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Furloughs: Stupid Management Trick or a Smart Business Practice?

March 27, 2009
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Related Topics: Layoffs, Employee Engagement, Downsizing, Compensation
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Funny things happen when times get tough. Issues that seemed critically important a year ago--like the war for talent, employee engagement and the mass retirement of baby boomers , has just fallen off most managers’ radar in the Recession of 2009. You don’t hear many people talking about these topics all that much anymore, because stuff like that kind of goes by the wayside when your business is struggling and your major worry is just survival and keeping people employed.

Instead, we’re getting bombarded by all manner of things having to do with cutting costs and keeping things going until the turnaround comes. For example, how many of you were talking about furloughs at this time last year?

“Furloughs are really coming under much greater consideration by employers,” says Julie Gebauer, managing director at human resources consulting firm Towers Perrin, in a recent USA Today story. “Historically, industries such as heavy manufacturing, retail and airlines have furloughed employees when demand for their products or services slowed,” the story adds, “ but a growing number of other sectors have put this option on the table when analyzing ways to slash expenses.”

For example, the nation’s largest newspaper company, Gannett (corporate parent of USA Today) did so well in saving $20 million in the first quarter of the year by requiring unpaid employee furloughs, that the company “mandated a second round of unpaid furloughs for most of its 41,500 worldwide employees, this one during the second quarter,” according to the independent Gannett blog.

I worked as a top editor at Gannett newspapers in Montana and Hawaii during the mid-1990s, but these furloughs are way beyond anything I experienced while working for them.

And that’s something to keep in mind: Furloughs are one of those management tricks that seems to be spreading like a Southern California brushfire because it’s a way for an organization to cut costs without actually going through the emotional and financial toll of cutting staff.

It also gets into the notion of shared sacrifice because it spreads the pain across everyone in the workforce. Employees intuitively understand that. They would rather sacrifice a little if it helps one of their colleagues keep a job, but I don’t see a lot of organizations touting that as one of the “benefits” (if that’s the right word) of a furlough.

Yes, “a forced furlough is better than losing a job,” as Frank Ahrens notes at Web site The Big Money, “but it leaves already-at-risk employees feeling even more powerless, buffeted about by bosses and balance sheets.”

 The story is well worth a read because it pitches an interesting notion: turning the concept of unpaid furloughs into a series of three-day weekends.

“Why a three-day weekend? Why not? We’re Americans. We love three-day weekends. … Employers could save billions in salary expenses--savings that could prevent layoffs and free up capital for growth or to aid the company’s balance sheet,” the story says. “[And] workers could use their furlough weekends to add a second income. They could turn a hobby into a business or startup and maintain a largely self-perpetuating business, such as property management or any number of online businesses.”

But, there’s another compelling reason for considering the concept of the three-day-weekend furlough: It gives “employees a measure of control over their fate. If an employee is laid off or furloughed, the employer sets the terms. The employee feels powerless. The furlough weekend would go a ways toward changing that.”

This is a “nontangible benefit” for workers, as the story points out, but the potential savings for employers can be substantial--$261 billion in total payroll savings (based on 2008 numbers), if each of the 154 million full-time employees in the U.S. took 10 furlough weekends per year.

That’s the best-case savings, of course, but even a fraction of workers doing this--say, 10 percent--equals about $26 billion in annual payroll savings. That’s a huge chunk of money and would go a long way toward helping to get American businesses back on track again.

I don’t know if this is a viable option, but it is a very intriguing and interesting notion. It is the kind of thinking that elevates the concept of furloughs from just another “me too” business trick to a strategic business practice for bosses and employees to thoughtfully discuss. And given today’s economy, we need to be having a lot more of those discussions than we’ve ever had before.

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