Working alternatives to job cuts

Since salaries make up the lion’s share of corporate costs, cutting jobs is one of the fastest and most readily accessible ways to significantly reduce expenses. Layoffs, then, make great fiscal sense in the current down economy. Right?

Not necessarily in IT, especially if you consider the many and varied long-term risks of layoffs, which can range from a plunge in worker morale and productivity to higher costs for recruiting and rehiring technology professionals when the economy bounces back.

“Layoffs aren’t cheap,” says Ken Orr, a research fellow at Cutter Consortium, an IT consulting and research firm in Arlington, Mass. “They’re usually done in response to earnings pressure from Wall Street, which looks only at [near-term] financials. But there are other costs associated with layoffs.”

Consider Cisco Systems Inc., where worker productivity plummeted, resulting in sales of US$470,000 per employee in October 2001, down from US$710,000 a year earlier. In the interim, Cisco laid off 8,500 workers, among other cost-cutting moves.

A Different Approach

A growing awareness of these collateral costs has companies searching for creative alternatives to handing out pink slips at the first sign of financial distress. Job sharing, shortened workweeks and voluntary pay cuts are among the measures companies are taking to trim costs before cutting jobs. They may not always be 100 per cent successful, and some layoffs may still eventually be required. Yet the long-term value of such alternatives helping to preserve morale and leaving a door open for key employees to return in better economic times is golden, according to managers who have used them.

“We’ve already seen a payoff in terms of some of the programs we put in place,” says Jeff Standridge, the executive in charge of organizational effectiveness at Acxiom Corp., a US$1 billion database and information management company in Little Rock, Ark. About 60 per cent of Acxiom’s 5,000-plus employees work in IT.

Last April, Acxiom instituted a 5 per cent mandatory pay cut for all workers (except those earning less than US$25,000). In exchange, employees received stock options equal to the amount of salary they forfeited. Acxiom then followed up with a voluntary pay cut plan under which workers could elect to forfeit up to an additional 15 per cent of their pay in exchange for twice that amount in stock options. More than one-third of employees volunteered for the additional pay cut.

“The immediate benefit we received from that is when we did get to the point of layoffs, we were able to get by with laying off half of the employees we would have had to lay off otherwise,” Standridge says. In June 2001, Acxiom laid off 400 people, or 7 per cent of its employee base, which now stands at 5,400.

“The intangible benefit is that 85 per cent of our employee population became stockholders in the company. They have skin in the game, and now the company’s future can be determined by people with a greater stake in the company,” Standridge says.

When Acxiom does resume hiring, it will give preference to laid-off employees, who upon leaving were issued a special code to use when they submit their r