Cutting Internal Organizational Expenses without Eliminating Personnel

Chris Smith is an upstanding young man. He was brought up in a semi liberal-conservative household with very supportive and nurturing parents. They instilled in him a hard work ethic which encompassed the principle of if you put in the time and effort, study and work hard at your job, any goal is attainable. He went on to receive a civil engineering degree from the largest and most prestigious public institutions in the state while working 2 part time jobs. After graduating from college Chris accepted a job with an engineering firm on the west coast. Shortly after his first year with the firm he married his college sweetheart who works as an accountant.

Chris and his wife have both been on their jobs for about five years now, have a traditional home in a quiet suburban area, and just had their first child who will soon turn three. Chris’s young family seemed to be comfortable in their pursuit of the American dream, getting up everyday, getting to work on time, putting in extra hours if needed, smoothly taking care of the everyday responsibilities of a child, home, and their careers until 1 day late in 2008. Chris had just finished his design portion of a commercial project which was set to go to construction in the next several months. He was called into his Department heads office thinking that they would be talking about some detailed specifications involving the project. After the conversation Chris was in shock, he had been layed off from his firm and given the standard severance package. His boss said that he really liked Chris’s work and effort and thought he was one of the most valued workers in the department, but the company had recently lost some high dollar projects and the construction market had been contracting so quickly that the company didn’t have any choice.

This particular situation is not unique by any means. Millions of American have been layed off in various sectors of the economy, including manufacturing, industrial, banking, and construction. Even though an employee is layed off the bills and life keep rolling and when your household income is cut in half it doesn’t seem like life is just rolling, steamrolling may be a better description. As stated, there are millions of people who have and will continue to get pink slips, many are good employees who work hard day in and day out, living check to check just trying to survive. In this paper I will go on to talk about different variables that employers may be able to incorporate to cut expenditures as opposed to their most valuable asset, people, and how the company will be better off bottom line by evaluating these variables in a time where many economist are defining the times as recession and the easiest term that is being used is recession .

Following up on my prior paragraph, we are in what many are calling a recession and prospects for 2009 look dim. The down economy has employers and employees on edge. Employers are asking themselves how they will survive 2009 if they continue to see sharp declines in sales and profitability. Employees, in turn, are worried about job security. “It seems as if each day we’re getting more news reports of employers slashing jobs. It’s hard to check your email, surf the web, or turn on the news without hearing about another big layoff.” (Human Resource Executive, “Alternatives to Layoffs” . Many economist explanation for these rough times are that businesses are faced with sagging demand for their products and services in the wake of this global recession. That’s causing sales, earnings and stock prices to dip. So one way to try and preserve profits is to lower costs, and payroll is usually one of the first places a company looks at to slash expenses.

For many companies, layoffs might seem like one of the only answers to cutting expenses. Some companies, on the other hand, are looking at alternatives to layoffs in order to preserve jobs and retain their top talent. “Before layoffs are even discussed, employers should explore cost cutting opportunities that will not directly affect employees work hours or compensation. Employers may consider reducing or eliminating budgets for travel, education and/or professional memberships; delaying capital expenditures; or decreasing 401(k) matching. Cutting cost in these areas first signifies to employees that they are a valuable commodity that the company is committed to retaining.”(Thompson Hine, “Alternative to Layoffs are Available to Employers”)

In the previous paragragh, these fringe benefits are what attracts employees to certain employers and separates them from the general pile. While these benefits may be appealing, in uncertain times such as these they are definitely expendable, and if layoffs of some employees can be avoided by making certain adjustments in the annual fiscal sheet such as these, I think the action would be well worth it.

If simple strategies such as these don’t work there are many other options for companies to weather the burden of these economic times. The first option may be wage reductions. Although it sounds unbearable to make less than you already are, especially if you are just getting by, it may be a good option just to stay employed and in the bigger scheme the employer may be able to offer a deferred compensation arrangement down the road. Reducing hours is an option that can help to avoid layoffs. Instituting four day work weeks and requiring workers to take unpaid holidays may also factor in. “Fewer hours are better than no hours at all, and the sense of shared sacrifice can build morale, rather than shattering that of both the laid-off workers and survivors. Depending on state law, unemployment compensation may even be available to employees working reduced hours.” (George’s employment blawg, “Workplace News & Views”)

Many employers choose to evaluate a furlough, with the theme being that furloughs effectively reduce labor costs without resorting to layoffs. A furlough can be defined as a temporary layoff during which employees do not receive their regular pay but keep their benefits. Benefits can be invaluable, especially if you are layed off and cannot afford the astronomical expense of paying benefits such as insurance out of pocket. Furloughs, typically last anywhere from a week to six months. “In planning a furlough, an employer should, among other things, determine the furlough’s expected length ; determine whether it must provide furloughed employees with notice of any right to apply for unemployment benefits; arrange for furloughed employees’ continued payments of premiums for benefits; determine how vacation, seniority or other entitlements will be calculated during the furlough; and determine how employees may be recalled from the furlough.” (Thompson Hine, ‘Alternatives to Layoffs are Available to Employers”)

Another alternative to layoffs include temporarily reassigning employees and/or transferring employees to available positions where they will be fully utilized. This particular practice can be very tricky. There must be careful consideration when selecting employees for reassignment or transfer to avoid potential liability for employment discrimination or retaliation.

Lastly Job sharing and shifting outsourced work to employees could be incorporated. Job sharing could be described as: rather than laying off one full time employee, a company could combine two jobs into one. Job sharing allows two employees to share the same position in the company, with each employee working part of the week. Having employees absorb some of the work that is currently being outsourced could avoid layoffs, it could also be a great opportunity to get employees involved in professional development and developing new skills.

It is a new time and day in our present world, both domestically and internationally. In one of our class discussions we talked about how employers and employee relationships have evolved over the years, some factors being progressive and others being regressive. There are many examples, such as Chris Smith who are trying to figure out where and when their next employment opportunity will come from, how they will pay their mortgages, where their children’s college tuition will now come from, and how to continue to keep there health care coverage while going through perilous times. It could be you, me, or a personal friend of mine such as Chris Smith, but I know that if companies and businesses all over the country would examine many of these alternatives to layoffs that at the end of the day they would be better off bottom line.