Are layoffs finally bottoming out?

Feb 27 2009 by Nic Paton Print This Article

Let's get the bad news out of the way first. The number of mass layoffs by U.S firms rose by more than half last month. More positively, however, there are some signs that many employers may have done all the hacking and chopping they intend to do and are now scaling back on letting people go.

According to latest figures from the U.S Bureau of Labor Statistics the number of mass layoffs, or those involving at least 50 workers from a single workplace, rose by 50.9 per cent in January.

In total there were 2,227 mass layoffs during the month, resulting in a near 60 per cent increase in unemployment claims.

One of the most significant was technology giant Nortel Networks, which this week said it was cutting 3,200 positions worldwide over the next several months, in addition to 1,800 cuts it made last year.

While these are clearly grim statistics, and before we all get even more down than we are already, it may be worth bearing in mind the latest research from consultancy Watson Wyatt.

This has suggested that unless the economic climate gets significantly worse over the next few months, things may be bottoming out, at least when it comes to redundancies.

Its poll of 245 large U.S companies found that more than half had now made layoffs, up from the 39 per cent reported two months ago.

But, more importantly, just 13 per cent said they expected to trim their workforces within the next 12 months.

While this showed we are not yet at the bottom of the redundancy cycle, this was significantly down from the 23 per cent reported in a similar survey carried out in December.

Yet, while this will clearly be good news for people worried about their job security, the consultancy also warned it did not necessarily mean things were turning a corner.

In fact, if anything, it illustrated just how tough things still were for many organisations, with firms simply casting around desperately for ways to cut costs that do not involve taking a hatchet to their already much depleted staff numbers.

Instead, the focus is moving to freezing salaries, reducing working weeks, eliminating training programmes and boosting healthcare premiums, argued Watson Wyatt.

"Companies have come to terms with the fact that this recession is going to last and that they can't slash their way out of it," said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt.

"Many companies are putting the drastic cuts behind them and are now focusing on smaller, more sustainable cost-cutting actions," she added.

For example, more than half – 56 per cent – of the firms polled now had a hiring freeze in effect, up from the 47 per cent reported in December.

The number freezing their salaries had also risen, up to 42 per cent from 13 per cent in December.

More firms were also reducing their matching occupational pension contributions (12 per cent against three per cent in December) and there had been a sharp increase in the number of firms introducing a shortened working week, up to 13 per cent from two per cent.

Many more organisations were clamping down hard on corporate travel, with nearly seven out of 10 now looking to curb costs in this area, up from just under half in December.

The challenge in this environment for managers, of course, is how to do all this without causing morale and productivity to plummet through the floor, not least that of the managers themselves.

Earlier this month, for example, research by Sirota Survey Intelligence identified keeping front-line managers and leaders engaged and upbeat as a key priority for executive teams.

When managers became disengaged, their employees were more than three times as likely to become disengaged themselves and 12 per cent less likely to stay in their job, even when the recovery finally came.

In the UK, the HR body the Chartered Institute of Personnel and Development and conciliation service Acas last week published guidance for employers on how best to manage the workforce in a recession.

Key among its recommendations was that the importance for organisations to think long-term when making cutbacks, to be as innovative as possible in their approach and to avoid job cuts wherever possible.

Even when times were desperate and work became more stressful and tense, people needed to be managed properly in order to maintain their engagement, wellbeing and productivity.

It was also important that organisations developed redundancy strategies so that they managed this difficult issue sensitively and without breaking the law, the two bodies argued.

The Watson Wyatt research, meanwhile, also looked at a number of other areas, including the level of support and assistance being offered to workers being told they are no longer required.

The average merit increase was now just 1.7 per cent, less than half what firms had been predicting they would be before the recession hit, with nearly seven out of 10 firms admitting to have revisited their budgets in this area, up from under six out of 10 in December.

Most of the firms polled said they expected the downturn in their performance to last at least until the end of this year, with more than half gloomily predicting that they expected to have to increase their cost-cutting actions later this year and even into next year.

Of those companies that had already made layoffs, nearly three out of 10 said they had offered enhanced severance benefits such as extended benefits coverage, extended pay or extended job search assistance.

Since the economic crisis hit, nearly eight out of 10 of the firms polled had noticed pension plan participants changing their investment mix to move out of riskier equities, up from 59 per cent in December.

Nearly half said they had seen an increase in the number of loans taken (up from slightly more than a quarter in December).

More than a third reported an increase in the number of hardship withdrawals taken, more than double the 16 per cent reported in December.

"As the business outlook remains challenging, employers are buckling down and making hard decisions," pointed out Laurie Bienstock, U.S strategic rewards leader at Watson Wyatt.

"This may be good news as companies move more toward cost-cutting efforts other than workforce reductions in an effort to hold on to the workers they will need when recovery eventually comes," she added.