Article Analysis of

Cutting Work Hours Without Cutting Staff

By Mark Chahine

BAD 601 Section B 15/05/09

Summary
Furloughs or layoffs? A very hard decision for an employer of which both are valid and each one has its advantages and disadvantages. Some employers prefer furloughs to retain their employees for any cost. Others might prefer layoffs, pruning opportunity for change while keeping the strongest elements and saving payroll. As reviewed in the articles and magazines, such decisions are subject to many external factos such as sociocultural, political/laws and industries. Asian companies prefer unpaid leaves over laying off employees. In the US you can find both and layoff is widely used by companies Furlough philosophy is based on the support each other theory where salary can be deducted and leaves are enforced. This could be a solution for not losing employees, retrain and reduces the cost of employement. Layoff philosophy is based on sacrificing the few for the many in order to save the companys future, while preserving high employee morale. In the coming analysis, we will find that furloughs or unpaid leaves can in some cases be unaccepted as some of them see it as a coming layoff. Layoffs can also be considered as a solution for many industries that cannot apply furloughs due to operational purposes. The following analysis will unveil the pros and cons of each procedure including authors comment, my opinion and conclusion.

Analysis
Mathew Boyle, editor in the Business Week Magazine, emphasized on the idea to cut work hours stating that it would be more efficient and cheaper than slashing staff in his article Cutting Work Hours Without Cutting Staff published on February 25, 2009. He mentioned that most of the US Companies like FedEx and Dell are applying multiple tactics in retaining their employees jobs. Some of them gave unpaid leaves; some other reallocated job responsibilities or sent their employees to another sister company that is in need of resources during high season. He stated also that nowadays and during the crisis, 37% of human resources managers are spending most of their time searching for alternatives to layoffs. As per Peter Capelli, director of the Center of Human Resources at the Wharton School of Business, Capelli noted that a 5% salary cut would cost you less than 5% layoff due to the absence of Severance payments. Another way is to train staff to do more in order to shuffle job responsibilities thus using efficiently your resources. Moreover, Matt Cooper, vice president of Larkspur (California) applied the unpaid leaves for his employees in the first quarter but not to be deducted until March in case the situation doesnt get better; a way of motivating your employees even during their pay cut.

On the other hand, furloughs might cause demotivation in case applied for a longer period of time. People begin loosing security with time as long periods of unpaid leaves could lead to future layoffs as per Chang an employee in Hsinchu Science Park, Taiwan (In Taiwan, unpaid leave instead of layoff carries its own costs, article by Don Lee). Chang stated that the atmosphere inside the company is becoming nervous due to long unpaid leaves.

Moreover, some people didnt accept the pay cut theory stating that they prefer to lose their jobs rather than getting a part of their salary cut a banker quoted in a blog:

[Pay Cut] it breeds resentment and will merely serve to postpone the inevitable"
Layoffs or Furloughs by Edward Russell

In my opinion and after a wide research through articles, magazines and personal experience, both layoffs and furloughs have their pluses and minuses but layoff might be better in some other cases as I am going to mention in the following analysis. Unpaid leaves or furloughs might be demotivating to employees; demotivation causes stress, nervousness and less productivity. Less productivity will definitely affects quality and sales revenues which will fire back on the firm and causes decreasing in income thus another cycle of increasing furloughs that might after all lead to layoff. The theory of sacrificing the few for the many applies in the layoff alternative as the company will have the choice to sacrifice the bottom line employees or what we call dead wood. Dead wood, are employees who are capable of only doing one task, and which you can get rid of without affecting productivity. On the other hand, the long term furlough theory will affect all employees among them the best, which leads the company to a loss of mature workers. Furthermore, the firm might be losing talents that will not accept to get unpaid leaves. Layoff prunes the opportunity to keep stronger employees. Layoffs are also subject to sociocultural effects. I noticed from many articles that layoff is applied in the US culture and nearly non-existent in Asia. Asians

always preferred to that all of them suffer to keep their jobs as quoted by Huntington in the Layoffs or Furloughs article by Edward Russell: The Anglo/American way to deal with a crisis is a preference to axe jobs," said Huntington. "In Asia there is a sense of social responsibility, an assumption that we all suffer together rather than having some of us suffer the ultimate." Other factors might be political/law rules applied in each specific country. Some countries dont have laws to protect the worker and others may have laws that apply and oblige the employers to pay a severance. Severance comes in different form but will definitely cost the employer to pay a specific amount of money upon layoff. But this wouldnt be a problem for newly recruit or junior employees when it comes to the theory of laying off the bottom line of your employees and keeping the strongest and mature ones. Also, I was able to identify an example of Mumbai Airlines, which was forced to rescind its 1900 layed off employees after political and union pressure (Edward Russells). This envisages the political factors regarding layoffs and shows that some countries prohibit it. Layoff might also be the best solution for banking industry or for industries in the midst of change according to HR research (layoffs or furloughs article by Edward Russell). Companies whose future prospects are unknown except for the fact that they will be significantly altered from the past as these companies are round the clock operational companies and cannot be taking many days off.

Finally, I can conclude that both solutions are valid but furloughs might be a good idea for short term crisis which will become a progressive type of layoff in long terms as well as affecting the companys performance and jeopardizing its existence. Layoffs are a better solution by sacrificing the few

for the many and obliging the remaining employees to work harder to cover the gap during the crisis. Employees will definitely accept to work more than to lose their jobs.

References

Boyle, Mathew (February 25, 2009) Cutting Work Hours Wihtout Cutting Staff http://www.businessweek.com/magazine/content/09_10/b4122055789445.htm? chan=careers_managing+index+page_managing+your+team [viewed 03/05/2009].

Love, Alaina (February 24, 2009) Cutting Mature Workers Widens the Wisdom Deficit http://www.businessweek.com/managing/content/feb2009/ca20090224_1256 54.htm [viewed 03/05/2009]

Russell, Edward (May 11, 2009) Layoffs or Furloughs? http://www.financeasia.com/article.aspx?CIaNID=101964&r=hstory [viewed 10/05/2009]

Lee, Don (March 09, 2009) In Taiwan, unpaid leave instead of layoffs carries its own cost http://articles.latimes.com/2009/mar/09/business/fi-nolayoffs9 12/05/2009] [viewed

Appendix