Alternatives To Layoffs


Reducing the number of “heads” in a company is not the best or only way to trim costs. It may meet short-term objectives but could shortchange your organization in the long run. Some staff may need to be cut, but only those whose critical competencies are not vital to maintain the organization’s mission.

This book discusses many other strategies company heads can deploy to reduce compensation costs without losing the critical human capital needed to sustain competitive advantage both now and in the future.

Two alternatives to layoffs are critical to the headcount solution. The first is to trim overall compensation costs. The second involves alternative work arrangements.

Trimming Compensation Costs

There are many ways to reduce compensation costs before conducting layoffs. The following 10 approaches will be discussed in detail in Chapters 5 and 7:

  1. Offer voluntary severance. Offer an incentive to employees to voluntarily leave the company.

  2. Offer early retirement. Allow employees nearing retirement age to take an early out that lets them retain substantial retiree benefits.

  3. Shorten the work week. Cut out overtime and/or reduce the work week for hourly staff and reduce their total pay proportionately. Be careful that the Fair Labor Standards Act is not violated.

  4. Implement a mandatory pay cut. Require everyone to take an across-the-board cut in pay, including top management.

  5. Offer stock options in lieu of pay. Grant employees stock options instead of some part of their current pay or in place of a pay increase. Although not as popular as a few years back, stock options can offer an incentive to remain in a company if a rebound is expected.

  6. Reduce perquisites. Remove expensive perks such as company cars, expense accounts, subsidized lunches, and golf club memberships.

  7. Reduce or eliminate 401(k) contributions. Reduce the dollar contribution and/or match to qualified retirement plans.

  8. Reduce or suspend annual pay increases. Cancel all or part of planned across-the-board pay increases.

  9. Reduce or suspend bonuses and incentives. Cancel all or part of planned bonuses and incentive payments. Replace them with bonuses contingent on turning around the business.

  10. Implement a hiring freeze. Suspend hiring new people for the foreseeable future.

These measures alone may not solve the entire cost problem, particularly in labor-intensive firms where employee costs often account for 60 percent or more of total operating expenses. More needs to be done, but these approaches should be taken first.

Alternative Work Arrangements

Alternative work arrangements should be considered as well. They accomplish cost reduction yet preserve the skills and competencies needed to compete in the short and long term. These include the following four approaches that will be fleshed out in Chapters 5 and 8:

  1. Job/skill sharing. Reducing staff to a part-time status and combining jobs into groups for sharing assignments.

  2. Contracting arrangements. Changing the status of regular employees to a contractual status for part- or full-time work.

  3. Furloughed offsite “Net” workers. Furloughed employees on limited salary who communicate periodically (e.g., weekly) with their supervisor or team via a telework arrangement.

  4. Temporary assignments. Special assignments for a specific period (e.g., 3 months) working at a reduced time commitment.

Alternative work arrangements ease the blow. These methods retain vital employees and keep them productive but at a reduced level of involvement and compensation. Some of these approaches are cutting-edge, such as putting employees on furlough and having them stay in touch by laptop computer. Other solutions such as job/skill sharing have been used for decades but often for the benefit of the employee’s lifestyle rather than as a way to contain costs. Getting employees to agree requires delicate conversations of why their skills are still sought but to a lesser degree for economic reasons. These issues will be considered in Chapter 8.




The Headcount Solution. How to Cut Compensation Costs and Keep Your Best People
The Headcount Solution : How to Cut Compensation Costs and Keep Your Best People
ISBN: 0071402993
EAN: 2147483647
Year: 2002
Pages: 143

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