The Layoff Puzzle: Reducing Staff Costs

When Television Wisconsin was faced late last year with reducing its headcount, it brought members of its staff, as well as managers, into the fray.

"We informed our staff that we were facing the issue of having to make adjustments, therefore we wanted to know if anyone had plans to leave the company, or had a desire to retire or reduce their hours. Anything we knew up front would be beneficial to others," said David Sanks, general manager of WISC Channel 3 in Madison and executive vice president of the station's local parent company, Television Wisconsin Inc.

While it might appear to be a strategy that would send shock waves through a company, the approach paid off, Sanks said. About six people stepped forward with proposals that benefitted managers when they had to figure out the job jigsaw at Channel 3.

When cuts were made, 13 full-time equivalent positions were trimmed from the now staff of 101 at WISC.

Companies in Dane County, faced with the economic reality of trimming workforce during lean times, have taken a variety of approaches to solving this employment puzzle. From voluntary hour reduction to controlling costs by eliminating nice employee perks such as free soda or coffee, among other programs. Other firms have staved off workforce reduction through other cost control measures.

A Look at the Numbers

A U.S. Labor Department report last month said 2.6 million people lost jobs in 2008 across the country. The national unemployment rate at the end of last year climbed to 7.2 percent, up from 6.7 percent in November.

Experts predict that Wisconsin and Dane County, typically said to be insulated from huge economic swings, will have four times the number of job losses this year than last Ð 65,000 — and an unemployment rate that will reach 8 percent for the first time in 25 years. The state had so many workers seeking unemployment insurance benefits already that the fund reached a dangerous low last month.

The state Department of Workforce Development reported last month that the unemployment rate continued to climb to 5.8 percent, up 0.5 percentage points from November and 1.2 percent from December 2007. In Madison, 2,700 fewer people were employed in November than in the same month in 2007, a drop of 0.8 percent, according to the U.S. Bureau of Labor Statistics.

Despite these grim numbers, experts still say this region could fare better than others, following a historic trend.

A recent survey of Dane County employers showed that companies are taking a wait-and-see approach to employment needs in 2009. The report by the Madison-based QTI Group showed that many firms here don't plan to make major changes in headcount.

However, forecasts vary by industry. More stable industries include biotechnology, healthcare and insurance; manufacturing projected the most job cuts.

Companies that forecast hiring in 2009 say they're giving any decisions "forethought and expect their hiring to focus on those positions that require specialty skill sets," according to the survey. About one-quarter of employers plan to hire temporary or part-time employees instead of full-time employees, showing the cautious nature of employers.

It also states that improved training and development of existing staff rated high for businesses across all industry sectors as they look for cost-saving efficiency measures in 2009.

Forbes.com in January named Madison the top city for job growth in 2009, citing the University of Wisconsin and its patenting and licensing agent — the Wisconsin Alumni Research Foundation — the relatively low unemployment rate, and diversity of businesses as benefits.

Milwaukee also made the top ten.

Meanwhile, BusinessWeek Magazine last fall ranked Madison 4th in a list of top cities to ride out the recession. Again, data cited the "twin towers" of state government and university as buffers.

"Our situation is simply better. It's a tough time, but the truth of the matter is that you're better to be in an area with a diverse base where your skills can apply to different industries," said John Hausmann, managing director for Manpower Inc.'s Madison operations.

Crystal Ball Forecasting

It's been difficult for some companies to project exactly how many employees they can keep, and how many have to be let go. Surprisingly, one local corporation was able to keep more employees than it publicly forecast.

In April 2008, Sub-Zero Inc. and Wolf Appliance Inc. announced it would lay off 235 of its 590 workers, many of them in its Fitchburg headquarters and factory.

Most of the layoffs never took place, according to Chuck Verri, human resource director for Sub-Zero and Wolf, because the company's business outlook changed. At the time, 43 salaried positions were cut.

"A year ago, it looked like demand was such that we didn't need as many folks as we had. Between the time we made that decision and put plans in place, we saw stabilization occurring," said Verri. "It's not perfect and we did cause some folks some consternation, but you make the best decision you can at a point in time."

Recent projections led to more layoffs, but overall cuts are still nowhere close to the original 235 that were planned. The Wolf division recently trimmed 79 hourly union employees, placing workers on indefinite layoff status.

Per its contract with Sheet Metal Workers International Association Local 565, Wolf employees were, for the most part, let go based on seniority, according to union organizer Dave Goodspeed.

While contracts spell out how layoffs will be conducted at some companies, other cuts are less clear. Erdman parent Cogdell Spencer last month eliminated 115 positions to cut company costs by $17 million. The Madison health care facility developer was sold to the North Carolina-based company last March.

According to an emailed response from Cogdell Spencer Senior Vice President of Human Resources Julia Houck, the company developed an action plan late last year to address the market conditions in 2009. The plan was aimed at managing profitability and retaining employees.

"For example, we offered shortened work weeks, early retirement packages, and health insurance options." Houck said in the e-mail. "We also instituted measures such as a hiring freeze, salary freeze, and one week of unpaid vacation."

But because of a decrease in healthcare facility projects, the company still found it had "excess capacity."

"When it became apparent that the recession would force more clients to suspend projects, we made the very difficult decision to scale back our workforce in proportion to our anticipated 2009 workload," according to Houck.

Sharing the Pain

Janet Johnson, vice president of sales and marketing and chief operating officer at Madison's Qualitemps, said many companies look at reducing costs in other ways before considering a workforce reduction. If they need to cut jobs, most consider keeping people based on their skill-set value as it relates to the bottom line.

Although it varies from company to company, and industry to industry, Margaret Leitinger, director of business development at Spherion Staffing and Recruiting in Madison, said most firms are looking for ways that they can "cut costs or increase revenue," not a simple task in a sluggish economy.

Employees have less confidence, Leitinger said, in their employment prospects, according to recent research from Spherion. The Employee Confidence Index reached a new low in December, with worker confidence declining 1.6 points to 40.4. The index gauges confidence in employees' personal job situations and optimism in the economic environment. December results show that "more workers are concerned about the economy, job market, and in their ability to find a new job." The report also reveals that fewer workers are likely to look for a new job in 2009, dropping to 33 from 35 percent the previous month.

"As a result of the decreases seen in consumer and corporate spending, many employers have been forced to make payroll cuts going into 2009, leading to an understandable drop in employee confidence this month," stated Roy Krause, president and CEO of Spherion Corporation, based in Florida.

Because of this declined confidence, more employees may be receptive now to cost-saving measures such as reduced work weeks, salary freezes or cuts in benefits.

Manpower's Hausmann said firms who are not profitable right now are considering reducing employees. But they're doing so with a scalpel, so to speak, not a hatchet, so as not to lose essential skills they'll need when the economy begins to rebound.

In some cases, those cuts come from nonessential white-collar areas, such as marketing and sales, human resources and recruiting, as opposed to technical fields. Each company has its own way of addressing the situation, Hausmann said, noting that there is not one general trend now.

Another strategy Hausmann sees: "Companies are either stopping their use of contingent labor, instead converting contingent headcount into permanent spots, seeing that as reducing cost. For others, it's completely reverse to make it easy to implement quick shifts to reduce or ramp up staff."

But despite its recent good press about being a beacon in the recession fog, Madison is not immune to the current economic conditions, Leitinger said.

"Madison is going to feel it. It's not unique enough in its industries," she said. "Recession-proof we're not."