Friday, March 13, 2009


Everyone has heard the horror stories of factory closings, full scale business closings (especially in the retail sector), and overall lay offs mandated by the economic downfall we are currently experiencing, but what about the survivors? What are they doing to insure they do not become tomorrows statistic?
Many of the more benign employee cost reductions were in place long before 2009. What was once considered common place and a good business / teamwork practice, corporate events are certainly a thing of the past, lest you are in senior management for AIG. Corporate picnics, season tickets to sporting events, awards banquets and the like are all but gone; if not out of an absolute economic necessity, at least out of a public relations standpoint, with any such excess disdained by the general public.
Employee benefit packages have been trimmed back slowly but surely, and will get worse and not get any better. Corporate matching funds to 401K contributions are a thing of the past, as are incentive bonuses, at least until a definite upturn in the economy is guaranteed. Many in sales have found their corporate credit card limits reduced, as well as their commission rates.
Recent years have also demonstrated a sharp reduction in medical and dental packages, first switching to lesser grade carriers. When HR departments realized this was was not nearly savings enough, they executed an increase in the amount of contributions employees must pay each month to keep their coverages. This year has seen not only an increase in employee costs, but the hidden savings to a corporation when they raise deductibles across the board, often a silent killer of the family budget in case of emergencies. Often, the employee only sees the increase in his/her contribution rates, and not the increase in deductibles, a double hit for the corporations.
While these are having an effect on the quality of life, at least the survivors have lived to see another day of employment, with the slight reductions to their benefits packages certainly livable. But will these reductions save a company in trouble? Certainly not. For all out survival these days it takes a serious business strategy, a priorities list of initiatives which gets more severe as they go down the list.
First on every ones list is an all out hiring and wage freeze, which has taken over the business world like wildfire. "Do more with less" is the corporate mantra...."you are lucky to have a job." Next comes a good hard look at recouping all receivables, assuming the corporation you work for does business on anything other than a strictly cash basis. As companies fail, and the survivors tighten their grips on operating capital, receivables have skyrocketed. American Express' receivables became so out of control they are actually paying their riskier customers $300 to cancel their cards, and many credit card companies are silently raising interest rates to cut their losses.
Needless to say, all capital asset purchases have been put on indefinite hold, which has made a significant dent to the economic stagnation the nation is experiencing. This is a killer blow to manufacturing as corporations seek to extend the usable lives of their equipment and the like. One of the largest assets companies have is in their inventory costs, which most companies are taking a critical eye towards. The selling off of dead stock, even at a margin slashing discount can be a significant source of revenue for many companies, especially at the retail level. Many retailers have in fact, delayed the additional purchasing of new products and product lines until they can move their existing stock, an uncertain balancing act, as they risk losing sales for new items over the risk of tying up far too much operating capital in inventory.
While these are prudent steps to help an ailing business, the major dent is in its compensation, and there is no getting around it. Almost all firms have either made significant budget cuts, or have undergone "prophylactic layoffs," cuts in workforce due to the economic climate, but not absolutely necessary at the time. Along with these cuts, all intelligent corporations have undergone at least one round of workforce reductions, focusing on ridding themselves of their bottom performers. These cuts are not only financially wise, they have the least effect on over all performance of your workforce. Many management staffers find them to be a morale booster among their top performers as well who have to work harder to pick up the bottom feeders slack.
Should these cuts not be enough, corporations mull over the ultimate choice of whether to start reductions in the healthy performing employees outright through layoffs, or spreading the pain around with unpaid work furloughs.
A recent survey by Money magazine has shown that 17% of American corporations have preferred to go to unpaid furloughs rather than risking losing qualified (and well trained) personnel. Corporations have a lot invested in their human resources, both in training expense, and valuable experience. This has been the choice of most city, state and municipal employers, and especially popular with labor unions, who cannot absorb substantial measures of unemployment among their rank and file.
Should this economy get any worse, and certainly recent sales trends have indicated they might, most every American worker may experience an unpaid amount of time off as a result, if not a full and complete downsizing and loss of employment. Many companies have instituted giving their non-exempt work force 2 unpaid days off per month, and their salaried personnel one week off without pay on a bi-monthly basis. And while this definitely has an impact to their employees financial health, many companies have gone so far as offering vacation time to make up the loss of pay, at least until their vacation accrual exists to soften the blow.
Let's be clear, these economic times and future forecasts have demanded management to respond; some proactively, most reactively. And while most are loathe to take the actions necessary and reduce their staffing, the numbers do not lie. The biggest bang for the buck is in reducing compensation in order to maintain a prudent level of operating capital, which they will need when this mess turns around. For us in the American workforce, all we can do is hang on and produce as much as we can. And if all your corporation does is reduce your benefits, and demands some unpaid leave via a furlough, thank them. They are merely trying desperately to keep the employees they have on the payroll and keep their performers somewhat gainfully employed.

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