Layoff Criteria: Balancing Seniority and Performance
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Criteria for Dismissal
Clear criteria for dismissal are essential for ensuring consistent and fair layoff decisions. The two primary criteria used are seniority and employee performance.
Seniority
Seniority, the length of time an employee has been with the firm, is the most common layoff criterion. In unionized workforces, layoff decisions are typically based on seniority, as stipulated in labor contracts.
Performance
When performance is used as a layoff criterion, companies can retain top performers and eliminate weaker ones. However, performance levels must be clearly documented to avoid legal risks associated with discrimination or arbitrary judgments.
Compensation System
Internal vs. External Equity
Equity pay addresses perceived fairness within a firm (internal) and in relation to salaries of similar workers (external).
Distributive Justice Model
Pay is exchanged for contributions to the firm. Employees compare their input-to-output ratio with others.
Labor Market Model
Wages are determined by the equilibrium between labor supply and demand, considering various factors.
Fixed vs. Variable Pay
Firms can choose to pay a higher proportion of base pay or variable pay that fluctuates.
Performance vs. Membership Pay
Performance pay is tied to individual or group contributions, while membership pay is based on prescribed work hours.