Furloughs and Pay Cuts

As the financial strains stretches on employers are increasingly taking action to save cash. Many have chosen to cut headcount early and often, this is especially so in the service industries. Others who were not dependent on large numbers of people to fuel their growth out of the last downturn had contributed to what was then referred to as the jobless recovery. The result is an inability to reduce headcount enough to achieve profitability without severely injuring the fabric of the organization and hindering recovery.

So what to do? Current practices have focused on freezing and reducing salaries across the board starting at the top to reducing the number of days worked (furloughs). Reducing salaries can work for the short run as long as senior management is seen to be sharing the pain in the form of larger percentage cuts and no bonuses.

Furloughs have been used frequently in manufacturing environments including high tech for years (think the last two weeks of the calendar year). They are now being actively used in government and other entities (especially unionized) where it is difficult to implement headcount reductions or changes to the pay system.

The challenge to both approaches is to identify an exit strategy. The strategy needs to go beyond when to reinstate but how to do so. Early communication of the exit plan will go a long way to improve morale and drive performance.