CEO, Bob Chapman, during the 2008 recession, instead of laying off some employees, furloughed all them for a few weeks - saying that “it’s better for us all to suffer a little than for some to suffer a lot.”
Yeah, a month without pay sucks, but it’s a lot better than being laid off and being left with a lot of uncertainty about how you’re going to make a living in the future and how much longer you might go without pay. He also did make exceptions for those who really couldn’t afford 4 weeks off, and let some only take 2-3 weeks while others who felt secure sacrificing a little more for the greater good, took 5-6.
Why wasn’t this talked about more? Why don’t more companies do this during hard times? It’s like a win-win on all fronts. Company recovers financially, workers stay employed, company retains employees for better future growth, and company morale stays high. Everyone takes a relatively mild financial hit so that no one potentially goes bankrupt or has their career destroyed.
This is a great idea to implement instead of layoffs during recessions. I feel like governments would like this too as unemployment would stay low and recovery would be much faster. As an employee, I feel like I’d prefer this over even a relatively small chance of being laid off, because at least I’d still have the certainty of knowing I have job security and future pay.
I don’t know how other people feel about this though. Would you be in favor or opposed? Why don’t you think more companies have done this, nor have more governments encouraged this practice (in hopes of a faster recovery from a recession)?
I have always been a moderate or centrist. At first glance, Bob Chapman’s idea seems to be advantageous for both the organization and the individual, which I think would make it appealing in (at least part of) Europe. But I’m not sure about the US.
Generally speaking, payouts for all don’t work as well as layoffs. People get pissed when you cut their salary and they start looking for a new job. All your most qualified people leave, leaving you with your least qualified people. Better to lay off the ones you want to lose anyway.
That said, these are not normal times. I think a better solution would be to raise taxes on those of us with jobs in order to fund sustained income to those without. Which Is basically the same idea, spread out more.
companies that care about their employees will more likely do this. Companies that care about money will less likely do this.
Its an opportunity to save cash by getting rid of expenses while keeping the company open and bringing in some revenue.
If you shut the company down completely, than you aren’t making any money. But if you let go of some people (permanently?) you can keep the revenue coming in. After the crises, you can decide if and when you want to bring anyone back.
Rolling furloughs would be attractive in that you don’t shutter the company completely, but still save costs on labor. However, rolling furloughs don’t let employees take advantage of unemployment as readily
Over here in Germany, this is standard practice. My wife is furloughed right now, which means in this case she has her working hours reduced to 40%, for which her employer pays her normally, and she receives 60% of the lost wages from the government.
My own employer has been furloughing some employees, with a guarantee that nobody will receive less than 95% of their normal wages, the difference being made up for by the company.
(Although now that I look it up, I’m not exactly clear whether ‘furloughing’ is the same as what we call ‘Kurzarbeit’—having your working hours reduced, perhaps to zero, while getting 60% of your wages paid by the government.)
My brother’s company basically has two sets of employees. Half of them are focused on sales to grocery stores and convenience stores, and the other half are focused on bars, nightclubs, venues, etc. Since all of the focal businesses of the second group were shut down, they had no work to do and no ability to generate revenue for the company. Instead of laying off half of their workforce, they cut the salaries and cancelled commission incentives for the other half in order to continue paying everyone. It kind of sucks to work twice as hard for the half the pay so that someone not working at all can still receive a paycheck, but I understand why it was done.
Washington state employees were furloughed and took pay reductions during the last recession. It worked okay. If it is spread it out over a year or two-year state budget cycle, it’s easier for the workers to deal with the income loss.
I preferred furlough, where I got some personall time back, to a year of less money but working all the time.
My wife’s company did this about 2 months ago now due to the double whammy of the oil field shut down and COVID where 50% of their revenue disappeared overnight and then another 10% of incoming jobs dried up. My wife got her hours cut more than in half while the oil and gas group was completely furloughed.
Honestly, we ended up happy with it because my job sky rocketed at the same time so our total income wasn’t impacted which made it nice to help out those who were less fortunate. Our expenses aren’t 50% of our income so everyone taking a 50% pay cut to keep some people from losing out completely isn’t practically different from us losing out completely.
Agree with this. Spreading the pain as a strategy only works if:
You have already developed a culture of trust, “we’re all in this together”. If you don’t already have that in place before the downturn hits, then people will just try to jump ship for a better paycheck whenever the opportunity arises.
You need to be reasonably confident that the downturn is just cyclical or temporary. If you’re a large equipment manufacturer like Barry-Wehmiller, it’s a reasonable bet that your business will naturally bounce back when the economy improves. If you’re in, say, a niche tech field, the downturn in a business sector may turn out to a permanent shifting of the market, in which case you’d have to lay off folks anyway.
I work for a pretty good company. They don’t pay as well on the front end, but there IS a family and trust culture there. We all took hits on hours but they also encouraged us to file for unemployment to make up for the lost hours. The family that owns and runs the company is pretty big on having steady employees with longevity, so they do things like purchase health insurance and have a retirement program even though there are only 30 permanent employees.
It very much depends on the situation - the business would have to still have some revenue coming in and it would have to be enough revenue so that a single, relatively short furlough would make a difference. If business drops 30%, you can in one way or another drop pay 30% and cut working hours 30% for a while. It doesn’t work as well when you lose 90% of your business and try to cut each person’s pay and hours by 90% or when you try to impose those 30% cuts for an indefinite time. An awful lot of the businesses laying people off now are in a bad situation for furloughs rather than layoffs - how does an event venue avoid layoffs when there haven’t been any large events since March and no one knows when they will resume?
Except it was, we had to take “X” amount of unpaid days off. And you did have to do it all at once. You just had to take them all sometime during the next quarter.
Which I think is a better idea than forcing them to do it all at once.
Our college has had furloughs. Income for a college is not steady – most of it comes in September and January – and there are many jobs that have little to do with no students around (e.g., student activities).
It’s saved money, and the expect to bring people back in August.
In most recessions, something structural is wrong, and nobody feels confident predicting what or when the solution will appear. This time is different because the cause is clearly defined. Though opinions differ on how and when the pandemic will end, it will definitely end.
If you believe that a knockout punch will restore business as usual before structural problems set in, then furloughs make sense.
I personally think that think we’re about 1-2 months away from widespread mortgage defaults, and that poses an enormous risk of adding a financial crisis on top of the economic crisis, similar to what happened in 2008.
Rich capitalists can try to glad-hand and bright-side this situation all they want. They can strong-arm businesses and workers into opening back up again, but if consumers are afraid to participate, then they’re only making things worse.
I agree with that comment and the previous one. Which boils down practically IMO to, ‘spreading the pain’ is definitely something that individual employers should consider, but if the idea is “but they’ll never do that, so ‘we’ have to force all of them to do it”, it probably won’t work. There will be too many cases where the outcome of 1 is ‘tend to lose the best people’ and the result of 2 is slowing down creative destruction that’s for society’s good in the long run. If you could carefully and wisely force it only in special situations without those two drawbacks…but the blunt instrument of the political system can’t do that.
It can also lead to resentment, if there are some clear slackers vs. some clear overachievers, but the overachievers realize they’re taking a pay cut so the slackers can stay on.
Right, furloughs run contrary to marginal economics. You have to be in a very exceptional situation to cut your core resources without cutting the marginal ones first.
Evidently some businesses are betting that we’re in that sort of situation. But really, it’s all upside to them. For a relatively minor cost, they can persuade employees to take a pay cut without switching jobs. If things turn around quickly, they get all their experienced and loyal employees back. If not, those furloughs can easily become layoffs.