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Until recently, corporate America would never consider cutting the salaries of many to avoid cutting the jobs of a few. But these days, a wide range of businesses, from San Francisco ad agencies and high-tech outfits like Agilent to steelmakers in Pittsburgh, are breaking the taboo. "We did a 7% layoff that probably would have been 15% had we not done some creative things," says Charles Morgan, 58, CEO of the database-management firm Acxiom, of Conway, Ark. In April the company made a 5% reduction in salaries for people earning more than $25,000, then gave stock options to 2,000 other employees who took a voluntary 5% cut. "Not only did we save 400 or 500 jobs," says Morgan, "but everybody now is a big shareholder." It seems to be working. Just last week Acxiom announced that it expects to meet or exceed analysts' earnings estimates for the quarter that just ended--a rarity nowadays.
When Joe McClure gathered his 160 employees at the Montrose Travel agency in Montrose, Calif., to explain the temporary 10% pay cut they would all be taking, there was hardly any of the usual office grumbling. After all, thanks to the nation's collective travel gridlock, many of their peers had already lost their jobs--including 16 workers that McClure himself had to let go to guarantee that his $118 million-a-year business would make it through the current turbulence. "When you look at the big picture, our situation is a lot better," says Maria Meza, 37, a travel agent who has been at Montrose for six years. To handle the pay cut, she has scaled back her weekly housecleaning service to every other week and eats out less often with her husband and three children.
For Ollie Galam, owner of Executive Clothiers, a men's store in Prospect Heights, Ill., today's hard times have triggered a reappraisal of his salespeople's pay formula. He is considering lowering typical base salaries from $40,000 to $35,000 and offering higher commissions. "We have to shift more of the risk to employees," Galam says. "The owner can't take all of it anymore."
Because sometimes it doesn't pay off--for employee or owner. In May, Robert Barton of Burr Ridge, Ill., took a $10,000 pay cut when he switched from his old job at an energy trade publication in Washington to a position as a manager at a business-intelligence outfit in Chicago, lured by the prospect of earning hefty commissions based on the business he helped bring in. "I saw the upside of this arrangement," he recalls. Soon enough, he saw the downside. On Sept. 14, the national day of mourning for the terror attacks, he was let go during his lunch hour. Now neither Barton nor his wife Sherry, who quit a job last January to take care of her dying mother, has any health insurance. With an eight-year-old daughter to support, they're expecting to have to borrow from their retirement accounts just to pay their mortgage.