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Friday, January 9, 2009
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Peter:

My husband's company, Autoliv, is a Swedish based conglomerate.  The company's North America manufacturing is in northern Utah where they make air bags for cars -- they are one of the few companies in the auto industry that actually made money last year. 

They have been practicing many alternatives to laying people off.  Everyone was required to either take three to five vacation days or non-compensated days in the last two quarters of last year.  They shut down for two weeks in December -- however they paid regular holiday pay with four more paid days. 

People are leaving the company on their on accord in droves, but the ones that are there know they are trying to manage through this.  It appears the corporate culture of the Swedish is different.  Their CEO doesn't make anything comparable to what U.S. CEOs make. There is a sense or feeling of egalitarian sharing of the pain as they work through tough times. 

They announced on Monday there would be no raises this year and everyone would be required to use five accrued vacation days during the first part of the year. They have mandated a 10 percent savings in all departments.  I'm sure they are hoping things turn around or they will have to eventually do a lay off.

Utah, in general, has not had the impact that has been felt in other states but the outplacement work has increased tremendously in the last month.

I share this as an example of a corporate culture that hasn't had the knee-jerk reaction many others have had the last few month.

Thanks for your publication.

Mary Cosgrove

What's Working Well?

Utah

Peter responds: Many thanks, Mary.  I think you're right that Swedish companies would view their priorities differently -- in fact, U.S. companies may be the outliers in thinking about alternatives to layoffs.

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I enjoyed reading Mr. Cappelli's article on Alternatives to Layoffs -- especially after watching the head of GM and someone from the UAW ... on The Today Show.  ... Many organizations that focus on workforce reductions do so based on salaries and/or tenure.  We believe this really undercuts their ability to survive in the long-term.  

Cydney Koukol

Talent Plus, Inc.

Lincoln, Neb.

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When Toyota closed a plant in Indiana a couple of months ago, they kept the employees in training sessions designed to sharpen their job skills and find better ways to assemble vehicles. Why aren't more companies following that example? ...

Tom Lenzo

Pasadena, Calif.

Peter responds: Many thanks, Tom, for pointing this out!

Tom responds: ... It is typical that training is one of the first things cut when budgets get tight. That happened to me more than 25 years ago. There are very few companies that use downturns to their advantage and take that time to train their employees.  

FYI: I have worked in corporate training for 35 years, and have been a consultant for the last 25. I have been a member of ASTD for almost 30 years and am one of the founders of the Los Angeles Chapter of ISPI.  

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Good morning,

I enjoyed the article on the Alternatives to Layoffs but I was surprised that Shared Work Program offered in several states was not mentioned.  This program allows an employer to reduce hours worked from 20 percent to 40 percent and have the state unemployment insurance account make up the difference as a percent of the weekly benefit amount.  This program can only be used when approved by the State Department of Employment Security to avoid layoffs. 

The affected employee must also agree to participate and the affected group must be at least 10 percent of the group as defined by the employer.  The employer sends in the roster and hours worked to the state and the state processes the claim and sends the UI dollars direct to the employee through a debt card, direct deposit or check.

This process exempts the employee from Job search requirement and keeps them connected to the employer.  The employer maintains the skills and experienced workers and helps off set benefit cost during a layoff.

I think that about 16 states offer this program and other states offer partial for full time employees.  ...

Chuck Yarbrough

VP of HR

Tracker Marine Group

Peter responds: Many thanks, Chuck.  I knew about this program but didn't realize so many states were using it.  It's a great option.

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Loved this article! 

Dr. Katherine Jones

Independent Consulting Services 

California

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I basically agree with this approach in many instances ... In fact, I'd argue that the UAW's last big-three contract was in a (not quite so elegant) way an attempt to allow for this ... One thing missing though from this article appears to be a recognition that our "normal" accounting incentives don?t support this type of strategy and in fact strongly incentivize workforce reductions. 

Reducing headcount, except in the crappiest of crappy orgs, positively impacts the stock price and perhaps more importantly, assuages those providing critical lines of credit/short-term financing.  In fact, it's often required by 'the bank,' either implicitly or explicitly.

Thanks though for at least holding forth that the employment of as many people as possible is a key value and, indeed, probably should be a primary reason one has/does business in the first place! 

Saying it another way, what real value does a company create that seeks to employ fewer and fewer people at less than living wages?  I can't think of a product or service that is truly needed by a society, delivered by a firm with this vision.

Joel J. Grumm

Grand Rapids, Mich.

Peter responds: Thanks, Joel.

I think you're right that this has also been one of the big changes in U.S. business.  For better or worse, the view in the past couple of decades has evolved such that all profits are equally valuable and that the goal of a business is just to make them as big as possible.  However you do that doesn't matter.

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Peter:

I am director of recruitment, with JB Homer Associates, a New York-based retained executive search firm with over 25 years experience in the recruitment of senior-level technology and operations executives.  As we are in daily contact with the HR community I wish to offer my response to your recent article:

While layoffs may be inevitable for some companies in the current economic environment, it is also incumbent on top management to continuously explore strategies to engage and retain their valuable leadership as studies show that the loss of a key executive can ultimately cost a company double the executives' annual salary or more.

Companies are now recognizing that human capital is the key differentiator between themselves and their competition and are building strong compensation strategies designed to retain top talent.  By tracking their respective markets from a compensation standpoint it helps to ensure that companies remain competitive.

Also, by offering executives advancement opportunities, involving them in leadership development programs and challenging projects, and creating a culture of accountability, companies can help ensure that executives are appreciated and content in their roles.

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Engagement is the proper blend of commitment, loyalty, productivity and ownership from both a management and executive perspective.

Jeff Hunt

JB Homer Associates

New York

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I discussed this with a colleague who is currently manager of compensation and benefits at Grant Thornton, a prominent tax, accounting, and consulting firm in Chicago. Tenured academics often have a much different perspective that those who are under daily pressure for results.

His comments are below:

The article is interesting but I don't think it accurately reflects what companies have done and/or the human behavior effect of his suggestions. Here are some of my random thoughts.

*Most companies went to layoffs due to the extent of the reduction in business (a lot more than 5 percent), not because of a herd mentality.

*Most companies I know did start with some form of group hours reduction for short periods. This happened near the end of the year when many companies offered a longer holiday break where employees either took vacation or unpaid days off during the time period they were off. This approach utilized several critical elements. It was a little good news with the bad (more time off is generally viewed as positive) and it gave employees choice as to whether to be paid or not. Personal choice adds an element of personal control. If someone has even a small measure of control they feel better about the situation.

* Protracted periods of hours reduction would only prolong the misery and fear. You need to make the appropriate reductions based on your business conditions as quickly as possible, so you can begin the process of providing hope for the future.

* Without this hope, morale and productivity would suffer and indeed spiral downward with far more disastrous results in the long term. I don't think it would be typical human behavior to see a morale boost with protracted pay cuts and time off.

* Layoffs typically start with lower performers and then broaden to good workers only if the extent of the reduction dictates.

* In my experience people don't think "collectively" they think about their own personal situation.

* P.S.: History shows collectivism doesn't work i.e., the failure of "collectivism" in the original American colonies, Russia's failed collectivism, etc. Collectivism creates an atmosphere of lethargy in which no one works hard to improve. Under "collectivism" people quickly begin to realize that their individual efforts are ultimately meaningless, so why bother working hard.

* Kiss your superstars good bye with a protracted pay reduction -- the very people you need to pull a company out of the hard times.

* Good luck to the law firm when they go to recruit new graduates to fill their developmental pipeline. My guess is they have a lot of overpaid partners who can afford a loss in earnings for more time off.

Geoff Abbot

Challenger, Gray & Christmas Inc

Peter responds:

Dear Geoff --

Thanks for the message and the note.  What I was presenting wasn't my personal view about what was happening, it was based on survey data about what companies are actually doing.  One of the things that tenured academics try to do is look at evidence that goes beyond the experience of one individual in one company.

I'd say the argument here that individualism is the desired approach -- it's all about keeping your best performers happy -- is a view one hears in consulting firms and investment banking where the tasks are all individually-oriented, where your colleague sits. 

It is much less popular elsewhere, especially where efforts are less-individually oriented. (Teamwork would appear to be one of those "failed collective approaches," yet it continues to be one of the biggest goals of most corporations.)   

In fact, I'd say this individual orientation and focus on the best performers may be falling distinctly out of fashion as many are seeing it as part of the cause of the current financial meltdown.   

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