Severance Pay Series: Seven Alternatives to Layoffs

Downsizing became a common cost-cutting tool in the previous two decades. Now, this strategy can leave a lasting impact for firms, and many of the consequences can be negative as a result of the lengthy economic downturn and slow recovery. Here are a few alternatives to consider before cutting staff.

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Hiring freeze. This allows a firm to put nonessential positions on hold. However, if it’s not well-thought-out and managed, the outcome could result in employee burnout or turnover and the loss of top talent and recruiters.

Trim hours. Select workers to participate in a four-day week schedule or cut a few hours. State governments opted to use Workshare during the Great Recession. This program allowed employees with reduced work hours and wages to receive a portion of their regular unemployment benefits to make up for the lost wages.

Pay cuts. Cut back or end overtime pay or negotiate smaller paychecks with workers. In 2009 local and state governments and some companies attempting to stay afloat opted for pay cuts as a last-ditch attempt before layoffs, the New York Times article “More Workers Face Pay Cut, Not Furloughs” found. The salary reductions during that year were between 10 and 20 percent projected Jo Prabhu, CEO of staffing firm International Services Group, in the CNN Money article, “Same Job, Less Pay.”

Use up accrued vacation days. Require employees to use their accrued vacation days. That’s what Matt Cooper, vice-president of Larkspur (Calif.) recruiting firm Accolo did. He asked employees to take five days of unpaid leave and told them he’d postpone the deduction from their paychecks, according to Businessweek 2009 article “Cutting Work Hours Without Cutting Staff.” If some big deals came through, he’d lift the pay cut.

Unpaid holidays and leaves of absences. Unpaid holidays aren’t illegal. In Forsyth County, Georgia, its commission voted just before Labor Day 2009 to have its county workers take unpaid holidays for the remaining part of the year in an attempt to shore up more than $700,000, the Forsyth County News reported.

Another option is voluntary sabbaticals. These allow salaried employees to leave for designated period of time. Some companies continue to provide benefits, but they may offer reduced pay or no pay. This reduces costs to recruit, retrain and rehire when the economy rebounds.

Employee lending. A firm can lend an employee to help another firm for a set period of time. The borrowing firm then repays the lending company for part or all of the salary of an employee. An example of this is seen with Vermont’s Rhino Foods, which makes the cookie dough for Ben & Jerry’s ice cream. It “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,” according to Businessweek.

Consult with others. Ask employees for help reducing costs but include incentives. “For every $1,000 their ideas save the firm, pay them $200. Workers are now doubly motivated. They’re able to make extra money, and their ideas may further prevent layoffs down the road,” Jason Zickerman former CEO of the Alternative Board suggested in an Investor’s Business Daily 2008 article “For Many, Home For The Holidays Means Unpaid Leave; Employers Seek Cost Cuts Tech, auto firms expand their year-end shutdowns; governments join trend.”

Consult with a management and strategy consulting firm or contact organizations such as The Alternative Board (TAB) to help brainstorm ideas. TAB is an international franchise that links business owners and executives from noncompeting local businesses offering ways to work out problems and exchange advice.

These are only a few ideas, but trying these steps first and making mass layoffs the last resort can avoid the negative impact it produces such as a demoralized staff and tainted reputation. They can enhance loyalty and improve or preserve the reputation of the company.

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