4
May

This from today’s Wall Street Journal:

General Motors Corp. confirmed Wednesday it will force salaried workers to take up to three months off each year with partial pay as part of an effort to reduce costs during its expected summer shutdown of its car-making plants.

The program, called Salaried Downtime Paid Absence Policy, states that salaried and executive employees could be required to take time off in one-week periods. During the time off, an employee’s salary would be reduced to 75% of full salary. The program is in effect starting Friday.

GM told its employees that any required time-off at a 25% pay cut will not exceed more than 12 weeks in a calendar year. It could be mandated during periods when there is lack of work, according to an employee briefed on the program. For an employee asked to take time off for the entire 12 weeks under the program, the salary cut would amount to about 5.8% of total salary.

In our research on downsizing, we’ve found that across-the-board cost cutting like this rarely achieves its intended goal of actually reducing costs.  That’s because such measures have a significant negative impact on employee morale, among other negative outcomes.  I suspect that this new downsizing initiative will only speed up the departure of some of GM’s most talented employees.

Aneil

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  • By CV Harquail, May 4th, 2009 at 4:10 pm

    Aneil,

    Krugman’s Op-Ed in today’s times raises another issue with across the board wage cuts … overall wage deflation, yet another manifestation of the paradox of thrift.

    Do you know why it is, at the most technical level, that broad wage cuts don’t achieve cost-cutting results? Is it b/c competitors also drop salaries and thus prices must drop, or something else?

    Any thoughts where this leaves an organization that does not want to cut jobs/employees, but does want to cut costs? Are we back to process re-engineering? Ideas? I want to figure this out….. cvh

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