This is not the first time that an investment bank has invited staff to resign en masse. Goldman Sachs, for example, implemented a similar and apparently successful voluntary redundancy scheme for its European human resources staff earlier this year. But Merrill Lynch is the first bank to extend the invitation to so many (only US retail broking staff are excluded) and its decision is coming under fire.
Tony Tucker, a former executive in human resources at both Bank of America and SBC, says: 'This is not the action of an enlightened organisation. It is another example of short-term thinking.' He describes the offer as a return to 1998, when Merrill slashed 3,500 posts following the Asian currency crisis. When the markets rebounded, it famously had to hire them back, often at higher salaries.
Critics also point to the seemingly indiscriminate nature of Merrill's scheme. 'Control of the business could be lost,' says Tucker, now managing director of ERG, the headhunter. 'This is putting the future of the business in the hands of the employees.'
The problem with voluntary redundancy, say its detractors, is that the best and most marketable people offer to leave, because they believe they will find work elsewhere. A firm is then left with a rump of the less talented staff.
Merrill declined to discuss its redundancy programme. It has not relinquished control of its fate entirely, however. Its basic redundancy offer is between 12 and 54 weeks pay, plus 40% of last year's often hefty bonus. But as is always the case with redundancy payments, the amount is related to length of service, with every year at the firm counting for about three weeks redundancy pay.
In effect, this encourages older employees to come forward first. More importantly, the offer of redundancy comes with a caveat: employees intending to volunteer must first seek the permission of their manager. Not all will be accepted.
This approach poses problems as well, however. Quy Huy, assistant professor of management and strategy at Insead business school in Fontainebleau, says it often produces jealousy and demotivation among those left behind. This can outweigh the undoubted advantages of selection, says Huy, who has spent the past six years studying the impact of voluntary redundancy.
Tucker adds that too much managerial control over selection for redundancy can undermine the whole exercise. 'If managerial permission is required, it is not voluntary redundancy,' he argues. 'It is a PR exercise.'
Both Huy and Tucker are advocates of forced redundancy. Huy says that companies contemplating lay-offs should draw up a list of competencies to meet their future needs. Individuals should be given the opportunity to demonstrate those competencies and, in effect, be asked to re-interview for their jobs.
Those found to be lacking in the new competencies are then made redundant or tend to leave of their own accord when told they do not measure up.
Time out is also an option for firms wanting to cut costs. Accenture, the management consultancy, has invited all its employees to take a sabbatical for between six and 12 months at 20% of pay. Sabbaticals of a sort are also on offer at Merrill Lynch, on terms similar to Accenture's. But while Accenture guarantees that employees will have a position to return to, Merrill Lynch says that the jobs once filled by those on sabbatical may no longer exist in six months' time.
On this basis, enthusiasm for its offer may well be limited. 'No one would go on a sabbatical without the guarantee of a job to come back to,' says one Accenture employee.
It is hard to gauge how many might come forward for Merrill's scheme. Some pay consultants believe that the numbers could be large, because of the long-term structure of banking pay.
Stephen Brooks, a financial services compensation expert at PA Consulting, says: 'Sometimes a long-term incentive scheme is like a primed ejector seat. Often people want to move on but are locked in by the scheme. You just have to release the catch and off they go.'
This seems to have been the case at Goldman Sachs, where many human resources staff are believed to have sought to accept the firm's offer.
Other people believe that Merrill's offer will not achieve the desired results. Paul Taffinder, a psychologist at Accenture, says: 'The people they want to leave just will not come forward.' He says the danger is that Merrill might have to take 'two bites at the apple', with another, more ruthless round of cost-cutting in the future.