It's cheaper to trim hours or pay than to slash staff—which is why companies are getting creative with alternatives like furloughs and unpaid leave
Instead of jettisoning workers during the Great Depression, Iowa-based window maker Pella had its employees wash and rewash the windows it could not sell. These days, companies such as FedEx (FDX), Dell (DELL), and Motorola (MOT) are adopting their own tactics to hold on to jobs, from hiring freezes to companywide unpaid vacations. (All have had to resort to layoffs as well.) And some are doing more than chopping pay or perks.
Vermont's Rhino Foods, which makes the cookie dough for Ben & Jerry's ice cream, recently sent 15 factory workers to nearby lip balm manufacturer Autumn Harp for a week to help it handle a holiday rush. The employees were paid by Rhino, which then invoiced its neighbor for the hours worked. President Ted Castle is looking to adopt a similar approach with salaried managers, too. "It's a lot easier to just do the layoff," says Castle. "But in the long term, it's not easier for the business."
Across the U.S., some 37% of human resources managers say they're now spending more time devising alternatives to layoffs vs. six months ago, according to a recent survey by the Society for Human Resource Management. Peter Cappelli, director of the Center for Human Resources at the Wharton School of Business, notes that a 5% salary cut costs less than a 5% layoff because there are no severance payments. Some state governments even make the decision easier with a program called WorkShare, which allows companies to reduce employees' work hours and make up the difference through unemployment benefits. "We would have had to take more draconian measures, such as more layoffs, were it not for this program," says Mel White, a vice-president at Portland (Ore.)-based Classic Exhibits, which makes displays for trade shows.
Training Existing Staff to Do More
A typical move amid hiring freezes: training existing staff to do more. Luxury Retreats, a villa rental agency in Montreal, shuffled 8 of its 75 employees from areas such as product development to sales. CEO Joe Poulin even moved his personal assistant to the accounting department. "You have to be really efficient with your resources in times like these," says Poulin. Steelmaker Nucor (NUE), meanwhile, has cut factory time for many of its 22,000 hourly employees. On the days they're not making steel joists, though, workers are paid their base salary to perform maintenance or take classes.
In China, accounting giant Ernst & Young offered its 9,000 mainland and Hong Kong employees a chance to take one month of unpaid leave during the first half of this year. About 90% of the firm's auditors have opted in. Bin Wolfe, head of human resources for the region, says the move will slash EY's payroll costs by 17%.
Some try to motivate staff even while trimming their pay. Matt Cooper, vice-president of Larkspur (Calif.) recruiting firm Accolo, asked employees to take five days of unpaid leave this quarter but won't dock paychecks until March. If big deals come through, he'll lift the pay cut. And he shaved costs by sleeping on his brother-in-law's couch during a recent business trip to New York. Instead of paying $1,500 for a week in a hotel room, Cooper spent 10% of that on dinner for the two of them and a nice bottle of wine.