Some firms make layoffs the last option

WASHINGTON - Even as the recession cuts deeply into their revenue, some companies are opting to keep all their employees and find other ways to trim costs.

Their strategy isn't about mercy. It's built on the notion that layoffs bring high costs and hassles of their own.

Profits at Costco Wholesale Corp. are down 27 percent from a year ago, for example, but the discount store has not laid anyone off. The only workers let go have been holiday seasonal hires.

The company says it recognizes that labor remains its most valuable - if costliest - resource. To trim costs, Costco imposed a hiring freeze at its corporate offices.

"We're certainly sharpening our pencil everywhere we can," said Bob Nelson, Costco's vice president of financial planning and investor relations. Nelson said he couldn't recall any layoffs at Costco since the closing of some stores in the 1980s.

Layoffs typically mean companies have to pay severance costs, which vary widely by occupation and industry. A retail clerk, for instance, might cost a company $1,000 in severance. A low-level white-collar manager paid $50,000 a year could get $5,000.

Higher-paid professionals who earn well into six figures - accountants and lawyers - could get $50,000 in severance, estimated Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Even so, companies that have avoided layoffs are the exception, not the rule. Employers have cut 5.1 million jobs since the recession began, including 663,000 last month.

But economists say it's a wise move for some companies to keep their workers and cut elsewhere.

"If you overshoot on the downside and lay off workers, it puts the company at a disadvantage when the economy comes back to life," said Sean Snaith, economics professor at the University of Central Florida. It's also costly, since companies then have to find, hire and train new workers.

Of course, the other steps companies are taking to cut costs now are not exactly harmless to workers. Chief among them: capping the number of hours employees can work, cutting or freezing pay, and suspending matching payments to 401(k) retirement plans.

Casino operator Wynn Resorts is trimming pay and cutting back on retirement-fund matches. Credit agency Equifax Inc. froze pay for all U.S. employees for 2009 and at some of its foreign offices as well.

Marvin Windows and Doors, a Minnesota company, hasn't laid off any of its 5,300 workers - despite the collapse of the housing market. Its sales were flat in 2008 and have fallen this year.

"We can't easily replace skilled craftspeople and their decades of experience," said Susan Marvin, president of the company.

Instead, Marvin Windows and Doors has trimmed the time factory workers are on the clock - from 40 hours a week to 32. It's a sacrifice David Peterson, who is 56 and has worked there for five years, is willing to make.

"You may have your hours cut, and that's not easy," said Peterson, who maintains machinery for Marvin. "But you still have your job, which gives me a lot of peace of mind."