Companies find spreading pain preferable to cutting jobs
Layoffs are still the preferred way to cut costs. But as the recession deepens, managers are opting to cut wages, freeze pay or offer furloughs to avoid staff reductions, even if more workers are affected.
Giving workers the boot isn't the only way businesses are trying to reduce costs these days. Broad-based pay cuts, long frowned upon, are being imposed by a growing number of companies big and small.
It's a risky strategy that experts say can sow discord in the workplace. But some employers say they prefer cost-cutting that preserves as many jobs as possible, even if it means more workers will be affected.
FedEx Corp. cut wages for 36,000 salaried workers by last month; at construction equipment maker Caterpillar, many employees will see their pay reduced by as much as 15%. Gymboree Corp., the San Francisco-based children's clothing retailer, is cutting senior executives' salaries by up to 15% and the pay of some other staffers by as much as 10%.
Union workers at YRC Worldwide Inc., the nation's biggest trucking company, voted last week to accept an across-the-board 10% pay cut to help their employer weather the slump in freight traffic.
At the Newport Beach office of MBH Architects, salaries for partners and many professional staff were slashed 25% to 50% as clients canceled projects and billings fell off a cliff.
The trend is also hitting workers at nonprofit organizations and in state and local governments, and experts say it's a sign that some employers are resorting to exceptional measures to deal with the crumbling economy.
"Companies would rather cut jobs than cut pay," said John Challenger, chief executive of consulting firm Challenger, Gray & Christmas. "If a company is cutting wages, that's a sure sign of recession."
For most employers, layoffs and other cost-cutting tactics are still the preferred way to survive a downturn. The government reported last week that U.S. companies slashed 524,000 jobs in December as the current recession, already the longest since the 1981-82 slump, entered its second year.
Almost 47% of the companies surveyed by Challenger late last year said they had laid off workers to deal with the downturn; only hiring freezes and cuts in travel expenses were strategies cited by more companies.
Workers are being asked to make other sacrifices as well. A raft of companies are eliminating bonuses, freezing salaries and pension plans and stopping matching payments to 401(k) retirement plans. Some are mandating unpaid furloughs.
