Definition: Demotion implies the unavoidable reduction in the rank or designation of the employee, within the hierarchy of the organization. It can be a permanent reassignment of the employee to a lower rank than the rank he is working on currently. Further, the rank in which the employee will work after demotion shall contain lower responsibilities and will require a lesser number of skills.

It becomes essential when an employee is not able to carry out his duties in a satisfactory manner. The following factors are the main cause of demotion:

1. Poor performance of the employee
2. Elimination of position
3. Disciplinary action
4. Restructuring of the organization.

It may cause the loss of various privileges or fringe benefits associated with the rank or designation along with a decrease in pay and status. The reasons for demotion may include violation of the organizational rules because of their attitude or behaviour like:

• Misconduct
• Negligence
• Absenteeism,
• Excessive lateness, and so on.

Types

• Voluntary Demotion: As the name signifies, a permanent employee of the firm can make an application for a wilful demotion to a vacant position of lower grade. Provided, the employee has attained permanent status in that particular class. Or the request for demotion is to a related class in a similar job series.
• Involuntary Demotion: An involuntary demotion is a disciplinary action and is subject to disciplinary procedures.

Reasons for Demotion

The reasons for demoting employees are:

Inefficiency

When an employee gets a promotion on the basis of seniority and past performance, but he proves to be incompetent in performing tasks related to that post. He/She thinks it is difficult to reach performance standards. Hence, the management demotes these employees back to the job in which their capabilities, aptitude and knowledge match the job requirements.

Adverse business conditions

It may also be due to adverse business conditions. This may cover:

• Closure of some departments or plants
• Withdrawal of some products
• Reduction in quality of production

In such cases, freshly recruited employees or lower-level employees may be laid off. While the retrenched and senior employees may be demoted.

Change in technology

When there is a change in technology, method or technique, there is a need for new or higher-level skills to perform the job. And if the employees who are working currently in the organization, do not upgrade themselves with the emerging requirement. Then, the company’s management demotes the employees to lower ranks where they can fit suitably.

Administrative Convenience

Because of external developments or internal reconstruction, an organization is bound to eliminate certain positions or merge them for administrative purposes. In these cases, the incumbents of merged or eliminated positions may be moved to lower ranks. In such situations, organizations prefer demotion as a better alternative to layoff when the reduction of staff becomes necessary.

Disciplinary Action

A firm may also demote employees as a result of disciplinary action, but only a few organizations practice it. That is to say, the organizations practice this as a punishment for employees for serious breaches of rules and regulations and for continuous poor performance. Basically, demotion is a less severe punishment in comparison to the dismissal or discharge of employees. But employee unions strongly condemn it, because it has a very negative impact on the mental and emotional health of the employees.

Demotion Policy Principles

Demotion policy must rest upon some sound principles like:

• State clearly the list of circumstances under which an employee will get a demotion.
• Specify the authority which is responsible to initiate the process of demotion.
• State the nature of demotion, i.e. if it is permanent or temporary.
• Mention the jobs from and to which demotions is going to happen.
• The firm must specify the criteria for demoting employees. That is to say, who will be demoted first, a person whose length of service is not more than one year or whose performance is poor.
• A prior and clear declaration of demotion policy.
• Mention clearly the relevant authority, which is responsible to investigate any alleged violation of demotion principles.
• On identification of violation, the penalty that it may attract should be specified.
• There should be clear norms to appraise the merit and length of service of employees.