Amidst news of cutbacks and layoffs, some companies are taking drastic measures to  hold onto valuable talent and minimize the number of employees affected by layoffs. 

An increase in the use of  performance management systems may be contributing to the use of this approach. The New York Times reports that John Challenger--of Challenger, Gray and Christmas--says “more than ever,” “companies have used technology to track employee performance and productivity, and in many cases they know that the workers they would cut are productive ones.”

What are some of the drastic measures that are being tried? The same New York Times article  tells how Dell has offered employees “extended unpaid holiday,” Cisco has implemented a “four-day year-end shutdown,” Motorola has implemented “salary cuts,” Nevada casinos a “four-day workweek” and others have instituted “voluntary unpaid vacation time” and weeklong “unpaid furlough.” Other attempts to cut costs and preserve jobs may impact pension plans or benefit plans.

Are these measures justified? According to economics professor Arnold Kling, “from a macroeconomic perspective, there are rare circumstances in which wage cuts are called for” and they include “general deflation” and “a major sectoral decline that is too big for the rest of the economy to absorb.” Arguably, we could say that these two circumstances apply today. 

The main question to consider, however, is how employees will react to this type of plan. Of course, there are legal ramifications to be considered, including those that are specific to a unionized environment. John Phillips, contributor to the Employment Law Post comments on some of the legal issues in his blog.

One question certainly on the mind of employees will be how long these measures will need to be in place.

What are your thoughts on this type of approach?

References:

Kling, Arnold. “Lectures on Macroeconomics, No. 4.” Library of Economics and Liberty, November 11, 2008.

Phillips, John. “Pay Cuts Instead of Layoffs.” The Employment Law Post, December 17, 2008.

Richtel, Matt. “More Companies Are Cutting Labor Costs Without Layoffs.” The New York Times, December 21, 2008.