Trends Favor Wage, Not Job Cuts: Challenger

June 15, 2009 ( - Employers are increasingly turning to wage cuts or freezes to save money, according to a new survey.

More than half (52.4%) of human resource executives surveyed in May said their companies had instituted salary cuts or freezes in an effort to cut costs – nearly twice the level (27.2%) in the same survey last January, according to Challenger, Gray & Christmas, Inc., a global outplacement consultancy.

According to the report, there is some good news – those cuts in salaries and benefits appear to be reducing the need to make permanent job cuts. The percentage of employers making permanent cuts fell from 56% in January to 43% in the updated survey.

Overall, a whopping 86% of respondents said that their companies have been forced to initiate cost-cutting measures due to the weakened economy, though that is a slight improvement from January, when 92% of surveyed companies were cutting costs.

Other Measures

In addition to the increased use of salary cuts, the latest survey revealed increases in the percentages of companies:

  • cutting workers’ hours,
  • reducing or eliminating tuition reimbursement,
  • instituting furlough programs or forced vacations, and
  • making temporary layoffs.

Additionally, the number that had reduced or eliminated 401(k) matching contributions nearly doubled, albeit from just 11% to 19%.

“There are some signs that the economy has hit the bottom, but we are still a long way from seeing the light at the end of the tunnel. Increased consumer and business confidence notwithstanding, until there is significant improvement in spending by these two camps, companies will remain in cost-cutting mode,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.

Most companies are taking a multi-pronged approach to budget cuts, initiating an average of five cost-containment measures. The highest number of cost-cutting measures enacted was 13, while a very small percentage of companies relied on just one.

The latest Challenger survey indicates that employers announcing job cuts have initiated more cost-cutting measures than employers that have not cut payrolls. Companies that made permanent job cuts averaged an additional six cost-cutting measures, while those that have avoided layoffs averaged less than three cost-cutting measures.

"There is a perception out there that some companies have not made sufficient efforts to avoid layoffs by making cutbacks in other areas. This perception is fueled, in part, by a handful of examples of companies announcing job cuts while, at the same time, rewarding top executives with large salaries, bonuses and extravagant perks. However, these examples represent the exception," said Challenger.

"It would also be a mistake to assume that companies avoiding layoffs are doing so out of kindness. While forging good will is certainly part of the decision for some companies, many have simply cut to the bone already or never fully ramped up after the last downturn. Other companies may have more workers than they need for current business levels but are reluctant to enact widespread layoffs, knowing that a recovery will mean recruiting and training all new workers.

"It is a lot easier to restore compensation and benefits than it is to re-hire and re-train workers when the economy improves," said Challenger. In fact, Challlenger said that while there is "no telling how long this recession will last. However, when it ends, the hiring could be fast and furious."

Has your company had to cut costs in light of the current economic situation?

align="right"> January

align="right"> May



align="right"> 85.7%



align="right"> 14.3%

What measures has your company taken to reduce costs?

align="right"> January

align="right"> May

Reduced Travel Expenses

align="right"> 66.7%

align="right"> 66.7%

Hiring Freeze/Reduction

align="right"> 57.8%

align="right"> 61.9%

Permanent Layoffs

align="right"> 55.6%

align="right"> 42.9%

Cancelled Employee Holiday Party

align="right"> 32.0%

align="right"> 9.5%


align="right"> 31.0%

align="right"> 14.3%

Reduced Or Eliminated Other Perks

align="right"> 29.0%

align="right"> 38.1%

Salary Freeze/Reduction

align="right"> 27.2%

align="right"> 52.4%

Reduced Year-End Bonus

align="right"> 26.7%

align="right"> 14.3%

Cut Workers' Hours

align="right"> 24.4%

align="right"> 28.6%

Eliminated Year-End Bonus

align="right"> 22.2%

align="right"> 26.0%

Temporary Layoffs

align="right"> 15.6%

align="right"> 19.0%

Cancelled Customer Holiday Party

align="right"> 11.0%

align="right"> 0.0%

Cutback Tuition Reimbursement

align="right"> 10.8%

align="right"> 23.8%

Reduced Or Eliminated Matching Contributions To Employees 401(k) Plans

align="right"> 11.0%

align="right"> 19.0%

Forced Vacation

align="right"> 8.9%

align="right"> 9.5%

Four-Day Work Weeks

align="right"> 7.0%

align="right"> 4.8%

Instituted Furlough Program

align="right"> 6.7%

align="right"> 23.8%

Cut Office Space Through Increased Telecommuting

align="right"> 6.7%

align="right"> 4.8%