More companies cut pay to cut costs

Giving workers the boot isn’t the only way businesses are trying to reduce costs these days. Broad-based pay cuts, long frowned upon, are being imposed by a growing number of companies, big and small.

It is a risky strategy that experts say can sow discord in the workplace. But some employers say they prefer cost-cutting that preserves as many jobs as possible, even if it means more workers will be affected.

FedEx Corp. cut wages for 36,000 salaried workers last month. At construction-equipment maker Caterpillar, many employees will see their pay reduced by as much as 15 percent. Gymboree Corp., the San Francisco-based children’s clothing retailer, is cutting senior executives’ salaries by up to 15 percent and the pay of some other staffers by as much as 10 percent.

Union workers at YRC Worldwide Inc., the nation’s biggest trucking company, voted last week to accept an across-the-board 10 percent pay cut to help their employer weather the slump in freight traffic.

The trend is also hitting workers at nonprofit organizations and in state and local governments.

“Companies would rather cut jobs than cut pay,” said John Challenger, chief executive of consulting firm Challenger, Gray & Christmas. “If a company is cutting wages, that’s a sure sign of recession.”

For most employers, layoffs and other cost-cutting tactics are still the preferred way to survive a downturn. The government reported this month that U.S. companies slashed 524,000 jobs in December as the recession entered its second year.

Nearly 47 percent of the companies surveyed by Challenger late last year said they had laid off workers; hiring freezes and cuts in travel expenses were the only strategies cited by more companies.

Workers are being asked to make other sacrifices as well. A raft of companies are eliminating bonuses, freezing salaries and pension plans, and stopping matching payments to 401(k) retirement plans. Some are mandating unpaid furloughs.

And companies that plan to give raises this year expect to be miserly with them. In a survey of 620 big employers last month, compensation consultants Hewitt Associates found that half planned to make “significant changes” in payroll spending in 2009, with average raises expected to drop below 3 percent.

Compared with how employers reacted to the downturn in 2001, “this is a much more severe reaction by companies,” said Ken Abosch, head of Hewitt’s compensation practice.

Abosch said wage cuts had “always been kind of taboo” among employers. The reasons range from financial – cutting wages doesn’t get rid of the cost of payroll taxes and employee benefits – to morale concerns.

When a worker is laid off, “the guy is gone; he may be unhappy, but he’s not unhappy in your workplace,” said Dan Mitchell, professor of management and public policy at the University of California, Los Angeles. “Whereas, if you spread the pain around, you have a lot of people who are demoralized.”