Off the payroll, but still smiling

Forced vacations are enjoyed by some workers, endured by others, as firms look to reduce their fiscal outlays while avoiding outright layoffs

Arlene Hankins hasn't shown up for work this month. But she's still getting paid - and she's helping her employer save money. A 727 pilot with 10 years experience at Delta, Ms. Hankins is among 330 pilots participating in the airline's cost-cutting plan that pays them for 55 hours of work.

How does that save money? Normally, pilots who aren't scheduled to fly during a month are paid for 70 hours of work - but must be on call to fly on short notice. Under Delta's voluntary program, rolled out as a post-9/11 cost-cutting measure, pilots receive less than a normal reserve wage, but are totally free to do whatever they want. Delta saves money; participating pilots get, in essence, a reduced-pay vacation.

"I jumped at the chance," says Hankins, an Atlanta-based mother of three young children who is using the time to spend with her family, and who is saving money by not having a baby-sitter on call as she normally does during a reserve month.

In one form or another, what's happening at Delta is playing out at workplaces across the country as employers search for creative ways to try to make cost-cutting less painful during rough economic times.

One of the most popular ways of doing that has been to reduce employees' work hours, often by asking them to take a vacation - either paid or unpaid, depending on a company's financial circumstances.

"I'm advising companies that it's an excellent idea," says Bruce Katcher, president of The Discovery Group, a Boston-based consulting firm. "The advantage for the organization is that you still keep people around for when business turns around. And you're telling employees that you still want them to be a vital part of your organization, that you're committed to them."

The manufacturing industry is no stranger to work slowdowns and subsequent cuts in employees' workweeks. But experts say this recession marks the first time that a wide variety of businesses, both large and small, and from many different sectors of the economy, have used employees' time as a cost-cutting tool.

At the high-tech giant Hewlett Packard, for example, employees were asked last April to voluntarily take an additional six days of paid vacation time off before the end of the fiscal year in October. In June, they were asked to voluntarily forfeit some earned vacation time, take a small pay cut, or do a combination of the two through the end of the fiscal year. And in December, HP closed all of its offices for a week at Christmas, which included three days off with no pay.

"We looked at a number of ways of handling the circumstances we were in, which was a short-term situation," says Paul Jemison, HP's director of global compensation and benefits. "This is one of the most painless ways of [cutting costs]. Given what was going on in the economic environment, we thought it was a great solution."

Employees apparently agreed. According to HP, some 95 percent of its workforce joined in the June cost-cutting measure, saving the firm some $130 million. The other measures also saved an undisclosed sum of money on two fronts: Closing saved HP the cost of keeping offices open. And asking employees to take paid vacation time - instead of rolling it into another year - helped in accounting terms because paid vacation is a funded liability that carries over from year to year on the company's books.

Experts say the key to successful implementation of a time-off cost-cutting measure is in how it's communicated to workers. The plan needs to be presented clearly, in advance, with assurances that the company is committed to its staff.

"If companies don't communicate this effectively, they've got two problems," says Tom Case, a principal in the Boston office of Buck Consultants Inc., a large human resources consultancy. "One is they'll have a reduced commitment from their employees, and they'll appear to be selfish, which detracts from the level of trust employees have in them. When times get better, people will remember that, and they'll vote with their feet."

At Oliver Russell advertising agency in Boise, Idaho, owner Russ Stoddard did everything he could to cut costs last year.

He cut his own salary 20 percent, laid off seven employees, and lost eight others through attrition. Yet he was determined to do everything he could to hang on to his remaining 14 workers, keeping them aware of the firm's finances each month and warning them as early as October that the agency might close over Christmas with some unpaid days. "I wish I could have said, 'Hey, everybody, take the time off, it's on me,' " he says. "But I was looking at a very slow December on top of a very slow year."

When Mr. Stoddard did close the office for 11 days during the holidays - with three unpaid vacation days - the company saved about $10,000.

According to Paul Carew, the agency's interactive creative director, the employees were prepared for the time off, and willing to go along with it. "It was a little scary, but I think we did it for the right reasons," he says. "The general feeling in our group was that this was a way to set us up for success [in the year to come]. The people who report to me said, 'Hey, I'm happy to have a job right now.' The vacation without pay was just an extension of the feeling we have here of everybody being in it together."

Although Stoddard used the time-off policy to avoid more layoffs, other firms have made it clear that the tool is a way to cut costs, not necessarily to save jobs. At Hewlett Packard, for example, 7,000 job cuts were announced world-wide in 2001. At Delta, some 460 pilot layoffs have been announced since Sept. 11.

Even companies that do use the tool to avoid layoffs don't always succeed. At Phelps Dodge Corp., a 167-year-old mining and manufacturing firm headquartered in Arizona, the energy crisis in early 2001 prompted officials there to prepare for a summer slowdown at three mines. Although energy prices came down, the recession and the softening of copper prices meant the company still had to coordinate a slowdown at one mine, which it did last summer without any layoffs by working with employees to encourage them to take staggered vacation days during that time.

But the measures weren't enough to stave off layoffs in the face of continued low copper prices. Last October, Phelps Dodge announced the layoff of approximately 1,500 mining employees, about 10 percent of its total workforce.

"We have a very loyal workforce. Some of our employees are third- and fourth-generation workers," says company spokesperson Bruce Richardson.

"This is a company that has never taken layoffs lightly," he adds. "It does it when it has to, when business requires it."