OT/ More Big Companies End Perks; Critics Say Cutbacks Sap Morale
interactive.wsj.com
By JOANN S. LUBLIN
Staff Reporter of THE WALL STREET JOURNAL
The frills are gone.
Spurred by a souring economy, U.S. companies of all sizes are trimming little extras to avoid layoffs -- or curbing perks just before they bury employees under a blizzard of pink slips.
Management typically justifies these small-scale cutbacks as necessary belt tightening. But critics contend that this penny-pinching is generally cosmetic and invariably saps morale. "Nickel-and-dime cuts are really enervating," insists Charles Heckscher, a Rutgers University professor of management and labor relations. "How can you be proud of a company that can't even afford coffee?"
The trend, which surfaced among struggling dot-coms last year, is now spreading among bigger businesses. Aetna Inc., the nation's biggest health insurer notified approximately 4,000 staffers in Bluebell, Pa., Wednesday that they must pay for their currently free coffee and tea after Feb. 2 -- a move expected to save $400,000 a year. (The beverages already cost employees at other Aetna locations.) The company also canceled helicopter-shuttle service this week between Bluebell, New York and its Hartford, Conn., headquarters. Aetna announced plans last month to cut its work force 12% during 2001.
Telecommunications-equipment maker Lucent Technologies Inc., struggling to reduce expenses by $1 billion this fiscal year, recently reminded all employees to stay in budget hotels and fly coach on all but very lengthy business trips. Discount brokerage Charles Schwab Corp. last month announced a slew of cost controls aimed at preventing layoffs. Among other purportedly remedial measures, Schwab urged cancellation of company-paid magazine subscriptions, professional dues and in-house catered events.
At beleaguered Xerox Corp., some divisions have stopped stocking watercoolers -- in addition to suggesting that employees make Xerox copies only when absolutely necessary.
Some cost-cutting steps may lead to the loss of valued employees. "You can go too far" in slashing spending, says Gary T. DiCamillo, chairman and chief executive officer of Polaroid Corp. "People begin to ask, 'Why should I be here?' " That's largely why Mr. DiCamillo refuses to lower employee discounts on company merchandise -- even though the Cambridge, Mass., manufacturer of instant cameras and film pledged to reduce spending after issuing a fourth-quarter profits warning last month.
One hitch: The discount for Polaroid's popular I-Zone Instant Pocket camera already has effectively disappeared. Polaroid is promoting the camera so heavily that "you can find it for under $20 at [some] retail outlets," reports spokesman Skip Colcord. Staffers pay $21.95 for the camera at company stores. The disparity doesn't bother Polaroid people because everyone is a shareholder, he adds.
Minor cost cuts unveiled in early November at Walker Digital Corp., did distress certain employees there. Among other things, the closely held think tank of Priceline.com Inc. founder Jay Walker decided to abandon free breakfast, lunch and dinner at its Stamford, Conn., headquarters. "It becomes offensive to be told you have to pay a high price for food when [the company] has wasted millions on other things," contends Stephen Mott, ex-president of Priceline Webhouse Club, the name-your-own-price grocery business that Priceline shut down in October.
Walker Digital began charging for food ($2.25 per muffin, for example) on Monday, Nov. 20 -- the same day that 100 of its 125 employees got layoff notices. Morale among survivors currently "is about as low as it can be," says a 42-year-old former Walker Digital professional. He went out for lunch when he lost his job that week.
Spokesman Kevin Goldman says Walker Digital stopped serving breakfast and dinner last month. The 30 remaining full-timers don't mind paying for lunch "because the prices are so reasonable," he explains.
How badly small-scale cuts hurt rank-and-file morale often depends on whether senior executives share the sacrifice. A midsize financial-services concern ignited a major uproar when it tried to shrink expenses by eliminating company-provided cell-phones about a year ago. Salespeople were outraged because "no other group in the company had their cell-phone use restricted," recalls Lynda Ford, president of Ford Group, human-resources consultants in Rome, N.Y.
The canceled perk "became the straw that broke the camel's back" among already disaffected salespeople, says Ms. Ford, who conducted an organizational assessment for the Virginia concern at that time. Turnover rose and productivity fell within the 110-member sales force. The company soon reinstated the cell-phone benefit.
Top Schwab leaders are sharing the cost-cutting pain -- to a degree. Numerous low-level employees volunteered to cut their pay after officers agreed to reduce their salaries between 5% and 50% this month and next, according to Glen Mathison, vice president of corporate communications. "People understand that in bad times, it's time to buckle down," he says, because Schwab "was willing to share in good times." Company cafeterias served free food all day long during the frenetic bull market early last year.
And while Schwab executives still get to use two kitchens at the firm's San Francisco headquarters, "we have made the food in those kitchens more basic," Mr. Mathison says. "We're certainly looking at all the little ways in which we spend money." (He declines to be more specific.)
Nevertheless, a companywide ban on first-class travel, imposed in November, doesn't affect Charles Schwab and David Pottruck, the company's co-chief executives. The pair continue to fly separately on a pair of corporate jets.
Trimming frills also can endanger customer relations by making a business appear desperate. Schwab's latest discouragement of catered meals covers internal and external get-togethers, for instance. Analysts fear that could impede efforts to bring in more wealthy clients. "If they are doing this [catering ban], that's penny-wise but pound-foolish," says Amy Butte, a Bear Stearns Cos. securities-industry analyst.
Schwab "caters to high net-worth individuals by providing them with investment services -- and not by treating them to catered dinners," Mr. Mathison retorts. "There's no cutback in the service we provide to customers."
The biggest shortcoming of paring small perks may be that such cuts rarely last long. Amid a broad belt tightening in the early 1990s, AT&T Corp.'s then vice chairman, Randall L. Tobias, strongly urged an end to free coffee and Danish pastries during staff meetings companywide. The ban was widely put in place.
"It was viewed in some quarters as petty penny-pinching. There was some resentment," remembers longtime spokesman Burke Stinson. When the telecom giant got other costs under control a few years ago, he adds, the free coffee and pastries widely reappeared. |
