How to Manage an Employee Who's Been Demoted

Internal reorganizations are par for the course at many companies, and sometimes they mean pay reductions, title changes and shifts in employee responsibilities—all of which could feel like a demotion.

In other workplaces, some employees may have been demoted due to poor performance.

Managing a demoted team member can be challenging. It's important to distinguish between the pain of a demotion resulting from a reorganization versus one resulting from performance issues, said David Harrison, a professor of management at the University of Texas at Austin McCombs School of Business.

"The classic meaning of a demotion is to be kicked down," he said. If the demotion is due to performance issues, it's "a way to signal to the employee that we don't want you here, but we don't have the power or wherewithal to fire you. … It's a very strong signal usually based on a very strong transgression."

When an employee is demoted during a reorganization, the sting shouldn't feel as personal, Harrison said—but it can still hurt.

Whether you're overseeing an employee who received a punitive demotion or one who feels demoralized after a corporate restructuring, now is the time to communicate more clearly than ever—and to watch out for performance issues.

Set New Expectations

Sometimes, employees feel relieved to have less responsibility. A lesser role means less work, right?

Not exactly, said Shawn Gulyas, founder of humanworks, a Milwaukee-based HR consultancy.

"You have to be very clear with that person right up front that a demotion does not mean the job will be easier," he said. "In fact, you would expect more from them [if the role is] better suited to their skills and abilities," particularly if the employee was demoted due to performance issues.

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On the other hand, some employees may feel the new role is a step down that won't be challenging or engaging enough. In those cases, managers should encourage direct reports to identify what they want to learn in the new position.

"Get them in that learning and growing plan as soon as possible versus just going back to what they were doing," Gulyas said. "That can help shift the mindset."

No matter how the employee feels about the new role, be upfront about the expectations; don't let them flounder.

"Clearly define the role and the performance expectations," said Vanessa Matsis-McCready, associate general counsel and director of human resources at Engage PEO in Fort Lauderdale, Fla. "Keep in regular communication with the person and provide coaching."

Be Empathetic

Demotions can often feel personal, even when they're the result of a corporate restructuring.

"Any loss or change of status in an organization can impact our ego, confidence and dignity," said Cassandra Fallon, a licensed therapist specializing in workplace dynamics at Thriveworks in Colorado Springs. "It will be important for managers to have and practice empathy for that individual and what they may be experiencing."

Practically speaking, that could mean scheduling extra check-ins with the employee.

"Anyone who feels supported and understood will adjust quickly and have less resentment," Fallon said.

Watch for Retaliation

If the employee was singled out for a demotion as a disciplinary measure, keep an eye out for retaliatory behavior.

A punitive "demotion is, for all practical purposes, a way of saying we don't want you here, so [the employee] is probably looking for a job," Harrison said. But as long as such employees remain, he said, they could cause problems.

You might notice the employee putting less time and effort into the job, or you could observe more aggressive behavior, anything from sabotaging a project to stealing office supplies.

"There's going to be a pool of really negative emotion there, … and that's not something that goes away," Harrison said. "It sticks in your craw. None of us deal with that loss particularly well."

Offer a Path Toward Autonomy or Advancement

To retain an employee who has been demoted due to a restructuring, Harrison said, managers need to create a plan—if possible—to eventually move the employee back to the previous position. "There have to be clear, well-articulated steps to get them back to where they were before," he added.

If you can't promise a path back to the employee's old role or if the previous position no longer exists, think about other ways to empower the individual.

"Allow those folks more autonomy and more discretion on how they get things done," Harrison said. That could mean allowing remote work or flexible scheduling. Giving the employee control over the work environment can help ease the pain, he explained.

"Whatever you do is going to have to be permanent," Harrison added. "You can't say, 'We're going to have a couple of extra casual Fridays to mitigate the pain.' That's not going to do much."

Set Boundaries When a Peer Becomes a Direct Report

When a manager starts supervising someone who used to be a fellow manager or peer, it can be awkward—especially if a friendship exists between the two.

"You have to admit it is uncomfortable," Gulyas said. "It's OK to say that."

Initiate a conversation about the new dynamic to set the stage for what your work relationship will look like moving forward.

Gulyas recommends saying, "You know how I interact and treat and work with my direct reports. You're now a part of that. Are you going to be able to adjust to that new business relationship?"

Keep in mind that others in the workplace will be watching the way you treat your colleague-turned-direct report.

"They don't want that friend to be treated like a favorite," Harrison said.

The dynamics of the relationship will need to change. For instance, you'll need to use discretion when discussing work issues with your former peer; you may not be able to commiserate like you used to.

"You can't rely on them for emotional support and the kinds of things you get from friends because you're in a leadership position now," Harrison said.

Lauren Sieben is a freelance writer based in Milwaukee.