In search of cost-cutting best practices

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HR Roundtable expert Bill Pinto discusses a variety of strategies companies are currently using to cut costs in this tough economy:

All across the country, employers are dealing with reducing their costs. Labor costs often are the largest segment of an employer’s costs, so that is the first target. There are a number of areas that could be cut, but after identifying which areas to cut, the more important part is determining how those cuts will be made.

Salary reductions are an alternative to laying off a segment of the workforce. Employers can retain more of their employees – and the knowledge they possess – by cutting salaries instead of letting people go. The simplest way to reduce salaries is to cut them across the board by a certain percentage. Some would argue this is also the fairest way to make these decisions. Others would advocate more of a Pelosian approach of no reductions or smaller reductions for those employees earning less and steeper reductions for those with the higher salaries. Employers also could identify certain low-performing segments of the organization where reductions might be appropriate. From an administrative standpoint, an across-the-board reduction is easiest. It also raises fewer questions of discriminatory reductions because all salaries are reduced by the same percentage. It is important to remember that no reductions can drop employees below minimum wage (currently $6.55 in Georgia; rising to $7.25 effective July 24, 2009).

Another cost-cutting option, which many employers have already instituted, is eliminating 401(k) matches. The impact of this reduction varies because if fewer employees are sending money to their 401(k)’s then there are fewer to match.

Travel expenses are another potential target. Some employers are limiting the overall amount of expenses. Others are placing more restrictions on where employees stay on business trips or which flights they take to get there.

A number of employers are reducing the hours that employees work each week by either shortening the work day or reducing workweeks to 4 days. Employees are responding by enjoying the time off or securing part-time jobs to make up for the lost pay.

Most employers have dealt with rising health care costs over the last few years by transferring more of the costs onto employees. In the current climate, if there are more costs that can be passed on to employees, it is likely that they will be. Here, employers could consider a reduced package of insurance benefits option that leaves employee contributions at the same or a reduced level.

Whatever areas employers choose to cut, it is crucial that they communicate with their employees about the decisions that are made; why certain reductions were considered; and what the employers believe are the short-term and long-term prospects for the choices that have been made (i.e., are these permanent changes or will the employer consider returning to former levels when things turn around?).

How has your employer addressed cost-cutting? What practices did you agree with and/or how would you have done things differently? What did you and your co-workers think of your employers choices? How did you and your co-workers respond to the cost-cutting measures?

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