When Entegrity Solutions Corp. went into cost-cutting mode recently, it decided against the slash-and-burn staff reductions that marked the demise of many other young high-tech companies.
Instead, the San Jose software company took a route that has become increasingly common among American employers, particularly since Sept. 11: avoiding layoffs, or at least minimizing them, with various cost-saving alternatives, including salary and benefits cuts, job-sharing and leaves of absence, and deferred or eliminated bonuses and salary increases.
Entegrity was able to reduce its layoffs--although it won't say by how much--by convincing employees to agree to an across-the-board 20% pay cut. It eliminated or deferred bonus programs and increased its remaining employees' stake in the company with stock options.
"People are our capital. You have to try to preserve that as much as you can," said Bob Howells, Entegrity's chief financial officer.
A recent survey of 110 mid-size and large companies by international consulting firm Watson Wyatt Worldwide showed that about 25% of companies had delayed or reduced salary increases and 30% had reduced merit-pay budgets in an effort to forestall layoffs.
Many companies also reduced bonuses for workers (48%), middle managers (54%) and executives (60%).
A survey released Dec. 4 by the Society for Human Resource Management showed that many employers took several steps before resorting to layoffs.
About 63% surveyed reduced their payrolls through attrition; 49% resorted to an employment freeze; 21% first decided against renewing employees who had been working on contract; and 20% encouraged workers to use up their accumulated vacation time.
In California on Friday, Gov. Gray Davis unveiled perhaps the most interesting and controversial plan yet.
If employers in the state agree to reduce employee hours instead of laying more people off, the state's Employment Development Department will allow those workers to receive unemployment benefits to supplement their reduced income.
Companies Preparing for a Downturn
Solange Charas, a New York-based compensation consultant, said companies are anxious to be prepared for an economic turnaround. "You don't want your good people off the job when you need them most," she said.
"If you can shift more of your cost-cutting efforts to variable costs like ... tying bonuses to the performance of the company, eliminating nonessential human resources programs, you can protect more jobs," Charas said.
Although no one celebrates a pay cut, some employees accept it as preferable to being laid off, or worse--seeing the company fold.
"You can't compete if you eliminate the people you need," said one Entegrity employee who asked not to be named.
The employee said he took a pay cut three months after his wife was laid off from another company, but still considers himself fortunate.
"There's nothing else you can do. My friends and I used to sit around talking about our stock options. Now, we talk about whether we still have jobs or not."
Intel Corp. closed a manufacturing facility in Puerto Rico this year and had as a goal to reduce its work force by 5,000 employees by the end of the year.
Instead of laying off valued employees, the company has a so-called redeployment program in which workers are given two to four months, with full salary and benefits, to look for other work inside Intel or with another company. That was ideal for Dan Palka, 45, who has an 11-month-old daughter and a wife who wasn't interested in relocating to another part of the country.
Palka, who had worked for an Intel unit the company spun off, continued going to his office for two months and studying his options. In July, he found another job in the software solutions group at Intel.
"I worked for companies in the past that did not take this approach and just let people go. A month later, they were scrambling to hire those people back again and they couldn't always get them back. Now, those companies are out of business," Palka said.
"This was one of the reasons I decided to stay at Intel. It makes me feel very good about working for the company," he said.
Some employers were motivated at least partly by the Sept. 11 terrorist attacks.
Hambrecht Salary Cap Affects Big Earners Most
After a layoff in July, the San Francisco-based high-tech investment banker WR Hambrecht & Co. took a different route just days after the attacks, imposing a companywide $60,000 salary cap that affected the company's biggest earners more than anyone else.
The company also eliminated its bonus pool, replacing it with a revenue-sharing plan.
Company spokeswoman Sharon Smith said the firm's founder, Silicon Valley financier William R. Hambrecht, decided it wasn't the time "to lay off more employees. He didn't want to have anyone looking for a job, and we want to stay in business."