VSS / Redundancy Doing it Right!!

© 2017, i-HR Consulting Sdn. Bhd.
VSS / Redundancy
Doing it Right!!

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.

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
2015 Termination Landscape
Source: Bernama, MalayMail and MOHR

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%
2016 Termination Landscape
Source: Bernama, MalayMail and MOHR

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+

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.

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

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.

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.

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.

MOHR Viewpoint
TheGovernment hasadvisedcompaniestoadopt
voluntary separationschemeinsteadof
normal retrenchment of surplusemployees,which
oftenwerehostileandconflictprone, particularly
wheretheworkmenwereunionised.Astheterm
suggests,theemployeesaretoparticipateinit
voluntarily.

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.

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.

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

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

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

VSS Compensation Data
• Comply with minimum
termination standards in the
EA Act.
• Determine what the business
can afford!

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)

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

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)

© 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

• 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
Retrenchment vs VSS

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
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

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

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

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

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
•

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.

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.

• 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.

Bhd.
THE ART & SCIENCE SERIES
• 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.

• 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.

Bhd.
Next Art & Science
Topic – Managing
EmployeeCommon
Misconduct
Date: July 20, 2017.

VSS / Redundancy Doing it Right!!

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