Pay freezes and wage cuts have doubled since January

There's more to life than layoffs --there are also pay freezes and wage cuts. Indeed, the number of companies cutting salaries or implementing freezes has doubled since January of this year, according to a new report by Challenger, Gray & Christmas, Inc. Playing with pay is hardly surprising in this market, but the alternatives to layoffs may be signaling that companies are watching their capabilities more carefully.

A survey of human resources executives in May found that more than half (52.4 percent) had cut compensation instead of positions, ostensibly in an effort to control expenses without impairing capabilities. In January, the same survey yielded 27.2 percent. The number of companies cutting positions, on the other hand, fell from 56 percent to 43 percent from January to May.

The old saw that "layoffs are hardest on the survivors" bears some truth, as remaining employees tend to take effective pay cuts as they assume more responsibilities and workload for no upward adjustment in compensation. Freezes and cuts result in the same effective decline in income (though more direct, of course) without an increase in workload. "It is a lot easier to restore compensation and benefits than it is to re-hire and re-train workers when the economy improves," said Challenger, Gray & Christmas CEO John A. Challenger.

Businesses that have sought to avoid layoffs have not done so out of kindness, according to Challenger. "While forging good will is certainly part of the decision for some companies, many have simply cut to the bone already or never fully ramped up after the last downturn. Other companies may have more workers than they need for current business levels but are reluctant to enact widespread layoffs, knowing that a recovery will mean recruiting and training all new workers."

Other changes are occurring, as well. In addition to reducing compensation, the number of companies cutting hours, reducing or eliminating benefits, forcing vacations and enacting temporary layoffs is on the rise, as well.

The number of companies taking cost-cutting measures has declined (slightly) from January to May -- to 86 percent from 92 percent. Most companies that are trimming budgets are initiating five measures, on average. Survey respondents that have enacted job cuts have averaged six measures, compared to three for those that have not announced layoffs.

"There are some signs that the economy has hit the bottom, but we are still a long way from seeing the light at the end of the tunnel," Challenger said. "Increased consumer and business confidence notwithstanding, until there is significant improvement in spending by these two camps, companies will remain in cost-cutting mode."

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