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No layoffs: A crucial step for sustainable manufacturing

Paul Studebaker, CMRP, editor in chief, salutes the companies that make a point of never laying off employees.

By Paul Studebaker, CMRP, Editor in Chief

You can find support for any position you’d like to take concerning the direction of the economy — getting better, stagnating, double-dipping — but regardless of where you think, or hope, it’s going, the fact is that most revenues remain down, budgets are tight and expenses are under the gun. Nowhere is this more apparent than in our nation’s schools, state and local governments, and industries where strong unions are refusing to open contracts or contemplate salary and benefit concessions to help balance the books.

And why should they? Every dime in those contracts was won over years of hard negotiations with management that would not hesitate to pull out the pink slips at the first sign of a decline in orders. “Work is slow, so go home. We’ll call you when things pick up.” Too often, the only laid-off workers who waited around for things to pick up were the ones who weren’t good enough to find a better job.

Some companies make a point of never laying off employees. A worker might be fired for cause, for poor performance or for not making it through a probationary period, but will not be laid off for lack of work. A significant number of such companies are U.S. manufacturers, including Nucor, Baldor and Lincoln Electric. Instead of signing legal labor contracts, these manufacturers have entered into social contracts with their workers, including company policies to not lay them off.

They’ve stuck with them through the tough times of the ’80s, ’90s and now the Great Recession. “We don’t believe in sending talented, experienced people out the door in tough times,” says John McFarland, chairman and CEO, Baldor.

No-layoff companies might reduce everyone to a four-day week and 32 hours of pay, but when work increases, they’ll pay everyone overtime and make it up, rather than hiring new employees at straight time.

Some companies are able to divert unneeded employees to other work or to training programs, including cross-training and retraining to prepare them for work that’s in demand. Some extend holidays or offer unpaid sabbaticals. Others turn to the employees themselves for fresh ideas and suggestions for how to reduce costs without layoffs and have received employee support for severe expense reductions and even pay cuts rather than layoffs.

The companies that have had the policies the longest have built them into their corporate strategies, using contract workers and overtime to handle peak loads so they can be sure to be able to keep their workers’ jobs. When CBS News asked how he could avoid laying off workers over the past year, Lincoln Electric CEO John Stropki said, “Because we don't lay off workers, it's as simple as that. If you make a commitment that you're not going to do it, then you find ways not to do it.”

There’s little evidence that no-layoff companies do better — or worse — financially. A formal study of otherwise-comparable Fortune 500 industrials with and without no-layoff policies compared net income as a percentage of sales, net income as a percentage of assets, and net income as a percentage of equity from 1987 through the 1990s and found no statistically significant difference.

But they’re more likely to still be here. U.S. manufacturers that make the commitment and plan to keep their employees on the job can’t do it by outsourcing their manufacturing, nor by closing plants and moving production somewhere else.

As Fred Wells, who spent 35 years at Lincoln Electric, told CBS News, “Anybody can lay people off, but it takes good management to keep people working.”

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