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Companies Cutting Back To Avoid Layoffs

By CityTownInfo.com Staff

April 13, 2009

In an effort to avoid laying off workers, more companies are trying different methods to trim costs, including forced furloughs, hiring freezes and salary cuts.

Utah's The Salt Lake Tribune reports that Costco Wholesale Corp., which has suffered a 27 percent profit loss since last year, has frozen hiring but has managed to avoid layoffs.

"They're thinking in the long run it will actually cost more to let people go, then have to bring them back and retrain them versus just retaining them," explained Mark Knold, a senior economist at the Utah Department of Workforce Services. "They obviously see this as a downturn that has an end to it and is probably not too far out, as far as they're concerned."

The Wall Street Journal notes that some companies are experimenting with forced furloughs, hoping to retain talented employees, bolster company loyalty and better prepare themselves for recovery. In a survey conducted among 245 companies by consulting firm Watson Wyatt Worldwide Inc., 17 percent reported ordering mandatory furloughs while 19 percent reported offering voluntary furloughs. The vast majority, 65 percent, indicated that they had cut jobs or planned to cut jobs.

Some companies are using both layoffs and furloughs. ON Semiconductor Corp. in Phoenix cut 13 percent of its workforce in the beginning of the year-about 1,850 jobs-and ordered furloughs for remaining staff.

"We looked at the different trade-offs," explained Donald Colvin, chief financial officer of the company. "By furloughing employees or taking salary cuts, you buy yourself more time to make smart decisions."

The Wall Street Journal reports on a significant number of companies reducing salaries. While the pay cuts sometimes only affect senior executives, in other companies the salary reductions are across the board.

South Carolina's Charleston Symphony Orchestra, for example, cut the wages of all staff by 11.4 percent after being unable to make payroll in mid-March. Musicians were also given unpaid time off.

"This is very, very painful for them," said Ted Lagasey, the orchestra's president of the board. "It's a huge sacrifice. These people aren't highly paid to begin with."

Other companies, such as the New York Times, cut salaries but also gave additional vacation days in return. Similarly, at Momentive Performance Materials Inc., a New York-based chemicals and specialty materials company, all workers with forced pay cuts receive an extra week of paid vacation for each quarter that the reduction remains in place.

In a related story, MSNBC.com suggests that companies should consider granting employees the option of choosing their furlough days, even allowing for three-day weekends. The article reasons that doing so would allow employers to save billions in salary expenses, which would free up capital for growth and prevent layoffs. Employees, in turn, would feel more empowered about their fate and could use their furlough weekends to work on a second income.

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