Employers Reduce Salary, Not Staff

By Kathleen Koster
Employee Benefits News
June 2, 2009

Even though layoff announcements have diminished, employers are still eyeing cost-containment strategies. In fact, a new survey finds that the percentage of employers cutting or freezing wages and salaries has almost doubled since January.

More than half (52%) of human resource executives surveyed in May by Challenger, Gray & Christmas have implemented salary cuts or freezes in order to cut costs. According to the global outplacement consultancy, this number escalated from 27% in the same poll last January.

On the bright side, salary cuts and freezes appear to have lessened the need for a reduction in force as the percentage of employers making permanent cuts fell from 56%in January to 43% in the most recent survey.

In total, 86% of survey participants reported that their companies have been driven by the debilitated economy to initiate cost-cutting measures, a slight improvement over January’s numbers, when 92% of companies were slashing costs.

“There are some signs that the economy has hit the bottom, but we are still a long way from seeing the light at the end of the tunnel. Increased consumer and business confidence notwithstanding, until there is significant improvement in spending by these two camps, companies will remain in cost-cutting mode,” says John A. Challenger, CEO of the Chicago-based company.

On top of the heightened use of salary cuts, the latest survey showed increases in the percentages of companies limiting workers’ hours, reducing or eliminating tuition reimbursement, instituting furlough programs or forced vacations, and making temporary layoffs.

Most companies are approaching budget cuts in a multi-pronged fashion, installing an average of five cost-containment measures. The highest number of cost-cutting measures instituted was 13, while a very small percentage of companies relied on just one.

Notably, the latest survey finds that employers announcing job cuts have implemented more cost-cutting measures than employers that have not reduced payrolls. Those that made permanent job cuts averaged an additional six cost-cutting measures, whereas companies that avoided layoffs averaged less than three.

In order to curb costs, employers also reduced travel expenses (67% in January and May), initiated a hiring freeze or reduction (62% in May versus 58% in January ), reduced or eliminated other perks (38% in may, up from 29% in January), and cut workers’ hours (29% in May and 24% in January), among other measures.

Reacting to a stifling economy, many employers have made a conscious decision to reduce expenditures throughout the company instead of permanently eliminating positions when that can be avoided.

“It would be a mistake to assume that companies avoiding layoffs are doing so out of kindness. While forging good will is certainly part of the decision for some companies, many have simply cut to the bone already or never fully ramped up after the last downturn,” Challenger says. “Other companies may have more workers than they need for current business levels but are reluctant to enact widespread layoffs, knowing that a recovery will mean recruiting and training all new workers.”

He adds: “This may be why we have seen an increase in the number of companies cutting salaries and other perks. It is a lot easier to restore compensation and benefits than it is to re-hire and re-train workers when the economy improves.”