Late-recession layoffs often cost companies more money because of severance fees and later retraining and search costs, as well as productivity losses

TO BE NOTED: From the WSJ:

"Employers Make Cuts Despite Belief Upturn Is Near
Some Worry That Reductions Will Prove Costly When Recession Ends and Disgruntled Workers Can Seek New Jobs

By DANA MATTIOLI

Starting May 1, Kitchen & Bath Center, a maker of cultured marble and granite, will stop offering employees health care. In March, the company did away with its 401(k) program, and before that it placed employees on reduced schedules.

It's all an effort by the Fort Walton Beach, Fla., company to manage costs, even after downsizing from 250 workers to just 60. Although Butch Meyer, vice president of manufacturing, believes the economy will start to recover in the next 12 months to 18 months, he says the recent cuts were a "dire necessity."

But there have been consequences. When the company announced it was dropping health-care benefits, one employee resigned, and Mr. Meyer worries that more could follow suit.

The belief that an upturn is coming but cuts are required now is echoed by companies across the country. A new Hewitt Associates survey of 518 large U.S. companies found that 54% believe the economic upturn will begin at the end of 2009 or early 2010. Nonetheless, a large percentage have plans for further layoffs, salary reductions, medical-benefit cuts and changes in 401(k) matches.

Hewitt's survey found, for example, that 25% of companies are considering layoffs in the near future. Similarly, a survey conducted by the Society for Human Resource Management of 467 members found that 24% were very likely to implement layoffs over the next six months.

But some wonder whether layoffs make sense with a possible recovery around the corner. "It's a long-term solution applied to a short-term problem," says Jim Bloomer, a principal in Hewitt's talent and organization consulting practice.

Late-recession layoffs often cost companies more money because of severance fees and later retraining and search costs, as well as productivity losses, Mr. Bloomer says.

Even the employees who retain their jobs will keep feeling pinched. Hewitt's survey found that 32% of the companies surveyed are considering increasing employee health-care cost-sharing, and 19% may reduce medical benefits. Similarly, a survey released earlier this week by Watson Wyatt Worldwide Inc. of human-resources executives at 141 U.S.-based companies found that 26% of respondents expect their companies to raise employee contributions to health-care premiums over the next year.

Increasingly 401(k) matches are getting the ax, even if just temporarily. In the past few months, companies like Micron Technology Inc., Cytec Industries Inc. and the nonprofit AARP have suspended their matching programs.

While 20% of the companies in the Hewitt survey have already reduced or eliminated 401(k) matching, an additional 22% are considering doing so. In addition to these cuts, some 21% of Hewitt's respondents indicated they are considering salary or wage reductions.

Watson Wyatt's survey found that 21% of companies had already implemented salary reductions. But Peter Cappelli, professor of management at the University of Pennsylvania's Wharton School, says shorter workweeks and mandatory furloughs could be better options for companies that sense a turnaround coming. "Once business comes back, no one is quitting over a furlough," he says.

Others say that salary cuts save jobs. Arnold Worldwide, a Boston-based advertising agency with 800 employees, implemented a tiered salary cut in April. Chief Executive Fran Kelly says the measure helped him "dramatically decrease" the number of required layoffs.

In addition, he says, he won't "lose great people, have severance expenses and have clients whose services become disrupted."

After all, Joanie Ruge, senior vice president of Adecco Group North America, expects to see the beginnings of a turnaround in the temporary job market -- typically an indicator of an uptick in jobs -- in the third or fourth quarter. And if that happens, some companies could find themselves recruiting again as early as the second quarter of next year.

Write to Dana Mattioli at dana.mattioli@wsj.com"