Firms try to avoid layoffs at all costs
As Pro-Temp Inc. grapples with its slowest period in eight years, co-owner Cal Van Hemert has started snipping away at expenses at the heating, cooling and refrigeration service company in Holland, Mich.
He replaced the company’s formal holiday dinner with a pizza lunch, restructured to get more people into the profitable sales department and is debating whether to trim benefits for his 14 employees.
But Van Hemert is keeping layoffs out of his cost-cutting equation. The last time he let workers go was more than a year ago -- and he hired all of them back within three weeks.
So the employees are doing their part, voluntarily cutting their hours from 45 a week to around 30 and fixing service trucks on slow days.
“Business has crashed, but it’s not the employees’ fault, so we try to protect them,” Van Hemert said. “If you send a guy home the first second there’s nothing to do, you’re going to wreck your company, its reputation and the attitude of everyone who works there.”
With 62,000 jobs lost nationwide in June and anxiety about layoffs growing, many employers are getting creative before pulling out the pink slips. They’re cutting overtime, getting rid of the office cleaning service and slashing executive perks before sending loyal workers out into a very uncertain job market.
“We’re at a time for many businesses right now where it doesn’t look like there’s going to be a turnaround,” said John A. Challenger, chief executive of Chicago-based employment consulting firm Challenger, Gray & Christmas Inc. “So they’re now taking a hard look at what they need to do, short of layoffs, in this period of hunkering down and battening down the hatches.”
Many employees have years of institutional knowledge, which makes them difficult to replace, experts said.
“It costs a lot to let someone go,” said Don McNamara, president of management consulting firm Heritage Associates Inc. in Laguna Niguel. “So we’ve got to circle the wagons and pull in a little bit.”
Businesses can cross-train workers in multiple roles to boost productivity and can restructure to remove inefficiencies, he said. Executives should “get out and start stumping with the rank and file and looking for more business.”
Employees, meanwhile, are agreeing to sabbaticals, unpaid vacations, lowered salaries and work furloughs -- also known as temporary layoffs -- in order to avoid the real thing. Discount carrier AirTran Holdings Inc. said this week that it would cut wages 5% to 15% to reduce costs amid record fuel prices.
Other employers, including state and local governments, have instituted workweeks with fewer days and hours. On Tuesday, Birmingham, Ala., began offering the option of a four-day workweek to more than 70% of its employees to reduce fuel costs and buffer against layoffs. Utah on Aug. 4 will become the first state to mandate a four-day week for most government workers to reap an expected 20% savings in energy costs because offices won’t be open Fridays.
In April, the California Employment Development Department paid out $5,340,446 -- nearly $2.8 million more than in the same month last year -- through its Work-Sharing Program, providing funding to 1,607 companies that temporarily cut wages and hours as an alternative to layoffs. The program allows firms to keep their workers’ wages up while reducing costs.
Challenger said some employers are slashing benefits, including reducing the 401(k) company match. Tuition reimbursement programs are being cut; in-house fitness facilities are being closed.
A recent report from his firm predicts that more workplaces will reduce or replace travel budgets with teleconferencing to save on airfare and gasoline. Companies will also try to reduce real estate costs by closing corporate headquarters and leasing smaller office spaces.
Challenger said many firms, including Best Buy Co., Yahoo Inc. and AT&T; Inc., are already using such techniques. Server and software maker Sun Microsystems Inc. of Santa Clara, Calif., saved $400 million in property expenses over six years by allowing employees to work from home or a satellite office, according to the report.
Few of the tactics being used now are new, said Dale DeHart, president of business marketing company SOHO Prospecting, noting the flex-time work schedule developed by companies such as Hewlett-Packard Co. in the 1960s. In the 1970s, HP avoided layoffs during a recession with its “nine-day fortnight” policy that required workers to take off every other Friday without compensation. It also reduced pay 10% companywide.
The tactic was “a masterpiece of employee retention and loyalty in the face of economic hard times,” DeHart said, and one that was often copied in later downturns.
In the 1990s, when over-hiring was common, heavy waves of layoffs were often necessary, Challenger said. Since then, companies have become more cautious, using temporary workers and contractors for specific projects when business surges so that they will have a smaller base of core employees when times get lean.
During the post-9/11 slump, the Independent Electrical Contractors Assn. shielded workers from layoffs with its manpower loan program. Contractors “lent” employees, who stayed on their original payroll while the borrowing firm reimbursed the salary, according to Jim Ludicke, membership director of the Dallas chapter.
If layoffs become necessary, some bosses are pledging to give employees their jobs back -- with a “rehiring” windfall -- once the slow period passes.
But employers can’t trim expenses and perks without risking driving workers away, McNamara said.
“You’ve got to be sensitive to your people and make sure morale isn’t one of the things you cut,” he said. “If this comes as a surprise to them, they might be tempted to update their resumes at another company.”
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