Seeking Alternatives to Downsizing
As the economic slowdown continues, many companies are finding themselves caught between the proverbial "rock and a hard place." The rock consists of reduced earnings that send stock values plummeting. The hard place, as every HR professional knows, is the painful process of cutting labor costs through job reductions. Although slashing jobs is never easy, it seems particularly agonizing after years of a tight labor market, when employers invested heavily in recruiting and training skilled staff. That's one reason that many companies are looking for cost-reduction strategies short of traditional layoffs.
It's not that job cuts aren't occurring. Far from it. Total U.S. job cuts for the first half of this year were 770,000, according to outplacement firm Challenger, Gray & Christmas. This is three and a half times greater than the total during the first half of last year, and it's 27% higher than for all of 2000. Employers are on pace to cut 1.6 million jobs this year, a modern record. And that's just in the U.S. "Tens of thousands of jobs across the world have been axed," according to BBC News.
However, many managers know that downsizings are a risky way of coping with earnings problems, one that can lead to declining worker loyalty and quality. A Mercer Management Consulting study, for example, looked at companies whose primary business strategy during the first half of the 1990s was to cut costs, a strategy that often included job reductions. It found that profitable growth never materialized for 71% of those firms in the second half of the 1990s.
It's no surprise, then, that many managers are looking for alternatives to traditional job reductions. "Recognizing the mistakes of past layoffs, optimistic about a quick turnaround, and worried about a long-term labor shortage, companies are increasingly trying alternatives such as buyouts, temporary shutdowns, pay cuts, and sabbaticals," reports U.S. News & World Report.
Among the most well publicized – and for some industries quite common – alternatives are mandatory and voluntary time-off programs. Hewlett-Packard (HP), for example, is asking employees to voluntarily take a pay cut or use up their accrued vacation days. The rationale is that built-up vacation days become a financial liability on the balance sheet. Other companies have adopted mandatory time off. Philips Semiconductor required some of its workers in one of its plants to take three weeks of vacation, paid or unpaid, depending on how much vacation they'd accrued.
Some companies are going a step further. Accenture, for example, announced a sabbatical program wherein consulting staff at the senior management level or below who've been with the firm for over a year can take 6 to 12 months off and get 20% of their salaries and continued benefits. And at Motorola, some workers are taking the summer off without pay.
Other companies are relying more on pay cuts. Database management company Acxiom, for instance, has required its U.S. workers earning more than $25,000 a year to take a 5% pay cut. It has made up the difference with stock options. And on April 5th, test-and-measurement equipment maker Agilent Technologies announced a companywide salary reduction of 10% for its 48,000 employees.
Of course, it's naпve to believe that alternative cost-cutting strategies keep the layoffs from happening (indeed, HP just announced it will cut 6,000 jobs). In many cases, they're used only to reduce the potential number of cuts, or to forestall them for a while. When they do make cuts, however, some firms are still trying to do so in a "kinder, gentler" fashion. Stockbroker Charles Schwab promised a $7,500 rehiring bonus to workers laid off last spring if they return within 18 months. It has also paid departing workers a generous severance, offered $20,000 in scholarships, and vested their stock options.
To keep from burning bridges in case of a turnaround, some companies have also been offering "apology" or "reverse hiring" bonuses after rescinding job offers made to graduating college students. Cisco Systems Inc. is giving previously hired students who agree to release the company from all legal claims 90 days' salary along with outplacement and rйsumй services. "We obviously thought enough of these individuals to want to hire them in the first place," says Cisco spokesperson Steve Langdon in the Atlanta Journal and Constitution. "We hope to be able to hire them at some point in the future. We want them to know Cisco is a great company that values our workers."
Do such policies represent the wave of the future? Perhaps, but some experts are skeptical, believing that companies will stop being so generous if the economy slips into a serious recession. For now, however, companies continue to experiment with layoff alternatives, hoping harsher restructuring policies aren't just around the corner.
====================================================
To read "Firms Look Beyond Pink Slips," see
http://www.usnews.com/usnews/issue/010702/work/jobs.htm
To read "Downsizing Pay, Not People," please see
http://www.businessweek.com/careers/content/apr2001/ca20010418_060.htm
To read "When the Economy Is Just an Excuse to Cut," please see
http://www.businessweek.com/careers/content/apr2001/ca20010424_686.htm
For an article on job cuts that are happening globally, see
http://news.bbc.co.uk/hi/english/business/newsid_1454000/1454354.stm
For an article about firms asking workers to take time off, see
http://www.upside.com/BigCaps_Weekly/3b44df2b1_yahoo.html
For many links on the subject of downsizing and layoffs, go to
http://dailynews.yahoo.com/fc/Business/Downsizing_and_Layoffs
For U.S. government data on layoffs, please see
http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=203323
It's not that job cuts aren't occurring. Far from it. Total U.S. job cuts for the first half of this year were 770,000, according to outplacement firm Challenger, Gray & Christmas. This is three and a half times greater than the total during the first half of last year, and it's 27% higher than for all of 2000. Employers are on pace to cut 1.6 million jobs this year, a modern record. And that's just in the U.S. "Tens of thousands of jobs across the world have been axed," according to BBC News.
However, many managers know that downsizings are a risky way of coping with earnings problems, one that can lead to declining worker loyalty and quality. A Mercer Management Consulting study, for example, looked at companies whose primary business strategy during the first half of the 1990s was to cut costs, a strategy that often included job reductions. It found that profitable growth never materialized for 71% of those firms in the second half of the 1990s.
It's no surprise, then, that many managers are looking for alternatives to traditional job reductions. "Recognizing the mistakes of past layoffs, optimistic about a quick turnaround, and worried about a long-term labor shortage, companies are increasingly trying alternatives such as buyouts, temporary shutdowns, pay cuts, and sabbaticals," reports U.S. News & World Report.
Among the most well publicized – and for some industries quite common – alternatives are mandatory and voluntary time-off programs. Hewlett-Packard (HP), for example, is asking employees to voluntarily take a pay cut or use up their accrued vacation days. The rationale is that built-up vacation days become a financial liability on the balance sheet. Other companies have adopted mandatory time off. Philips Semiconductor required some of its workers in one of its plants to take three weeks of vacation, paid or unpaid, depending on how much vacation they'd accrued.
Some companies are going a step further. Accenture, for example, announced a sabbatical program wherein consulting staff at the senior management level or below who've been with the firm for over a year can take 6 to 12 months off and get 20% of their salaries and continued benefits. And at Motorola, some workers are taking the summer off without pay.
Other companies are relying more on pay cuts. Database management company Acxiom, for instance, has required its U.S. workers earning more than $25,000 a year to take a 5% pay cut. It has made up the difference with stock options. And on April 5th, test-and-measurement equipment maker Agilent Technologies announced a companywide salary reduction of 10% for its 48,000 employees.
Of course, it's naпve to believe that alternative cost-cutting strategies keep the layoffs from happening (indeed, HP just announced it will cut 6,000 jobs). In many cases, they're used only to reduce the potential number of cuts, or to forestall them for a while. When they do make cuts, however, some firms are still trying to do so in a "kinder, gentler" fashion. Stockbroker Charles Schwab promised a $7,500 rehiring bonus to workers laid off last spring if they return within 18 months. It has also paid departing workers a generous severance, offered $20,000 in scholarships, and vested their stock options.
To keep from burning bridges in case of a turnaround, some companies have also been offering "apology" or "reverse hiring" bonuses after rescinding job offers made to graduating college students. Cisco Systems Inc. is giving previously hired students who agree to release the company from all legal claims 90 days' salary along with outplacement and rйsumй services. "We obviously thought enough of these individuals to want to hire them in the first place," says Cisco spokesperson Steve Langdon in the Atlanta Journal and Constitution. "We hope to be able to hire them at some point in the future. We want them to know Cisco is a great company that values our workers."
Do such policies represent the wave of the future? Perhaps, but some experts are skeptical, believing that companies will stop being so generous if the economy slips into a serious recession. For now, however, companies continue to experiment with layoff alternatives, hoping harsher restructuring policies aren't just around the corner.
====================================================
To read "Firms Look Beyond Pink Slips," see
http://www.usnews.com/usnews/issue/010702/work/jobs.htm
To read "Downsizing Pay, Not People," please see
http://www.businessweek.com/careers/content/apr2001/ca20010418_060.htm
To read "When the Economy Is Just an Excuse to Cut," please see
http://www.businessweek.com/careers/content/apr2001/ca20010424_686.htm
For an article on job cuts that are happening globally, see
http://news.bbc.co.uk/hi/english/business/newsid_1454000/1454354.stm
For an article about firms asking workers to take time off, see
http://www.upside.com/BigCaps_Weekly/3b44df2b1_yahoo.html
For many links on the subject of downsizing and layoffs, go to
http://dailynews.yahoo.com/fc/Business/Downsizing_and_Layoffs
For U.S. government data on layoffs, please see
http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=203323