When companies negatively compete -- you lose!

by SixFigureStart | June 09, 2009

  • My Vault
"If enough companies use pay cuts to avoid layoffs in the future, then the unemployment rate may no longer give a true reading on how workers are faring."

A pretty bold statement from the Wall Street Journal. But that does seem to be what's happening -- with many firms operating at a bare-bones level staff-wise, pay cuts and furloughs are the next frontiers of worker torment. A May poll of HR departments by Challenger, Gray & Christmas found that more than half reported salary reductions or controls, compared to just 27% in January.

The publishing industry, which started a sharper decline in 2007 after several years of slippage, was perhaps the first sector to implement these tools in this recessionary go-round. For a recent illustration, one need look no further than Boston, where The Globe had to choose between two disagreeable options. The paper's New York Times Company parent initially threatened to shut the paper down altogether, hoping to plug a financial leak that pushed past $50 million last year. Newspaper Guild workers were presented with a choice: approve a package consisting of a moderate pay cut, furloughs and other concessions, or suffer pay cuts of up to 23 percent. Yesterday, the guild voted narrowly to reject the contract, hoping for more negotiation, but the Times Company said it was ready to install the pay cuts.

It seems like firms are conducting a great geometric experiment: How do we find the absolute point of worker frustration, where decreasing employment packages any further would cause them all to quit, plunging the company into ruin? (Excuse our mathematical geekdom, but that would be the vertex of a parabola, where x,y equals...) It would be nice if, once this is all over, we entered a period of hyper-competition, in which companies would have to offer workers massive salaries, ridiculous benefits and free food to come aboard (like that commercial in which bank managers fall over each other to be selected as the lender). But with the immutable laws of supply and demand, and millions of unemployees, that's just not gonna happen anytime soon.

Have you weathered a cycle (or two) of layoffs, only to have your paycheck squeezed later on? What have you done to cope, financially and mentally? And if you were in charge, what would your solution be? Unburden yourselves -- give us some love, i.e. comments, below.

Or, as an alternative, get out your class notes and develop the parabolic equation called for above. Define your variables and show all work. Boa sorte!

--Posted by Todd Obolsky, Vault Staff Writer

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