While demoting an employee is often difficult, it’s sometimes necessary to do so to improve the company. Employee demotions can occur for numerous reasons like financial downturns, job performance issues and disciplinary actions. Businesses need comprehensive policies to address these diverse causes while avoiding employee backlash and setting themselves up for success.

What Is a Demotion Policy?

A demotion policy lays out the different actions that will lead to a demotion and then details the steps the company must take when the event occurs. Clearly defining these actions is crucial for the employees and managers. If a manager does need to demote someone, they don’t want the employee saying the policy was unclear, which could lead to feelings of unfairness that will sour their perception of the company and lead to productivity issues.

This written policy helps employees understand why their manager demoted them or someone else. It outlines clear rationales for your decision to give less responsibility — and most likely, pay — to a staff member.

As the document will help employees understand what can get them demoted, workers throughout a company should be able to readily access and read over it so that they can avoid demotion. If you don’t have the policy written down and stored somewhere with easy access, an employee will have more room for grievances. They could claim they did not know the expectations they failed to meet.

When Is It Appropriate to Demote an Employee?

As your company puts policy into place, you’ll need to know when it’s appropriate for you to demote employees. Employees can become dissatisfied with their organization after a demotion, so it’s important you only do so when it’s justified and needed.

The following are valid reasons for a company to demote an employee:

1. Lack of Ability

It’s common practice for companies to promote employees to help them see how the organization works and give them a better understanding of all operations. When an employee cannot adequately handle their position’s requirements, you may need to demote them. Demoting someone who has been promoted into a position beyond their capabilities can help them improve and be better prepared for the position in the future.

A demotion based on ability is most common with people in their first management position. Often, the responsibility of monitoring their own work along with the work of others can be overwhelming.

In a situation where an employee can’t handle the expectations of their new position, companies should remember there was a reason they promoted the employee in the first place. Instead of firing them, a demotion will place the employee back into a position where they previously excelled. While some employees might be upset by this, many will likely welcome the reduced responsibility if they’ve been feeling overwhelmed.

Though a demotion is completely opposite a promotion, you can present it as a chance for the employee to improve and work for a second chance in the position or explore other promotion opportunities in the organization.

2. Retain Talent

When a company is downsizing or reorganizing, it might be necessary to demote a high-quality employee to keep them. During a rough patch in a company’s finances, they may need to reduce expenses like employee salaries.

For example, a high-performing manager’s salary might be too high to justify during a downturn, but their performance is too good to lay them off. In these situations, you might ask an important employee for a voluntary demotion to help take some of the financial stress off during a hard time. A voluntary donation will take some of the bad taste out of an employee’s mouth, as they’ve made the choice themselves.

To keep talented employees and restructure your company’s financial sustainability, you can demote them involuntarily. In this case, you’ll need to give them a full explanation. Otherwise, they may feel angry at the change of position and salary. In your discussion with them, underscore how they’re a critical asset to your company and why you want to keep them as long as possible. Explaining the reason for the demotion can leave the employee feeling valued rather than upset.

3. Discipline Employees

Though companies don’t commonly use this option, it is still appropriate in some situations for a business to demote an employee as a disciplinary action. A detailed handbook that explains where the employee went wrong and what actions they are being disciplined for will be crucial here.

Importance of Having a Demotion Policy

Without a demotion policy, you can open yourself to various issues ranging from legal risk to productivity losses and dissatisfied employees. Though it’s always good to have a plan in place for these situations, you should still be aware of the disadvantages of demoting an employee so that you are not caught off guard.

Below are some of those of the advantages and disadvantages of demoting employees:

Disadvantages of Demoting an Employee

If you’re a part of a company for long, you’ll likely have to demote someone. Even if it’s necessary, this step may still have some possible disadvantages, especially if done incorrectly.

  • Upset employees: One of the most obvious disadvantages of demoting an employee is the anger they might feel about their loss of status. Even if they know they haven’t been performing well, they could feel embarrassed by having to return to their old position. A disgruntled employee can disrupt the workplace, harming production and workplace morale.
  • Staff quitting: You may want to retain an employee even though you are demoting them. However, they may quit anyway. Some workers will feel too disgruntled or ashamed to stay with the company — leading them to leave instead of trying to improve.
  • Potential lawsuits: If an employee feels they were demoted unfairly or due to discrimination, they may take legal action against a company. Legitimate cases against a business can cause significant damage.

Due to the potential for an upset employee to hurt the whole company, it’s important to explain any demotions fully. Then, you lower the chances of an employee feeling wronged. Additionally, you’ll want to be as clear as possible about the employee’s opportunities for improvement so that they don’t seek employment elsewhere.

Advantages of Demoting an Employee and Having a Clear Policy

Despite the disadvantages of demoting an employee, a demotion policy also offers several advantages. With a written document in place, both employees and managers will have something to reference to make sure the demotion is legal and fair. If an organization implements a straightforward policy, demoting an employee can bring about advantages like:

  • Reduced expenses: One of the most practical benefits of demoting an employee is the reduction in the pay you will have to give them. In cases where the company has to cut costs or where the employee is simply not generating enough value to justify their salary, you can demote them to reduce expenses. By decreasing a salary, you will be able to save money and potentially place your company in a position to pay the employee more in the future.
  • Less risk: Terminating a worker can come with the risk of lawsuits or other headaches. Instead of immediately firing an employee, you can demote them. A demotion, rather than firing, will protect an organization from wrongful termination or discrimination claims since it shows your willingness to give employees a second chance — even if their performance hasn’t been up to par. To reduce risk and justify demotions, a human resource department will need to keep reliable records of employee problems and conduct regular performance reviews.
  • Developed employees: Instead of inferring a demotion is a final determiner of an employee’s ability, you can present it as an opportunity for growth. A worker who might not have been ready for the position could just need some more time to prepare. A demotion will prevent them from becoming too overwhelmed and counteract burnout. As they move back into a position they feel more comfortable with, you can further train and prepare them to attempt the position in the future again.
  • Cause for employees to quit: Some companies want an employee to quit instead of having to fire them. A termination comes with various legal obligations and risks that are easier to avoid. Instead, a human resources department may recommend demoting an employee. Then, they will not have to pay anything in severance or unemployment benefits if the worker chooses to quit of their own accord. However, this strategy is not a foolproof plan — an employee may hang on to the job as long as possible or claim they were coerced into quitting.

How to Best Demote an Employee

Though demoting an employee is not ideal, there’s sometimes no other option. A demotion policy should outline legal and fair action that’s standardized across the company. Consider including the following steps in your demotion plan:

1. Inform the Employee About Their Demotion

Don’t let employees find out they’ve been demoted over an email or through an indirect manner. Instead, have a private conversation with them where you explain the reasons for the event.

In this conversation, make sure the employee knows you want to keep them as a member of the staff and that this is not a termination. Frame the conversation in a way that highlights how the employee is going to be better in the position you are moving them to.

Reassure your employee during your explanation. While some workers will be upset with the organization, many others will doubt their abilities and worry the company has lost faith in them. Since you want the employee to grow from the experience and potentially even work their way back up to take on higher responsibility, ease their fears by reiterating you’re only trying to put them in a position to succeed.

2. Explain Responsibilities and Information About New Position

After you’ve informed an employee of their demotion, you’ll want to explain their responsibilities in their new position. They will need to know how to succeed in their new role and what the job entails.

As a change in salary will often accompany a demotion, tell your workers if they will be receiving lower compensation. You don’t want them to find out indirectly on payday, which could generate resentment for the company. In your meeting about their demotion, make sure they know what the changes in compensation will entail so that they aren’t caught off-guard.

3. Create a Transition Plan for Employee and Management

A demotion can carry with it a degree of uncertainty. The employee will often need to tie up loose ends in their current position before they move into their new role. They may also need to take time to pass on important information to the person taking over the position.

To make sure nothing gets left out of the process, you’ll want to have a clear transition plan for all employees involved in the change to follow. In this plan, the demoted worker should know the exact date when they are expected to transition entirely into the new role, as well as what they need to do before leaving the old position.

4. Inform Relevant Parties

You don’t want to announce to the entire office that an employee is getting demoted. However, you will still need to inform anyone else who will need to know. For example, if the demoted worker was in a management position, staff who were being managed by them should be notified of the change in management.

5. Complete Relevant Paperwork

Whenever a demotion occurs, you should document it. Check with your human resources department to ensure they’ve received and filed all relevant paperwork before closing out the demotion process.

Interested in Finding Top Talent for Your Organization?

Sometimes you may not be able to demote an employee because no one else is qualified to take the position. Instead of keeping someone in a position that doesn’t suit their talents and skills, hire someone who can handle the job’s responsibilities.

Reaction Search International is an award-winning executive search firm that can find the perfect candidate for your company, ranging from sales staff to executives. If you’re looking for new staff members, contact us today for more information, or go straight to our employer job order form that will help us begin your search immediately.