Volume 7, No.4
Winter 2001

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Some Companies Find Ways to Limit Layoffs

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Some Companies Find Ways to Limit Layoffs
By: Yolanda Y. Harris

Stephanie Braun was pleasantly surprised when her employer, Accenture, offered its consultants a chance to receive 20 percent of their salary while taking a leave of absence. “I remember receiving the e-mail, reading it and thinking, ‘this is unbelievable...I was very happy and excited,’” Braun said. “It was such a wonderful opportunity.”

Braun, a Chicago resident and Accenture manager, started her seven-month sabbatical in September. She is keeping quite busy volunteering, taking classes and planning trips. Braun is one of 2,200 Accenture employees who are either taking a sabbatical or who have signed up to take one. Accenture’s voluntary sabbatical program is an example of some measures companies are implementing in Illinois and nationwide to reduce operating costs and retain employee talent during the country’s economic slowdown. “I think most companies are going to search for alternatives to layoffs,” said Frank Scanlan, a spokesperson for the Society for Human Resource Management. “It’s such a huge investment to recruit and retain those top employees... and they’re not going to want to give that up.”

Accenture, a management and technology consulting firm, first announced the leave program in June, along with the elimination of 600 jobs. Consultants at the senior manager level and below with more than 12 months of service could take a six- or 12- month sabbatical. In return, the employees would receive 20 percent of their salary, a continuation of benefits and other perks. “I think the program has been incredibly successful,” said Keith Hicks, Accenture’s U.S. human resource director. “It’s been truly a win-win for both Accenture and for our employees.”

Between January and September of the year 2001, some 117,867 Illinois workers, compared to 85,680 the previous year, had been separated from their jobs for at least 30 days, according to the Illinois Department of Employment Security. About one-third of total layoff events, affecting some 40,860 workers, were due to “internal restructuring.” This refers to conditions such as bankruptcy, new ownership, financial difficulty and reorganization. Despite the increased number of reported layoffs, human resource professionals say companies are seeking ways to keep their staff.

At DiamondCluster International, Inc., a Chicago-based global strategy and technology solutions firm, all of its partners voluntarily reduced their salaries by 15 percent in return for stock options. Employees making at least $50,000 were required to take 10 percent pay cuts, in return for stock options. The company’s chairman and chief executive reduced his salary in half and agreed to receive further compensation in the form of restricted stock, rather than cash, for six months. Also, the company is furloughing 200 employees for a six-month period, in return for 35 percent of their salary and restricted stock. Reportedly, about 35 people were laid off permanently due to low performance ratings.

The company’s objective is to “protect what we feel are our key assets–our people, our relationships with clients, and what we feel are our intellectual capital,” said a company spokesperson who did not want to be identified.

Professor Karen Cates of Northwestern University’s Kellogg School of Management said that there is a price to pay for companies that prefer downsizing to employee retention. “The people left behind are demoralized. They tend to hold back, wondering if they’re the next to go,” said Cates, a clinical assistant professor of management and organization. And, there is also the loss of talent. “The long-term exodus costs the company. Now you don’t have people with the experience,” Cates said. Cates also cited a 1991 study by the Wyatt Company, which showed that fewer than half of companies that downsized to cut costs during the nation’s last recession actually met their expense-reduction target. “Downsizing doesn’t help you do the things that you want to do.”

The Wyatt Company, now known as Watson Wyatt Worldwide, recently published a national survey that showed that layoffs was third on a prioritized list of six changes companies are considering making in the current economic climate. First was lowering incentive payouts, followed by delaying pay increases.

Companies are realizing that “layoffs [alone] are not going to solve all their problems,” said John Bremen, a senior compensation consultant with Watson Wyatt Worldwide. In fact, Bremen said, companies actually spend more money doing layoffs. “Our research has shown that within 12 months after layoffs, they hired back more people than they laid off.”

Companies that are conducting layoffs are often combining them with alternative work arrangements, said Fred Crandall, founding partner of the Center for Workforce Effectiveness, in Northbrook, IL. Such arrangements include job sharing, contracting and off-site working. Crandall advises companies to determine cost-reduction and human capital needs before exploring alternative work arrangements. Otherwise, making across-the-board cuts without a thorough assessment is like “throwing out the baby with the bath water,” he said.