With no revenue coming in and government relief frequently tied up in red tape, businesses across America are weighing bleak options to stay afloat, and shedding costs wherever possible — from slashing pay to cutting staff or paring down benefits.
The onslaught of layoffs and cuts to retirement matching resemble some of the measures companies took after the financial markets crashed in 2008. But the monetary and fiscal policies that put the economy on track for recovery after the financial crisis can only be so effective in the face of a contagious virus with no known vaccine. The sudden halt in business as a result of the coronavirus pandemic has few historical precedents, which means companies are scrambling to find new strategies to stem the bleeding.
“What the government is doing with the stimulus is meant to alleviate this pain and stay above water without firing people,” Itay Goldstein, a professor at the Wharton School, said. “Even with that, [companies] have to take these measures and you see those responses all across the board.”
Dozens of companies across nearly every sector have laid off employees, from luxury beauty retailer Sephora to America’s biggest exporter, Boeing. Meanwhile, others have gone the route of putting employees on furlough, including TJ Maxx and Tesla, which announced this week they will furlough nonessential employees and cut pay by at least 10 percent.
“Based on conversations with clients, every company is modeling out every potential scenario that they can have and they’ll pull those levers based on their needs and how they need it,” said Gregg Passin, a senior partner and the executive solutions leader with the human resources consulting firm Mercer. “Every organization is going through these machinations.”
With so much uncertainty, many companies are resorting to sequential decision-making where they are taking short-term actions but may take new action later, depending on how the situation evolves, Passin said.
Fiat Chrysler, Ford and GM all told their employees that they would temporarily cut 20 percent of their salaries. The auction house Sotheby’s announced pay cuts in early April. Even the hospital industry is cutting salaries. Pullman Regional Hospital in Washington told its staff that their salaries will be cut by 25 percent over the next 60 days to make $1 million in cash available immediately for operations.
For some workers, a pay cut is devastating. One Michigan construction worker who wished to remain anonymous told NBC News he was training for a promotion when his company announced it would reduce his pay by 20 percent. His supervisor took a 30 percent pay cut.
“My wife is an hourly associate at a doctor’s office and it’s basically shut down,” he said, adding that his company has suspended its 401(k) contributions. “We were already treading water with my salary and her reduced hours. It’s going to be a challenge to find a way forward.”
Prior to the coronavirus shutdowns, unemployment had been at a 50-year low, forcing many companies to offer better perks to attract and retain talent in a job seeker’s market. Now, those benefits — such as higher contributions to employee 401(k) accounts — are first on the chopping block as companies try to cut costs and minimize layoffs.
Marriott International said it will delay paying matching contributions to its employees’ 401(k) accounts planned for March until September. Companies including Mattress Firm, Amtrak, and La-Z-Boy have also suspended or delayed contributions.
“This is a last resort option,” said Jeanne Thompson, senior vice president of Fidelity Workplace Consulting. “The vast majority haven’t done it and I don’t anticipate the vast majority will.”
During the 2008 financial crisis, mainly smaller companies reduced or suspended 401(k) contributions, Thompson said. By July 2009, Fidelity found only 8 percent of its companies had suspended their matches.
A sales representative with digital marketing company Thryv, who asked to remain anonymous, learned this week the company is temporarily suspending its 401(k) match “to weather this financial crisis,” according to a note to employees shared with NBC News. The company is also not offering commission relief, even though it is requiring the workers to meet its planned sales goals, the worker told NBC News.
“It just doesn’t sit well in my spirit and it doesn’t make me feel good about the company,” she said.
For furloughed workers, who are temporarily unemployed with reduced pay, life seems even more precarious. Retail associate Wendy, who asked that her last name not be used, is one of roughly 7,000 workers furloughed by Michael Kors in response to the pandemic. Wendy will only get a fraction of what her co-workers will receive because her pay is complicated by her military service. She’s now deciding between waiting for unemployment, finding a new job, or waiting to return to work.
“Right now, they don’t know if they’re going to have a job in six months,” she said of her co-workers.
For career professionals, sudden unemployment as a result of furloughs is overwhelming. A 30-year medic currently employed at a university neurology office in West Virginia learned this week she is furloughed and may not have a job on the other side of the crisis.
“I could go out and look for another job but the chances of finding something in this environment aren’t good,” she said. “I’ll do the best I can, which is all you can do.”