More Employers Are Slashing or Freezing Pay

A survey shows companies using a variety of methods to cut costs--and more are cutting pay.

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While the percentage of companies cutting jobs has dropped off a bit in the last few months, more employers are now slashing their labor costs by cutting salaries, worker hours, perks (such as tuition reimbursement), and using furlough or forced vacations, according to a survey released today by Challenger, Gray and Christmas.

More than 52 percent of executives surveyed in May said their companies had slashed or frozen pay, nearly double the 27 percent of companies using those cost-cutting techniques in January, according to the report.  Companies surveyed said they were using as many as 13 measures to cut expenses, but not necessarily in lieu of layoffs. In fact, companies who laid off workers were likely to use more cost cutting methods than companies that did not go through layoffs.

Slashing benefits, pay, and perks allows companies to lower their labor costs without cutting workers. Layoffs can create a major challenge when the economy begins to recover and employers are short on trained workers. "It is a lot easier to restore compensation and benefits that it is to rehire and retrain workers when the economy improves," says John Challenger, chief executive of Challenger, Gray and Christmas.

(He does offer a little hope for the unemployed: "There is no telling how long this recession will last. However, when it ends, the hiring could be fast and furious.")

The Challenger survey comes out on the same day the Commerce Department released data on personal income for April--which rose by a surprising 0.5 percent. There were several areas of strength in the report.

"The key wage and salary category (0.0 percent) was not nearly as weak as implied by the employment report, government transfers posted another sharp gain reflecting the boost to unemployment benefits in the fiscal stimulus bill, and a number of categories that had been showing persistent weakness for some time suddenly either posted gains or much smaller declines, including small business profits, rental income, and earnings on assets," Morgan Stanley economists Ted Wieseman and David Greenlaw said in a morning note.

While income was up, consumer spending fell 0.1 percent in April and the savings rate jumped to a 14-year high. That's a good thing (just ask Suze Orman) but the economic recovery will be slower without the enthusiastic consumer of recent years.

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