Why employers must handle staff demotions sensitively

Involuntary demotion can leave employees feeling devalued, which can affect productivity, wider company morale and reputation, says Sophie Hennekam

Why employers must handle staff demotions sensitively

The pandemic has forced a lot of companies to restructure their activities, and to remain in business, many have had to lay-off or demote staff. Demotion is a more favourable alternative to redundancy but has many ramifications for those concerned. 

There are two types of demotions, voluntary and involuntary. Voluntary demotion occurs when employees decide to lessen their responsibilities or work part-time to accommodate their personal circumstances. But when a demotion is initiated by the company, it is called involuntary demotion. 

A demotion can manifest as a reduction in rank, responsibility, span of control, job title, pay (including benefits) or a mix of these. I have found in my research that undergoing involuntary demotion mostly has negative consequences for the employee, including having a reduced sense of identification with their job, having fewer developmental opportunities after being demoted and a feeling of having less organisational support. 

Involuntary demotion also can feel unfair, leading to bitterness and causing the employee to make a smaller psychological investment in the organisation. So how can involuntary demotion best be handled? Here are a few points that HR should consider when dealing with employee demotion processes. 

Understanding 

First, it is important to understand that demotion affects individuals in several ways. The demotion may not only result in financial loss, but have further consequences – for example, it may be difficult for those employees to justify or explain their demotion to a future employer in another organisation. Furthermore, when a demotion involves a change of position that requires a narrower range of cognitive and/or technical skills, employees often lose opportunities to use and develop higher levels of skill sets that might be critical to enable them to seek employment elsewhere. 

Individuals who are demoted from prestigious senior positions also tend to believe that a downward move amounts to a setback in their career and the loss of perks, such as a company car, business class air travel and job title prestige, and is regarded as a personal failure. This is something that HR departments should take into consideration.

Clarity

Second, the reaction of demoted employees can have negative consequences for organisations, particularly when it is perceived as unfair, which is one of the reasons why many managers have been reluctant to use demotion as an HR tool. Therefore, HR professionals need to play a more proactive role in alleviating possible negative employee reactions to demotion and especially to be careful in the way the news is communicated. 

As demotion is a sensitive issue, the employee being considered for it can benefit if the reasons behind the decisions are clearly and transparently articulated. Explaining the rationale behind the demotion is most likely to be appreciated. It is important to take enough time to communicate and treat the demoted employee with respect by showing empathy. 

Support

Third, a common employee reaction during and after demotion is grief. HR managers should be aware of the various stages of grief related to demotion and help workers to regain their feelings of self-worth. HR professionals can do so by engaging in, rather than avoiding, conversations about the current position and the future professional prospects of the demoted employee.

Value

Finally, HR professionals need to be aware that demotion could, when used as an HR strategy, lead to perceptions of injustice. This has implications not only for demoted workers themselves, but also for other employees who are aware of what has happened. They also may interpret this as a signal that the organisation does not care about or value its workforce. 

HR managers need to minimise any negative employee reactions that can have a viral effect and lead to negative organisational outcomes. This can be done by demonstrating the business’s commitment towards demoted employees, allowing them to succeed in their new role and enabling the appropriate utilisation of their knowledge, skills and other attributes they may have. Demoted employees need to be treated as valued members of the organisation and a renewed career path for them should be discussed.

In conclusion, involuntary demotion, particularly in such trying and uncertain times as now, is a challenging process. But depending on the circumstances, it may be beneficial to both the employee and the employer. 

A demotion can leave the door open to a possible fast-tracked promotion in the near future. The employee asked to work part-time may regain a full-time position once business picks up, as well as responsibilities and financial rewards. 

But because financial, psychological, and emotional factors come into the equation, it is vital for organisations and HR teams to handle demotions very carefully in order to maintain their human capital, talent pool and reputation. 

Sophie Hennekam is a professor in management at Audencia Business School