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February 26, 2002
Mandatory Vacations as a Cost-saving Measure
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panies that need to cut costs but want to avoid layoffs are turning increasingly to forced vacations, according to the Christian Science Monitor.

These employers reduce their employees' work hours by asking them to take vacations that are either paid or unpaid, depending on the 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."

Work slowdowns and subsequent cuts in employees' workweeks are nothing new in the manufacturing sector. But experts tell the Monitor that this recession marks the first time 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.

Hewlett Packard asked its employees 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, it asked them 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."

HP tells the Monitor that 95 percent of its workforce joined in the June cost-cutting measure, saving the firm $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."

Although some companies have used the time-off policy to avoid more layoffs, others have made it clear that the tool is a way to cut costs, not necessarily to save jobs. At Delta, for example, some 460 pilot layoffs have been announced since Sept. 11.

To view the Christian Science Monitor article, click here.

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