Redundancy rates rise, Pyramid schemes return

It has been reported by many media and investigative journalism programmes that the number of illegal pyramid schemes is on the rise.

This fresh outcrop seems to be particularly prevalent in South Wales (our back garden, so hence why I am writing about it), and to be on the rise thanks in part to the credit crunch. Many of these new schemes also try to add legitimacy through charity donation, and as one of my interests is in raising money for charity through old mobile phone donation through schemes run by SimuSimu in partnership with local councils, it is personally disturbing that both individuals and charities are being wholly mislead.

Since the introduction of the Gambling Act 2005, pyramid schemes are wholly illegal in the United Kingdom. If you want to know in detail about how these schemes work then please read the guidance at consumerdirect.gov.uk. Pyramid or sometimes called gift giving schemes work by a layered pot of money creation:
- one member donates an amount, and then recruits two or more additional members who form the second layer
- these people in turn donate the same amount each, and recruit two or more additional members to create a third layer

Most of these schemes then pay out to the first member, once the entire fourth+ layer is full. Now, if the scheme is based on just recruiting two additional members, and pays out on layer four being full, and each member puts in £1000 (typical investments are around £3000 per member at present - a decent Christmas budget), then the first member would get a sum of £15,000 on payout: Wow!

This return on investment is why people join - but here's the problem. To get that sum you need to find 14 other people to join, and then keep joining for the scheme to pay out. A scheme in the Isle of Wight in 2001 collapsed in six months because it ran out of people, and almost made the local NatWest branch network run out of cash. In 1998, the newly liberalised country of Albania almost collapsed due to imploding pyramid schemes. Pyramid schemes need to suck in new members at such rates, that the Isle of Wight trading standards office used the illustration that if membership was only drawn from new members, then the entire world's population would be needed with 18months to fulfil the Isle of Wight scheme.

So how come people are getting money out of the scheme? Well often, the first member is the scheme runner - all they have to do is find 14 more people and they have at last £15,000 in their pocket. May be a few more lucky early people do as well, but by layer 10 there is a need for at least 1,000 people. To keep people being drawn in, much like bingo their are prises for turning up or reaching specific layers, which are withdrawn from the prize fund - and these "cost" fee's go to the originator, the only person who makes a guaranteed return.

These are the reasons why since the introduction of the Gambling Act 2005, pyramid schemes are wholly illegal in the United Kingdom. If you want to know in detail about how these schemes work then please read the guidance at consumerdirect.gov.uk.

In 2001, new schemes appeared which targeted their audiences and tried to get around the then bad publicity. They used names like Hearts, or the classical Women empowering Women. The new scheme which has appeared in South Wales and Bristol areas uses the name Take and Gift or Gift and Take, which increase "costs" by adding a legitimising charity gift - but they are all illegal pyramid schemes.

Be very aware with your money. As a first step with your redundancy cheque, however big or small, take some free advice from either the local citizen's advice bureau or your local bank manager. And if you think you have been approached to join a pyramid scheme, please remember that they are illegal and that you are highly unlikely to get your money back.

Look after yourself, and Good Luck!

Thinking you might be laid off/be made redundant?

If you listen to the media at present, we are probably heading right now into the worst recession since the 1929 crash. Looking what goes on a round us in our daily lives, that could be true – the only construction going on right now is that associated with either long term projects (ie – shopping centres, which on average take seven years to plan and come to fruition), or government projects like roads or schools.

The question therefore is – who is going to take the brunt of this recession, in the form of unemployment?

If we look back at classical recessions, then

- The young will still be employed, particularly post-school leavers. Simply, it is an economics calculation: young people are cheap, energetic and lacking work place experience easily lead
- The foreign economic migrants will leave, whether they be legal or illegal, will go home. Why be low paid or redundant here in a high cost western economy, why not go home to a low cost economy?
- The old will retire. If you are three years or less from retirement, one year+ of tax free salary in the form of a redundancy is two years income in reality. Is three years worth of hassle really worth one years pay? Add to this the fact that you can now pick up some part time work and do some of things you always promised yourself you would do

That leaves the rest of us, or about 90% of the average work force:

65-16 = 49 years of potential employment, minus 3 = 46

If you are an HR Director, tasked with cutting 20% of a workforce, and you successfully released your close to retirees, what are you going to do next? There are two common strategies which are employed:

An open redundancy program: the company initially announces a consultation period – effectively a non-contractual on either side, open discussion on the scale of the package and who is interested. From the employees view point, it is an opportunity to explore options; from the employers view point it is a question like a fisherman of seeing who bites. If the employer arranges a meeting for interested employees, then it is not a tacit agreement on behalf of the employee to be made redundant: legally that’s against the law in a majority of countries. Most HR law requires a stepped redundancy process of: meeting followed by interview; confirmation of package; and finally a period of consideration by both parties before the final agreement is signed. The advantages form the employers view point of this method is that: it is relatively cheap in administration costs; you only address the willing; and it leaves the rest of the work force motivated knowing that you are a caring employer. The disadvantages from the employers view point is that some great employees could leave – hence there is often a selection/agreement on the employers behalf inside the scheme to stop top talent walking

A performance review program: the employer asks each manager to note the performance of their employees over the last period (a month legally would be too short, a year may not produce a sufficient result; last two quarters is legally defensible). Employees in the lowest performance bracket (you don’t need to be low performing against the previously agreed targets; just below any new mark they set at an overall level in the company), are added to a list comprising of two elements:

- those who are already under performing
- those who are below the new targets, who are then given a period to perform at the required level

Most employers will now take both groups through a process of meeting and review, offering the carrot of “redundancy now at these terms, which will reduce if we make it compulsory.” At the end of a period, normally at least three months, the employer may then select compulsory redundancy. The disadvantage to the employer of this option is that it is: higher cost; more open to legal redress by the employees effected; it takes longer to process legally; it leaves a severely reduced morale in the remaining work force. Often, remaining employees think “do I want to hang around for the next round of this” and hence start looking for new opportunities, and there is a long tail of leavers. It is also more difficult for the employer to take on new employees when the economy recovers, due to this residual feeling

What can employees do to make sure they get the choice of employment they want?

1. If you have not had one in a while (ie - over six months ago), ask for a performance review. Make sure any issues of under performance are addressed immediately, and that it is confirmed that you are ideally in the top quartile of performers, or have an agreed and written down step program to achieve this in liaison with your manager
2. Work a bit extra. You don’t need to do all the hours possible, just 10% more than the average employee is often sufficient – 1hr a day
3. Take on opportunities inside the company. Join works committees, performance initiatives or optionally groups which do charitable work on behalf of your employer. Do anything which gets you involved in the infrastructure of operations

These simple steps should make sure that you don’t end up on a performance review list, and you now have a choice of where you could be employed. So now make the most of that choice:
4. Review your career plan
5. Review your CV/Resume, and bring it up to date
6. Review you online profiles, and if you don’t have any create them NOW! Start with LinkedIn
7. Check out the local newspapers, trade magazines and online jobs boards for suitable posts in your desired next job
8. Make a note of all the employers and recruiters who list these jobs – they are your target audience

If you are unlucky enough to be made redundant, then know that attitude is the key to getting your next job: be positive, and be prepared to graft – these attitude issues will count as much as your skills to any future employer

Good Luck!