From the August 2009 issue of Investment Advisor • Subscribe!

August 1, 2009

How Smart Bosses Are Making Lemonade

Sidebar to Olivia Mellan's Column "Making Lemonade"

Some companies are searching hard for alternatives to downsizing. A May 2009 article in Ode magazine ("How to cut costs and keep your employees") recognizes several CEOs who are trying to protect workers. Faced with a need to cut costs, Paul Levy, CEO of Beth Israel Deaconess Medical Center in Boston, asked the hospital's 6,200 full-time employees for ideas on how to avoid layoffs. Thousands showed up for the series of brainstorming sessions, and together they came up with a plan to save about 450 jobs by cutting pay, benefits, and other costs. Levy himself took a 10% pay cut and declined a 30% bonus.

Similarly, Toyota and FedEx have cut executive pay and bonuses. A Massachusetts engineering firm organized job shares so people worked fewer hours but didn't lose their jobs. A Kansas trailer hitch manufacturer pays employees to work on civic projects when the factory is idle, and a global law firm "lends" junior staff to needy community organizations while continuing to pay them reduced salaries.

At Vail Resorts in Colorado, CEO Rob Katz announced tiered salary reductions: lower earners were asked to take a 2.5% pay cut and higher earners were asked to give up 10%, while Katz cut his own salary to zero. "The key to good management, he said, "is making decisions that come from aligning with the values of your stakeholders."

After researching the effects of layoffs in large corporations, Wayne Cascio, a professor of human resources management at the University of Colorado Denver Business School, concludes that massive reductions in force don't end up improving the bottom line, because of their cost and the long-term hit to the company's morale and reputation. It's important to "see your people as the source of the solution instead of the source of the problem," Cascio says. That's exactly what these company CEOs are doing, and I wager that the resulting increase in morale will make a powerful contribution toward helping these organizations weather the economic storm.

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