Firms Find Ways to Avoid Staff Cuts

When Entegrity Solutions Corp. went into cost-cutting mode recently, it decided against the slash-and-burn staff reductions that marked the demise of many other young high-tech companies.

Instead, the San Jose software company took a route that has become increasingly common among American employers, particularly since Sept. 11: avoiding layoffs, or at least minimizing them, with various cost-saving alternatives, including salary and benefits cuts, job-sharing and leaves of absence, and deferred or eliminated bonuses and salary increases.

Entegrity was able to reduce its layoffs--although it won’t say by how much--by convincing employees to agree to an across-the-board 20% pay cut. It eliminated or deferred bonus programs and increased its remaining employees’ stake in the company with stock options.

“People are our capital. You have to try to preserve that as much as you can,” said Bob Howells, Entegrity’s chief financial officer.

A recent survey of 110 mid-size and large companies by international consulting firm Watson Wyatt Worldwide showed that about 25% of companies had delayed or reduced salary increases and 30% had reduced merit-pay budgets in an effort to forestall layoffs.

Many companies also reduced bonuses for workers (48%), middle managers (54%) and executives (60%).

A survey released Dec. 4 by the Society for Human Resource Management showed that many employers took several steps before resorting to layoffs.

About 63% surveyed reduced their payrolls through attrition; 49% resorted to an employment freeze; 21% first decided against renewing employees who had been working on contract; and 20% encouraged workers to use up their accumulated vacation time.

In California on Friday, Gov. Gray Davis unveiled perhaps the most interesting and controversial plan yet.

If employers in the state agree to reduce employee hours instead of laying more people off, the state’s Employment Development Department will allow those workers to receive unemployment benefits to supplement their reduced income.

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Companies Preparing for a Downturn

Solange Charas, a New York-based compensation consultant, said companies are anxious to be prepared for an economic turnaround. “You don’t want your good people off the job when you need them most,” she said.

“If you can shift more of your cost-cutting efforts to variable costs like ... tying bonuses to the performance of the company, eliminating nonessential human resources programs, you can protect more jobs,” Charas said.

Although no one celebrates a pay cut, some employees accept it as preferable to being laid off, or worse--seeing the company fold.

“You can’t compete if you eliminate the people you need,” said one Entegrity employee who asked not to be named.

The employee said he took a pay cut three months after his wife was laid off from another company, but still considers himself fortunate.

“There’s nothing else you can do. My friends and I used to sit around talking about our stock options. Now, we talk about whether we still have jobs or not.”

Intel Corp. closed a manufacturing facility in Puerto Rico this year and had as a goal to reduce its work force by 5,000 employees by the end of the year.

Instead of laying off valued employees, the company has a so-called redeployment program in which workers are given two to four months, with full salary and benefits, to look for other work inside Intel or with another company. That was ideal for Dan Palka, 45, who has an 11-month-old daughter and a wife who wasn’t interested in relocating to another part of the country.

Palka, who had worked for an Intel unit the company spun off, continued going to his office for two months and studying his options. In July, he found another job in the software solutions group at Intel.

“I worked for companies in the past that did not take this approach and just let people go. A month later, they were scrambling to hire those people back again and they couldn’t always get them back. Now, those companies are out of business,” Palka said.

“This was one of the reasons I decided to stay at Intel. It makes me feel very good about working for the company,” he said.

Some employers were motivated at least partly by the Sept. 11 terrorist attacks.

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Hambrecht Salary Cap Affects Big Earners Most

After a layoff in July, the San Francisco-based high-tech investment banker WR Hambrecht & Co. took a different route just days after the attacks, imposing a companywide $60,000 salary cap that affected the company’s biggest earners more than anyone else.

The company also eliminated its bonus pool, replacing it with a revenue-sharing plan.

Company spokeswoman Sharon Smith said the firm’s founder, Silicon Valley financier William R. Hambrecht, decided it wasn’t the time “to lay off more employees. He didn’t want to have anyone looking for a job, and we want to stay in business.”

In other instances, Sept. 11 was not a factor. That was true when the unionized newsroom employees of the Honolulu Star-Bulletin newspaper voted 70-0, with one abstention, to accept an across-the-board 11.5% salary cut effective Nov. 15 to prevent layoffs.

Better to have everyone suffer a little than to lose anyone was the mantra at the paper.

“I make a pretty good living. I’m happy to shave a few bucks off my paycheck to make it easier for everyone here,” said Star-Bulletin copy editor Nancy McNamee, who has worked at the paper for three years. “So, I won’t order from Victoria’s Secret this month. So what.”

Some companies, such as American Express Co., Morgan Stanley Dean Witter & Co. and Tribune Co., parent company of the Los Angeles Times, have decided to cut costs by freezing salaries of some or all employees in 2002. Gannett Co. has canceled salary increases to about 80 of its top executives.

The aerospace industry in California has long required creativity to keep companies alive until new contracts can be won.

Anoroc Precision Sheet Metal Inc. in Gardena, for example, has seen lean times since 1999, but the events of Sept. 11 turned a tough situation into a drastic one, as the sudden drop-off in airline travel caused orders for new aircraft to dry up.

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Using Up Vacation Time

as a Cost-Saving Measure

Anoroc manufactures parts for the landing gear of several Boeing aircraft, including the 747 and 767 as well as military aircraft such as the F-18 and the C-17.

As Anoroc President Roxanne M. Zavala and her partner Peter Corona beat the bushes for new contracts, several sacrifices have been made to avoid layoffs and keep valued workers on the payroll.

“We’re paying people for 20 to 40 hours of work, even though some are still working upward of 50 hours and more,” said Zavala, whose company has 15 employees.

Zavala said other employees are using accumulated vacation time, including one worker who has 160 hours saved up and will be vacationing in Mexico with his family through the end of the year.

This saves the company money because it reduces the amount owed the employee, who isn’t earning more vacation time.

Other workers, Zavala said, have agreed to work on contract and are paid only for the work they do.

“We are definitely trying to hang on to everybody,” Zavala said.

Employee Yolanda Stansbury is staying with Anoroc even though she’s getting paid for 20 hours a week while putting in more than 45 taking orders, doing the company’s billing and bookkeeping and more.

“I won’t give up on this company, and it’s because I have faith in Roxanne,” she said. Stansbury’s husband has a full-time construction job, which allows her some flexibility.

“As long as I’m not starving and have a roof over my head, I can do this,” Stansbury said.

MediaBistro.com Inc. in New York seems to be trying everything to avoid layoffs and stay afloat. The networking and job-posting firm for media professionals is switching some employees from full-time jobs with benefits to shared jobs, working 21/2 days a week without benefits.

Others are working on commission for the company and are paid a percentage of what they bring in. Some workers have taken pay cuts of as much as 50%.

The employees who have other jobs in addition to their work for MediaBistro have fared best and consider themselves lucky.

When her pay for organizing, running and hosting MediaBistro’s West Coast parties was cut in half, Nicole Dorsey of Santa Monica took the reduction in stride. Dorsey also works as West Coast editor for Fitness magazine.

That’s left her in an enviable position even though her third source of income, writing freelance articles for travel and beauty publications, also has dried up.

“It’s just the way it is. You just have to ride it out,” said Dorsey, who added that publications are less willing to pay top dollar for freelance pieces.

“At the parties I host, I see it getting worse every month,” she said. “But I’m fortunate. [Fitness] magazine is doing well and I have a great job there.”