When there are only a few dozen employees -- or fewer -- layoffs can hit harder. So small businesses are using various methods and incentives to try to avoid them.
[Related content: savings, save money, income, recession, health care]
By The Wall Street Journal
At a time when the news is filled with large companies announcing major layoffs, some small businesses are determined to buck the trend.
For some companies, it's a matter of pride: They've never had a layoff and they don't want to start now.
But it's also a matter of necessity. For one thing, unlike big companies, small businesses rely on each individual employee much more to keep their companies running. In addition, many small companies use their history of never firing people as an essential tool to attract and retain workers.
This recession, however, is testing the no-layoff policy.
"Many companies previously known for avoiding layoffs during past downturns are forced to make extreme sacrifices to resist pink slips now," says Mel Fugate, assistant professor of management and organizations at the Cox School of Business at Southern Methodist University in Dallas.
Fugate adds that "how these concessions are identified and executed can make a significant difference in how well a company emerges when economic conditions improve." He says that, in general, "it is important for management -- and particularly executives and owners -- to share in the pain and the gain."
Management should be the first or at least among the first to sacrifice and make concessions, he says. Conversely, when the economy improves, management should reward those employees who were forced to make concessions. "Doing so will preserve employee commitment and performance not only in the new good times but also in future downturns."
Here's a closer look at some ways companies have tried to avoid layoffs:
Mandatory days off "We've never laid anyone off in our company's history," says Matthew Zurn, general manager of Zurn Plumbing Service, a family-owned business in Chamblee, Ga., that has been in operation since 1985. And Zurn would like to keep it that way.
But sales in the last four months of 2008 were down 24%, to an average of $124,000 in sales per month from a $163,500-per-month average a year earlier. So the plumbing company, which has 15 full-time workers, has had to take extreme steps.
Field employees must take a mandatory day off each week without pay, with hours down to 30 or 32 per week from 40 hours. They can opt to use vacation time to get paid for that day off. Office workers and management must take a day off every other week. Since mid-September, Zurn has saved close to $7,000 a month in labor expense with this strategy.
Meanwhile, Zurn's parents, the company's owners, have taken a 25% to 30% pay cut. The business also isn't purchasing as much inventory.
"Our business is our people," Zurn says. "Trying to keep them in the company is our top priority. When the economy bounces back, we're going to need everybody."
Turning to employees Even small companies making a profit during this recession are preparing for the worst.
Take Samovar Tea Lounge of San Francisco. While sales are up, the company is short on cash these days, because of loans and spending related to a store opening. So Jesse Jacobs, the company's founder and owner, took some pre-emptive measures in October. He reduced payroll -- the company's largest expense, 7%, or $100,000 -- by tightening workers' schedules.
Samovar no longer allows its 60 employees to clock in early, not even five minutes ahead of time, and encourages them to clock out early. People who clock out on time and don't go into overtime get a reward: a free massage valued at about $100 to $200. Jacobs says such rewards are much less costly than having to consistently pay overtime.
"I need to proactively address the economic climate," Jacobs says, "and I didn't want to lay off anyone."
In addition, the company welcomes input from employees about other ways to cut costs. Jacobs says he told his workers: "Help me come up with creative solutions. I'm trying to keep your jobs. . . . This is a team process."
A dishwasher suggested purchasing stainless-steel drinking glasses because they don't break. The move saves the company $3,000 a year because it no longer has to replace broken glasses.
In all, Jacobs says, Samovar's efforts should result in about $200,000 in savings this year. He projects $3 million in sales for 2009, up 36% from $2.2 million last year. "Business has increased, costs have decreased and morale has gotten stronger and more positive," he says.Doing good, doing well For one company, finding volunteer work was key to preserving a legacy of looking after loyal workers.
Last fall, Matt Legg, the owner and chief executive of Infinite Care Home Health in Duncanville, Texas, began to notice that he didn't have enough work for his 38 full-time employees. The number of clients had dropped to 130 from 100 at the provider of medical-care services to the elderly in their homes.
So, in late October, he instructed employees to volunteer at local clinics when they had down time -- and they would be paid for that volunteer time.
It was altruism, with an economic benefit. That's because Legg says the doctors in the clinics, who have grown familiar with the nurses and practitioners from Infinite Care, have begun to send new patients his way -- about four so far.
"It looks good for our company," Legg says, and "it helps us grow in tough times."
A last resort Ted Bratsos, president of All Steel Structures of South Holland, Ill., which makes and installs billboard signs, says his business has been in operation since 1987 and he considers his employees his biggest asset. So the reduction of nine of his 26 workers last month was a hard decision.
"We waited until what we would consider as a last choice," he says.
Before then, changes were made to do everything to keep those nine workers on the payroll.
Freebies such as winter clothes for field workers, cell phone usage allowance for management, second shifts and wage increases were cut or pared. The company also instructed its field foremen not to take work trucks home to save on gasoline as well as wear and tear on the trucks. Extra phone lines were reduced from six to four.For the first time, the company closed the day after Thanksgiving, the day after Christmas and the day after New Year's -- and nobody got paid for those days.
All office workers, including executives, took a 10% pay cut, while increasing their hours to 45 per week from 40. The reasoning: The salespeople would bring in more business. In addition, by October, Bratsos himself stopped taking a salary, except for during the holidays.
"Right now, I'm in a position where I can do that," he says. "I believe that it's my job to make this company survive and give the employees a place to work and to be here after the recession is over so that they have a place so that they can support their families."
Bratsos is hoping that he won't have to cut the company's health-insurance program, which fully covers his workers and their families.
"We have always enjoyed a reputation for being a high-quality business," he says. "It's so important to keep your employees who know your business and who have contributed to who you are. . . . It's a reciprocal relationship."
This article was reported and written by Raymund Flandez for The Wall Street Journal.