is through dialog. That’s why a coach can help you to bring clarity to your professional and private plans.
You will find some tips in these blog posts.
