Some firms choose pay cuts over layoffs

USA Today

Many workers are having to forget about getting a bonus this year. As the economy cools, they're being asked to take pay cuts instead.

The salaries of both top executives and rank-and-file workers are being slashed in order to trim costs, avert layoffs or limit how many jobs will be lost. The cuts can be voluntary or mandatory, and almost all are considered temporary.

Acxiom announced recently that 1,973 employees, or 36 percent of its eligible work force, will take voluntary pay cuts in exchange for stock options.

"When I see all these other companies doing layoffs, I'd rather do this. It's better than a 100 percent pay cut," said Craig Heathscott, 33, an associate developer at the database management firm based in Little Rock, Ark.

The father of two girls, including a 10-week-old, is taking an overall pay cut of 16 percent. "Me and my wife laid it out on the table and looked (at) what we could do."

Workers could access an online calculator in order to determine how much of a pay cut they could afford.

Other examples:

• 415 Productions enacted voluntary pay cuts in late February in an effort to keep job cuts to a minimum.

Workers at the San Francisco-based multimedia company were polled in February about what cost-cutting measures they might prefer. A survey asked employees questions such as "Would you stay at 415 if your salary was temporarily reduced?" and "Do you believe that a companywide salary reduction will cause folks to slowly leave the company?" Employees could choose to work four days with a corresponding drop in pay or they could take a 5 percent cut.

• At Charles Schwab, pay cuts have been required of some employees along with other cost-cutting measures. The salary cuts range from 5 percent to 25 percent for managers at the vice president level and above. "We couldn't avoid layoffs, but it saved a lot of money, so it helps us keep layoffs to a minimum," spokesman Glen Mathison said.

• Kansas City Southern Industries adopted a pay-cut plan in March that reduces annual salaries for middle and senior management. The plan is voluntary and temporary, and about 50 employees are affected. In addition, the railroad company is laying off about 6 percent of its 3,000-member staff.

"It's because of the economy. Management has a large amount of stock in the company," said Bill Galligan, at the railroad company. "We believe we should feel pain during the negative times, just like we feel gains during the positive times."

In some cases, pay cuts aren't enough to keep job cuts from coming. But salary reduction can backfire, some experts say, since an unemployment rate of 4.3 percent means workers still have other options.

"You risk people leaving," said Patricia Zingheim, co-author of "Pay People Right! Breakthrough Reward Strategies to Create Great Companies." "Pay cuts are dramatic, so companies should look at what else they can do first."