Can Cost Cuts Help Companies Keep More Employees on the Job?


Earlier this month, I wrote a story about the possibility of companies employing creative cost-cutting measures to either avoid or minimize layoffs. Two of my sources, Cissy Pau of Clear HR Consulting and Ellen Raim of the Coraggio Group, thought at least some companies would consider introducing measures such as across-the-board salary cuts or shorter work weeks before cutting staff.


Why? Good employees are hard to find, and it might be impossible to get them back after laying them off. Layoffs aren't exactly inexpensive, when costs such as legal fees, severance packages and outplacement services are factored in. Valuable institutional knowledge vanishes during layoffs. When done strictly to save money, layoffs yield no real benefit. Says Pau:

Layoffs without any kind of corporate restructuring or efficiency improvement won't provide the long-term results you want. If you say 'I need to cut the budget by $10 million' and lay off $10 million worth of people, how are you going to deal with the work? What about the expertise you'll lose? What about the stress of the people who remain? It's not a permanent solution. The corporate reorganization has to go hand in hand (with layoffs) or else you're just going to find yourself doing more layoffs.

Yet another source, Peter Cappelli, director of human resources at the University of Pennsylvania's Wharton School, thinks most companies will stick with layoffs rather than seek alternatives. Following the success of executives like "Chainsaw" Al Dunlap, who as CEO of Scott Paper laid off 11,000 employees before selling the company to Kimberly-Clark in 1995, Wall Street began rewarding companies for layoffs and the strategy has stuck, says Cappelli. (Dunlap later crashed and burned, it should be noted, in trying to carry out a similar strategy at Sunbeam Corp.)


Even before I wrote the story, some technology companies had reintroduced cost-savings measures not seen since the dot-com bust. HP, Apple and Adobe lengthened year-end holiday breaks for example, with HP and Adobe asking their workers to use some of their vacation time during these breaks. Cisco, too, shut down from Dec. 29 to Jan. 2. It also imposed a hiring freeze, slashed travel costs and canceled holiday parties and its annual global sales conference. It sure looked like companies were doing what they could to reduce operational costs to avoid mass layoffs.


More recently, Agilent introduced an across-the-board 10 percent pay cut (5 percent for some lower-paid administrative, support and technical employees) that is expected to last through Oct. 31, 2009, the end of the company's current fiscal year, reports the Press Democrat. An Agilent spokesman says the move will save some $110 million a year, or 1,100 jobs. Agilent intends to revisit the pay policy each quarter.


Agilent is also asking its 1,800 employees in India to use up earned leave time by taking a two-day break every month, according to The Economic Times. Workers without accrued leave time will be asked to take the days without pay. Despite these measures, Agilent plans to lay off 500 employees and 300 temporary workers, reports Reuters. The layoffs should yield $65 million in annual operational savings. Cutting contractors is a strategy also being used by Google, which reportedly employs some 10,000 temporary workers.


Reducing contributions to employees' 401K plans is another cost-saving tactic used by a growing number of companies. Among the companies doing so: Federal Express, Eastman Kodak, Motorola, General Motors and Resorts International. Experts have expressed concern that these reductions will lead fewer employees to participate in 401K plans. Yet it may also allow them to keep more workers on the rolls. Says Alicia Munnell, director of the Center for Retirement Research at Boston College:

It comes down to the choice of laying people off, or cutting back on some fringe benefits.

My source, Clear HR Consulting's Pau, thinks the length of the recession will dictate how many alternatives companies are willing to try before turning to layoffs. For those considering alternatives, she stresses the importance of getting boards of directors and senior managers on board with the plan. Companies should select just one or two alternatives and stick with them rather than trying lots of different measures, she says. Morale will suffer if employees are faced with a new alternative every month. It's also a good idea to get employee feedback on possible options.