Despite Painful Cutbacks, These Companies Still Have Recruiting Power

March 1, 2004

The economy was just beginning to sour in 2000 when Synygy Inc. saw the writing on the wall. The suburban Philadelphia company was used to explosive growth--80 percent on average annually since its founding in 1991. But Synygy’s clients were cutting back, and management realized it had better prepare for slower growth.

    Sure enough, demand for Synygy’s performance-management software and services dropped off, and growth slowed to 50 percent, then 30 percent. Ed Steinberg, vice president of human resources for the company, says the solution was pretty straightforward: either increase revenue or decrease expenses. The company decided to ask its employees for help in cutting expenses.

    "There is a good way to cut costs and a not-so-good way," says Steinberg. "The benefit that comes with listening to their ideas is that the process becomes a partnership. They could see the situation. We were sharing all our information with them."

    Synygy, like many other companies negatively affected by the economy, knows that to thrive and grow in the good times, it must preserve its human capital in the bad times. If cost-cutting and containment is handled in a way that doesn’t disenfranchise employees, doesn’t leave them feeling unappreciated and resentful, it can be used to help with retention and recruiting in the upturn. Goodwill and loyalty aren’t easy to quantify, but their existence in a workforce can change an employer’s image in the eyes of both employees and customers from cold-hearted to compassionate.

    Michael Harris is a professor of management in the college of business administration at the University of Missouri-St. Louis. He says being candid with employees the way Synygy has is vital to a company’s success because when the promised upturn arrives, the last thing managers want is to see embittered employees jumping ship or to have trouble recruiting new talent.

    "Public relations and communication internally is more important now than it ever was," Harris says. "The tendency for managers in tough times is to hide information, but now I see them communicating with employees instead."

    Fred Crandall is co-author of The Headcount Solution: How to Cut Compensation Costs and Keep Your Best People. "During this downturn," he says, "the best companies took a look at their future focus. They didn’t just lay people off, but asked, ‘How can we get through this and keep the people we need to build the company in the future?’ "

   Studies conducted in 2001 and 2002 by WorldatWork show that U.S. companies are increasingly looking to cut or contain costs in ways other than layoffs. In the 2002 survey, 58 percent of respondents had reduced or suspended annual pay increases or were considering doing so; 46 percent were considering reducing or suspending bonuses or incentive pay or had already done so. Other cost-cutting measures included voluntary severance and early-retirement packages. In the 2002 survey, the use of alternatives to layoffs, such as hiring freezes, job sharing and contracting arrangements, had increased from the 2001 survey.

Tapes worth thousands
    Layoffs weren’t necessary at Synygy, which launched its cost-savings idea competition at a quarterly company meeting and then reinforced it through the intranet. Steinberg says that Synygy’s employees, who tend to be entrepreneurial anyway, were energized by the opportunity, and that the response was "outstanding." Management got about 200 suggestions, and the person whose idea had the biggest financial impact received a cash reward of $500. Steinberg also tied the submission of ideas into the company’s existing rewards program, normally used for employee referrals. Employees earned points for their ideas, which could then be used to purchase items in the Synygy store.

    Other than having to increase inventory in the store, the program cost virtually nothing, except for the time expended by employees to think of ideas. The winning idea suggested that Synygy recycle the tapes it uses to store information. Each day the company backs up its server and stores the information on tapes, thousands of them, which are kept for years. Now it saves only three months’ worth of backup and reuses the rest of the tapes. "It saved us literally thousands of dollars," says Steinberg. Another suggestion the company implemented was to combine multiple daily FedExes to other office locations into a once-daily or once-weekly mailing. That saved hundreds of dollars, he says.

    Although annual growth at Synygy is at 25 to 30 percent, down significantly from what it was three years ago, it’s still impressive. And employees, who know they had a hand in keeping a lid on things, have said in anonymous quarterly surveys that they are pleased to be part of the process.

Six months of pain
    The downturn also took its toll on Healthwise, a Boise, Idaho-based nonprofit organization that publishes consumer health information. The company’s 110 employees are motivated by a common mission: helping people care for themselves and their families. The atmosphere at Healthwise is collegial and relaxed; every office has a window, and the culture is one of openness. So when the company realized it would have to lay off about 10 percent of its workforce after the triple terrorist attacks on the United States, it was honest with its employees. "Still, our employee-satisfaction survey results immediately following the layoffs took a big hit," says Donald Kemper, chairman and CEO.

    The day after layoffs were announced, Kemper held a staff meeting and told employees that pay cuts would also be needed. Hourlies received no pay cut; exempt employees took a 5 to 10 percent cut and executives a 10 to 20 percent cut. The salary reductions saved the company about $250,000 and the layoffs another $537,000 per year, about 7.5 percent of total revenue.

    After six months, it was clear that Healthwise had fared far better than expected, and Kemper pushed to have employees’ pay restored to pre-reduction levels. It also paid back the money it had held back during those six months. "It was a tough sell to the board," he says, "but I really felt it was the right thing to do. It was immensely well received, and brought us an enormous amount of goodwill and loyalty. I think it has created a sense of trust that we will do the right thing by employees, and that is how we want to be known."

$50,000 well spent
    Rising health-care costs was the major problem for Flight Options, which sells aircraft on a fractional basis, giving companies access to a fleet of jets on four hours’ notice. In the midst of the downturn in 2002, the Cleveland company merged with a division of Raytheon Travel Air. This made Flight Options the second-largest fractional jet provider in the industry and doubled its size overnight.

    After the merger, Raytheon’s employees went from having a health-benefits plan powered by the buying clout of 33,000 employees to one that would have to meet the needs of a company with 1,400 employees. Bob Sullivan, Flight Options’ director of human resources, says the price of benefits was simply better with 33,000 than it was with 1,400, so the company could not afford the package Raytheon had in place. Sullivan was concerned that Raytheon’s employees would become resentful of the changes and that when economic conditions improved, they’d quit.

    Sullivan conducted an anonymous opinion survey, giving employees a hypothetical open checkbook and asking them to design any benefits package they wanted. He learned that they wanted affordable health insurance, as well as dental insurance and additional vacation benefits. The big message, however, was a desire for work/life balance.

    Flight Options began offering flextime for tenured employees, on-site dry cleaning, tuition reimbursement, a preferred new-car purchase rate at Ford, gift certificates for expectant mothers and on-site banking. During peak travel times, when employees routinely work 10-hour days, they receive free gourmet meals, snacks throughout the day and chair massages. Employees loved the perks. "Feedback was phenomenal," says Sullivan.

    On average, the investment for the new benefits, as well as a monthly picnic to welcome new employees, was about $50,000 annually. "It’s a very small investment compared to our revenue," says Sullivan, who declined to give specifics but said Flight Options had record sales in 2003. Net sales for Raytheon in the third quarter of 2003 were $4.4 billion, up from $4.1 billion in third-quarter 2002. Third-quarter results include $141 million in sales from Flight Options.

    The company managed to establish a benefits package for far less than it had anticipated--spending $900,000 less than budgeted--and used the difference to significantly reduce the amount each employee has to pay for benefits. That $900,000 could have been put back in the company’s coffers rather than being used to help employees. Flight Options has now rebranded itself as "the preferred employer," largely because of its benefits. "We want to be the employer of choice in this industry," says Sullivan. "By rewarding our employees this way, we hope to attract and retain the best people."

Re-recruiting at Accenture
    Sabbaticals were the elixir for Accenture. In 2001, it faced a decrease in client demand and had more employees than it needed. To keep layoffs minimal, the consulting company created FlexLeave, a voluntary sabbatical program of 6 to 12 months. Employees were paid 20 percent of their salaries and kept all their health benefits, as well as their laptops and e-mail. They were still employees of Accenture, but were able to do whatever they wanted.

    Keith Hicks is Accenture’s director of human resources for the United States. "It wound up being a fantastic thing for Accenture’s business and our people," he says. "It has had an enormous positive impact on our community and the global community. We had people teaching at schools for underprivileged kids, teaching English to students in China, doing all kinds of volunteer work."

    Two thousand employees in the United States took advantage of the program, which ran for about 18 months, until the end of 2002. Hicks, who is based in Atlanta, says that even those who didn’t participate in FlexLeave wrote to him and said they were proud of the company for creating it. For those who did take part, the outpouring of loyalty and gratitude toward Accenture was, he says, unbelievable. "The loyalty factor increased exponentially; they couldn’t believe that their employer would give them such an opportunity. I spoke to many who went out on FlexLeave, came back and said they felt re-energized, as if they had been re-recruited."

    Accenture saved 80 percent of the payroll costs for the 2,000 employees who took the sabbaticals, but did eventually do layoffs. The company wouldn’t provide many details on the layoffs, but it was reported in August 2001 that Accenture had laid off 600 support staff. In 2003, the company, which has 25,000 U.S. employees, created the Accenture At Home program, which gives certain segments of its workforce the option of working from home three or more days a week. It's just been rolled out in Atlanta, but will soon hit all other U.S. cities where Accenture operates.

    Branding itself as an employer that recognizes the need for work/life balance and gives employees flexibility has helped the company retain the highly skilled talent it relies on--and that isn’t easy to find. "Everyone feared when things started to improve that we’d have a mass exodus, but we’re not seeing that," says Hicks. "Business is picking up in our industry, but we’re not seeing the exodus, and I think the loyalty we gained is paying off."

Flexibility "will keep them here"
    Sun Microsystems has frozen raises and hasn’t given bonuses in two years, but it’s banking on a program called iWork to give employees some much-sought-after flexibility. With iWork, employees can access Sun’s server from anywhere using a device called a Sun Ray, a laptop computer that costs about $400 and has no hard drive. Right now, about 65 iWork employees have a Sun Ray at home, part of Sun’s pilot SunRay@Home program, and the company plans to expand that to between 300 and 400 users by the end of March 2004. However, 27,000 of these computers have also been deployed at Sun’s campuses globally, including iWork flex offices, iWork drop-in centers, iWork Cafés and iWork kiosks. Employees use a Java card encoded with their identification information to connect to the company server via the Sun Ray computer.

    iWorkers at home without a Sun Ray can plug into the company remotely via their traditional laptop or a PDA device and access most of their files, although it’s not as secure as using the Java card and Sun Ray. Either way, the office comes to the employee. "It’s about being remote, about being mobile. It’s a cost-containment strategy," says Ann Bamesberger, director of the iWork Solutions Group. "We don’t have to pay for that 1950s office you aren’t working in anymore because you’re in transit, at meetings with customers or at home."

    Of Sun’s 35,000 employees, 14,000 take advantage of iWork. Rather than rebranding itself, Sun is enhancing its brand. Flexibility is one thing it offers customers, Bamesberger says, and an important part of doing that is offering iWork to employees.

    "All of us in this industry are facing the same freezes, and people in other companies are biding their time until they can leave," she says. "We think the benefits of iWork, giving employees the life balance they don’t have in a traditional work environment, will keep them here." Employee surveys done over the last two years show satisfaction rates at between 75 and 80 percent. Sun’s total cost avoidance in 2003, the money it didn’t spend building traditional offices or investing in real estate, was $65 million. Electricity savings alone--Sun Rays require just 11 watts of power to run, whereas most lightbulbs are between 60 and 100 watts--is over $2 million.

    Those savings are needed. Sun lost $125 million in the second quarter of fiscal year 2004. Net revenue is down $6.8 million from what it was in 2001. Although the company’s stock has rallied since the start of 2004--largely on the strength of its partnership with chip maker Advanced Micro Devices--Sun faces an uphill battle as it tries to grow revenue and reach profitability.

    Linda Crowe, group manager of the enterprise systems product group, is an iWork employee. She’s been at Sun for eight years and has been working remotely for 18 months, which she has found liberating. "I have to say, if I were to be offered a position that required an hour commuting a day, that would be hard to consider," she says. "I’m used to this flexibility."