Downsizing refers to the process of reducing the size of workforce by terminating the employment of employees. It is also referred as layoff. Downsizing is common in a recessionary situation where downsizing helps to cut costs. Some companies also layoff a percentage of low performers every year to maintain a competitive and efficient work force.
Employees asked to exit are often compensated by paying a fixed amount or a few months salary. Downsizing not only affects the employees who have to exit the company, but also the remaining employees who may fear themselves to be in a similar situation at a later time.