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Making tough calls with 'respect, dignity'

Staff layoffs and other difficult cost-cutting measures must be managed with care so affected employees will still want to return to the company in the future, says Nortel Asia's HR head.
Written by Eileen Yu, Senior Contributing Editor

It is never an easy task handing out pink slips, but it is not one that can always be avoided in the current corporate landscape.

Staff layoffs are especially tough for John Holding, specifically because he is the Asia vice president of human resources (HR) at Nortel Networks. Holding is responsible for managing the company's 4,500 employees in the region, which includes Southeast Asia, Korea, Japan, Pakistan and Australia/New Zealand.

Based out of Australia initially, the executive has been with Nortel for just under nine years and moved to Singapore in October 2006, after spending five months in Korea.

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John Holding, Nortel Networks

In a candid chat with ZDNet Asia at Nortel's Singapore office, Holding discussed the company's intimate experience dealing with staff cuts and underscored the need to treat affected employees with "respect, dignity, confidentiality".

He also touched on another sensitive issue--expatriates versus local hires--and explained why, and how, the company embarked on an initiative last year to move its expatriate employees in China to a local pay package.

Q: There appears to be a shortage of talent in Asia, are you facing the same problem at Nortel?
There's no question, for some specific skills, that there is higher demand than supply. In some cases, there are roles that aren't so hard to find skills, but it's always a challenge. Recruitment has become such a competitive environment and I think it will be for a long time, an employee's market.

People who are very good at what they do will always command a greater value in the marketplace. That's even more prevalent when you move into emerging markets. Specifically, in China and India, we find a greater demand for a smaller pool of talent from the external market. What that forces you to do is, whilst you need to acquire skills externally, you still need to develop internally. So you need to create your own talent, leadership and technical pool. Most organizations understand that, and probably do that.

Any place where you're introducing a new technology into a country, or you're trying to build that within your organization in an emerging market, so too is everybody else. So the talent pool is limited. While you may use expatriates in the first few years because your organization is still immature and you're growing it, you have to continue to develop and grow local talent and eventually move those expatriate roles out once you've build a level of maturity in your local organization.

Is that why foreign workers, or expatriates (expats), are still important in Asia...because there just isn't enough local talent?
Expats provide you with two things, generally. They have the corporate DNA or culture that they will bring into the region, country or geography that the local hires won't have. That's critical for roles like country manager, in the early days of setting up a local operation. When you first penetrate a market, you have to put people in there that you trust implicitly and know the organization inside-out.

Different organizations use expats for different reasons. For example, in the past few years, we've had challenges with our financial accounting so we are a lot more risk-adverse when it comes to our financial management. So, we have a propensity these days to have more expats in our finance functions. That doesn't mean we're not developing local talent, but local talent with the financial skills we need and with the knowledge of U.S. regulatory policies such as GAAP and Sarbannes-Oxley, are hard to find in an emerging market. So, as a result, often we'll have expats holding some roles for longer period of time.

Assigning people to work overseas also helps these employees get experience, knowledge and personal development for their own career as well. So we would take someone from another marketplace and put them in an expat role in Vietnam, India or China or Japan, and after two years, send them back to their home country with the view that they will become more valuable individual in that capacity.

You recently initiated a localization scheme in your China office, where you converted expat roles into local positions. How did that work?
We've traditionally had a lot of people in our expat program and used it well, but there were some cases where we had neglected the succession planning of some of those roles, that is, plans to develop local successors into those roles. So, we put in place a program last year where we decided to localize a number of the roles.

One option was for the incumbent to localize into our China office. And if they chose not to do that, we would relocate them back to their home country and put a local successor into that role. As it turned out, all the roles we wanted to localize were held by Chinese nationals, but who had studied or worked in the United States. And that's not uncommon. In fact, that's a very effective strategy...to put a local in an expat position. So, we had Chinese employees who've studied in the United States and worked in U.S. companies, and then came into China as expats. In our discussions with them, they said they wanted to stay in China because they had families there.

Was it tough getting them to convert from expat terms to local terms?
The definition of expat is that your payroll is from another country. Everyone we talked to about localization, were eventually localized. They all went from the U.S. payroll to the China payroll, and came off their expat-based terms and conditions.

I wouldn't say it was easy, but it was a simple process as we took them from an expat environment to a local environment. The execution of it had its bumps, but we put a communication plan around it to manage this.

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It's the people who are left behind who would often go into survivor syndrome, and are the ones we need to be equally aware of, and of how they feel the company treats their former colleagues as they exit the business.

John Holding, Nortel Networks Asia

Those expat terms that go back a few years were fairly generous packages. And to move from that to the word "local" sounds like a big divide, and it can be. But, the fact is, many of these people are quite senior and their salaries in the local market were not quite different to the salaries they commanded, particularly with the weakening U.S. dollar. We also weaned them off the benefits they previously had over a period of time, so we didn't just take them from an expat arrangement directly down to a local one. Generally, after about two years, they were moved completely to local terms.

These employees understood that the environment they were continuing to enjoy as expats weren't sustainable. To their credit, they took on the challenge and were able to see that it was right for them as well.

The communication plan was critical because the perception of "local" to them could potentially be seen as negative. So we did a lot of early work to ensure they understood the program and that that there was a proper transition plan.

How did you try to smoothen this transition?
The first thing we did was we swung them on to the local payroll and immediately, they were able to access some tax advantages. That was actually the biggest sell. And they can save a substantial amount of money because these guys lost the tax rate in United States, and got some tax exemption in China.

Other benefits, like home-leave trips and housing allowance, those things got cut either immediately or over time. You need to find some low-hanging fruit that are attractive like the tax rebates, then take the other benefits down over a period of months or couple of years. Schooling, for example, we decided to maintain for four years because in many cases, these employees had children in private schools and we viewed it as potentially very disruptive if kids had to change schools. So we were happy to continue to carry that cost for four years, after which they can then move their kids.

It's also a positive sign because these were roles that were previously filled by expats but are now local. So to the local staff, these jobs are now available to them. The more often you do that, the more positive it is for you local employees because it's represents an opportunity for them to fill that seat one day.

What kind of roles did you convert?
Generally, they were people managers. We looked at the roles that had expats for the longest period of time, and there were people who've been here for five years or longer.

The prime driver here was to reduce cost, I'll make no illusions there. But, there are other staff benefits like career progression, and it gives expats some degree of certainty because they're generally assigned only for a period of time.

We still have lots of expats in Nortel, so the idea was not to eliminate expats. Rather, the aim was to eliminate expat roles that no longer needed to have an expat in them. We also have a plan around expat roles to ensure they develop local successors.

Is there a healthy balance between the number of local and expat hires? Or can a local office be completely run by locals?
There's no reason why a country office can't be completely local, though we should consider that every country is at a different stage of maturity and it also depends on the kind of business. But, as long as the talent is there, you can absolutely have 100 percent local staff.

Generally, our preference is for local talent where we can find them. That's the most cost effective and I think, the most self-serving long-term plan as well. A local has a vested interest in the business doing well, not just this quarter and not just this year but forever every day...after all, it keeps them employed.

We run programs like what we call internally, Radar, which we run every quarter. It's a talent management program, where we review the succession plan and identify folks with high potential, who can enable us to better manage challenges and are be future leaders.

Radar is deliberately intended to ensure our succession plans are populated with people who are ready to take those jobs on, be it an expat job or a critical role that would have a big impact on the business. We're not rating their performance but we're doing a review of potential. We talk about them because they're good, and what's important is we talk about what their development needs are and how we can link that to our succession plans so we can populate key roles within Nortel.

The program has been wildly successful, was developed in the Asian region but has since been taken globally.

But, as you help develop their skills, experience and talent, it's evitable that they will be poached. How do you retain your staff and encourage them not to join a competitor?
We find that the more engagement we have with them, the stronger the will to do the extra bit and the propensity to stay. But trying and keep people engaged is like baking a cake--it's not one single ingredient that works and for each employee, it's different.

When you sit down with your high-potential staff, the ones who are most critical to your business and most critical to the future of your business, they're the people we work on most and spend most time with. We don't ignore the rest but this is the group that gets the high touch. They each have an individual development and action plan which is tailored to their needs and those of the organization's. So that anchors them because they can see they have a future, they can see there're opportunities, they can see they're being invested in.

People who are getting growth and development from their company have less desire to look outside is lessen and their desire to accept the phone call or appointment from the headhunter is also reduced. We'll also review their compensation and total reward package and make sure it's competitive, and in line with the value they bring to the company and the value they would warrant in the marketplace. If somebody is really important to your future, and you're underpaying them, then quite frankly, they're not important to your future.

We look at it in three chunks: the role, the environment to help them grow, and the foundation and compensational benefit.

Staff layoffs and company restructuring is becoming a common part of the corporate landscape. How do you try to do the necessary thing, but at the same time, soften the blow for affected employees and lay the path for them to want to return to the company in the future?
The first thing is, I think we keep people fairly well informed about the state of the business so there's never a surprise, be it good news and bad news. They're extremely well informed as to the conditions of how things are, what the challenges are, what the great news is, and what opportunities they are for them. So if there's an event where we do need to make a reduction, the people are...they're always going to be shocked, but they're not surprised.

There should also be transparency in how you make those decisions, for example, which roles you choose to eliminate and the way people are treated as they exit the organization. They should be treated with respect, dignity, confidentiality and that they are provided with financial reward that enables time to find new jobs, and given career transition support along the way.

Generally, in our experience, people who leave actually feel great after the initial shock because they generally will land a job that pays more a week or two later. It's the people who are left behind who would often go into survivor syndrome, and are the ones we need to be equally aware of, and of how they feel the company treats their former colleagues as they exit the business.

Fortunately, or unfortunately, we've had too much experience in downsizing in this organization and I think people will generally say, in the event they are faced with the inevitable discussion of redundancy, that Nortel does a pretty good job of ensuring they are treated with dignity, respect and confidentiality.

What kind of programs do you have in place to ensure Nortel has a good mix of diverse employees?
I think it's an area in our business where in the past, we haven't really done that well. But, in more recent times, we've put in place a number of interventions to help create a more diverse environment, and one that includes women and minority groups.

We have a series of business councils around the world, which are also supported by regional ones, and these include the African American, Asian and disability business councils. The one that's probably most active in this part of the world is the women's business council, which objective is to create a community of interests for females in our organization. The council is a self-driven community that runs forums, programs and events and has been enormously successful for bringing in female executives to talk about their career and develop mentoring programs for our female staff.

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