Are Furloughs, Pay Cuts the New Layoffs?


Are furloughs and pay cuts the new layoffs? It's starting to look that way.


Two weeks ago I wrote about companies looking for ways to reduce their operational costs in an effort to avoid or minimize layoffs. Asking employees to take unpaid furloughs and/or take pay cuts appear to be emerging as two of the most popular alternatives.


A Google search brings up countless companies that are asking employees to take furloughs, from state governments to manufacturers to universities. One of the most prominent announcements came from Gannett, the nation's largest newspaper publisher, which is asking most of its 31,000 U.S. employees -- those not deemed "essential" -- to take a week of unpaid leave this quarter.


The action falls midway down the cost-cutting ladder, somewhere between actions like reducing business travel and laying off employees, points out a Seattle Post-Intelligencer article. Furloughs offer a way for companies to cut costs while avoiding the loss of talent and knowledge that occurs during sweeping layoffs. Says John Challenger, CEO of outplacement company Challenger, Gray & Christmas:

People are not as interchangeable as companies perhaps once thought. After layoffs, there is always chaos, and the things people did can't be passed on. So much gets lost.

Most of the employees interviewed by the Post-Intelligencer found furloughs far preferable to layoffs. "Everyone I know has been pretty understanding," said an employee of Fluke Networks, which is requiring workers to use up accrued vacation time and take six unpaid days this quarter. It also announced pay freezes for 2008 and 2009. The company has already laid off about 60 workers, some 10 percent of its workforce.


FedEx Corp, Caterpillar and Gymboree are among companies cutting salaries, a strategy once avoided because of concerns it wouldn't save enough and/or it would hurt morale, reports the Los Angeles Times.


Such actions don't mean layoffs won't eventually happen. In a video message to workers on the FedEx Web site, CEO Frederick Smith said the aim of salary cuts is to "minimize job loss and to protect our long-term financial strength." Yet he speaks of uncertainty, describing the downturn as "uncharted territory."


While many of the FedEx employees commenting on Smith's message were positive about the action, at least one urged the company to focus instead on streamlining and reviewing processes, cutting marketing spend, and evaluating and eliminating personnel. The worker wrote:

... This is only the beginning. No doubt, the quality people inside FedEx will rise and help us all through these tough times . . . even if the slackers are riding our coattails.