Business

Business

Some businesses make layoffs last option

April 7, 2009

Advertisement

A worker prepares chicken for sale at Costco in Mountain View, Calif. Costco Wholesale Corp. hasn’t eliminated workers because of the recession. To be sure, discounters like Costco are faring better than other merchants as frugal consumers hunt for deals and stick to basics like groceries and health products. “We need our workers,” said Bob Nelson, vice president of financial planning and investor relations at Costco. “You have to have the people to get customers in and out.”

A worker prepares chicken for sale at Costco in Mountain View, Calif. Costco Wholesale Corp. hasn’t eliminated workers because of the recession. To be sure, discounters like Costco are faring better than other merchants as frugal consumers hunt for deals and stick to basics like groceries and health products. “We need our workers,” said Bob Nelson, vice president of financial planning and investor relations at Costco. “You have to have the people to get customers in and out.”

— Even as the recession cuts deeply into their revenue, some companies are opting to do the unconventional: They’re keeping all their employees and finding other ways to trim costs.

Their strategy isn’t about mercy. It’s built on the notion that layoffs bring high costs and hassles of their own.

Profits at Costco Wholesale Corp. are down 27 percent from a year ago, but the discount store has not laid anyone off. The only workers let go have been holiday seasonal hires.

To trim costs, Costco imposed a hiring freeze at its corporate offices. But the company says it recognizes that labor remains its most valuable — if costliest — resource.

“We’re certainly sharpening our pencil everywhere we can,” said Bob Nelson, Costco’s vice president of financial planning and investor relations. Nelson couldn’t recall any layoffs at Costco since the closing of some stores in the 1980s.

Clearly, companies that have avoided layoffs are the exception, not the rule. Employers have cut 5.1 million jobs since the recession began, including 663,000 last month alone.

Economists say it’s a wise move for some companies to keep their workers and cut elsewhere.

“If you overshoot on the downside and lay off workers, it puts the company at a disadvantage when the economy comes back to life,” said Sean Snaith, economics professor at the University of Central Florida.

The other steps companies are taking to cut costs are not exactly harmless to workers. Chief among them: capping the number of hours employees can work, cutting or freezing pay and suspending matching payments to 401(k) plans.

Casino operator Wynn Resorts is trimming pay and cutting back on retirement fund matches. Credit agency Equifax Inc. froze pay for all U.S. employees for 2009 and at some of its foreign offices as well.

A survey by job placement firm Challenger, Gray & Christmas this year found 71 percent of companies polled had laid off some workers. More than a quarter had implemented pay freezes or cuts.

Despite the alarming job losses nationwide, John Challenger, the firm’s CEO, said it’s more common now than in past recessions for companies to find other paths to savings than laying people off.

That’s because many companies have concluded that layoffs could be costlier down the road. Employers who have laid people off have to find, hire and train new ones when the economy recovers. Workers with specialized skills or strong customer contacts aren’t easily replaced.

Layoffs also mean companies have to pay severance costs, which vary widely by occupation and industry. A retail clerk, for instance, might cost a company $1,000 in severance. A low-level white-collar manager paid $50,000 a year could get $5,000.

And higher-paid professionals who earn well into six figures — accountants and lawyers — could get $50,000 in severance, estimated Terry Connelly, dean of Golden Gate University’s Ageno School of Business in San Francisco.

There also are other costs that are harder to put a price tag on, including the loss of talent and leadership. Layoffs can drag down the morale of those who managed to survive the job cuts but fear they could be next.

And when it comes time to rehire people, a company usually ends up paying a new hire more than what the laid-off worker got paid. That’s because an improved job market gives workers more negotiating power than if they’d remained at the company, Connelly said.

Comments

Use the comment form below to begin a discussion about this content.

Commenting has been disabled for this item.