To keep workers, local companies cut everyone’s salary
By DIANE STAFFORD, The Kansas City Star. March 30, 2009
Everybody at Pretech Corp. has taken a pay cut — but all the employees are working.
The Kansas City, Kan., manufacturer of precast concrete products reduced its workweek to 32
hours so that all employees remain on the payroll at their same hourly rates with employer-paid
health insurance. The Bundschuh family, which owns the business, is digging into the money
earned over the years to keep going. “We haven’t laid off anybody, and we’re doing our best to
hold on to all of them,” said company president Bill Bundschuh. “We have a lot of good people
working for us. “We don’t have enough work out there right now, but when things turn around,
we’re going to need these guys. It could take us 15 years to get back this quality of staff if we let
them go. We have to look to the future.”
In the Kansas City area and across the country, employers like Pretech are taking a
variety of cost-saving measures to avoid or at least reduce layoffs. Their job-saving tactics
include pay freezes, reduced hours, no overtime, elimination of entertainment and travel
expenses, unpaid furloughs, shutting down operations for one day a week, unpaid vacation time,
eliminating health insurance subsidies or requiring employees to pay more, and asking for early
retirements.
Trucking company YRC Worldwide, for example, cut its nonunion work force’s wages
by 10 percent for the first half of this year and 5 percent for the second half. Hallmark Cards
eliminated pay raises scheduled for this year. Danisco USA, which has a manufacturing plant in
St. Joseph, last week froze wages. Their efforts don’t get as much attention in a time when job
losses dominate the news. Indeed, the metro area had about 30,000 more unemployed job hunters
in January than a year earlier.
Nationally, the jobless figure mushroomed from about 7.4 million in February 2008 to
more than 12.4 million in February 2009. But the unemployment numbers aren’t as high as they
might be because of the aggressive cuts in compensation and benefits by employers. The roll
call of companies adopting such measures includes such household names as Motorola, which
imposed salary cuts, and Dell, which extended unpaid holiday time. Ottawa University has
instituted furloughs and asked faculty members to take voluntary 1.9 percent salary cuts. A
Watson Wyatt survey released last month said 56 percent of 245 U.S. corporations it surveyed
had a hiring freeze in effect, 42 percent had salary freezes, 12 percent reduced 401(k) matches,
13 percent instituted a shortened workweek and 69 percent had imposed travel restrictions.
Such findings are consistent whenever employers are surveyed:
•The Culpepper Pay Trends Survey, completed Feb. 4, said slightly more than one in four of the
351 organizations it surveyed had frozen salaries.
•Mercer’s 2009 U.S. Salary Budget Planning poll, conducted in January among over 400 large
and midsize employers, found that one in four had frozen salaries and another one in five had
considered it.
•The Society for Human Resource Management’s Leading Indicators of National Employment
report last month said 76 percent of companies had layoffs or kept their payrolls flat in the fourth
quarter last year, and the same was expected in the first quarter this year.
•A WorldatWork survey, completed in December by 1,169 employers, found that 90 percent were
lowering their average planned salary increases from 3.9 percent to 3.1 percent.
Julie Davis, who helps administer a compensation and benefits survey for the Kansas
City chapter of the Society for Human Resource Management, said early data and anecdotal
evidence suggested that employers who were adopting pay cuts or other strategies were doing it
in connection with layoffs, not in place of layoffs. “We’re seeing multiples of tactics,” said
Davis, senior vice president of compensation consulting at FBD Consulting in Overland Park.
“The comp study is indicating that employers are using all the tools available.” The cost cuts
extend beyond reductions that show up on employees’ pay stubs.
A national Society for Human Resource Management report recently said that companies
also were cutting morale-building and team-building activities, professional development
programs, general training and recruitment.
Suzanne Johnson, who works at U.S. Toy in Kansas City, said cost-cutting started at the
top in her organization, with executives taking a pay cut. All performance review and salary
increases are on hold until the third quarter. The company had layoffs in the first quarter this
year but otherwise is trying to hold on to employees by cutting overtime costs, paring utility
costs, eliminating “fun” expenses like birthday and anniversary cards, renegotiating contracts,
cutting printing costs, increasing recycling, and emphasizing employee safety and wellness.
Employees understand that all the changes were undertaken with one goal in mind, Johnson said:
“We hope with aggressive cost reduction that we can stave off further layoffs down the road.”
Wayne F. Cascio, a leadership professor at the University of Colorado-Denver business
school, has done extensive research into the effects of layoffs and cost-cutting alternatives. “My
research shows that if all an organization does is to cut employees but does not change the way it
works … then layoffs alone do not make a firm more profitable than competitors in the same
industry, up to three years after the layoffs,” he said. In fact, a 2001 layoff survey by the Society
for Human Resource Management found that only 32 percent of the companies surveyed said
layoffs had improved profits. One reason why layoffs don’t accrue immediate savings is that in
many cases, costly severance packages are offered. In a Hewitt Associates survey released last
week, 51 percent of 228 large companies surveyed offered one to two weeks of pay for every
year of service when they let a worker go, with an average maximum of 40 weeks of pay. On the
other hand, some economists said layoffs were more efficient than the nips and tucks of smaller
cost-cutting tactics.
Arnold King, an economist at George Mason University, advocates layoffs. Across-theboard solutions, such as wage freezes or cuts, cause the best workers to leave for better
opportunities, he said. Furthermore, all the nips and tucks peck away at staff morale, possibly
causing productivity slumps that negate any cost-cutting benefits.
To reach Diane Stafford, call 816-234-4359 or send e-mail to dstafford@kcstar.com.