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Even White House isn't immune from pay freezes

WASHINGTON — What do Tropicana Casino and Resort, Avis and the White House have in common? • They're all freezing the pay of some of their workers. It's part of a growing trend by employers facing the fallout, economic and political, from a brutal recession. • For companies, pay freezes are a key cost-cutting tool for surviving hard times.

For President Obama, who ordered a pay freeze for roughly 100 White House employees earning more than $100,000 a year, the move on his first full day in office sent a message to a nervous country: We're in this together.

"During this period of economic emergency," Obama said, "families are tightening their belts, and so should Washington."

The unemployment rate has bolted to a 16-year high of 7.2 percent. Last year, 2.6 million jobs vanished, the most since World War II. The jobless rate is expected to march upward and layoffs to pile up even with the proposed $819 billion stimulus package.

More squeezed employers, though, are seeking an alternative to layoffs. They're turning to pay freezes, pay reductions and other cost-cutting options, such as ending their contributions to 401(k) accounts.

"All of that hurts, but nothing hurts more than losing a job," said Allen Sinai, chief global economist at Decision Economics Inc. "It is a growing trend as companies try to cut costs. Going forward, we will see more of this, absolutely."

Creative cutbacks

The Federal Reserve has taken notice. In a recent survey of economic conditions, it observed that in parts of the country, companies are resorting to "pay freezes or reductions in compensation."

A wide range of employers have followed suit. In some cases, they're imposing pay freezes or cuts to avoid immediate layoffs, though economists say such steps tend to lead to layoffs anyway. In other cases, employers are cutting or freezing pay and laying off workers.

"It's a real tectonic shift," said Terry Connelly, dean of Golden Gate University's Ageno School of Business. Such steps, which once affected mainly union workers, are spreading to white-collar industries, he said.

"The extraordinary pace of layoffs has shifted people's internal calculations to the point where they are not only willing to take a pay cut to save their job but also take a freeze to save their co-worker's," Connelly said.

Tropicana Casino and Resort of Atlantic City, N.J., is freezing pay for those making $50,000 and up and capping raises for lower-paid workers. But the company said more than 100 employees could still lose their jobs.

"We're working our way through a very difficult economic situation and attempting to avoid layoffs," said casino president Mark Giannantonio. "We're trying to do other things like reduced workweeks and altering schedules to keep people employed so that when the economy does improve, we'll still have them around."

Car company Avis Budget Group Inc. late last year announced a management salary freeze and cut more than 2,200 jobs to reduce costs.

Enginemaker Cummins Inc. recently said it is freezing salaries and will cut 800 workers worldwide by the end of February. USA Today publisher Gannett Co. has imposed one-week unpaid furloughs on most of its U.S. employees, saying it wants to minimize the need for layoffs amid a severe advertising downturn. It also declared a one-year freeze on wages.

"Employers are battening down the hatches," said John Challenger, president of Challenger, Gray & Christmas, a placement firm. "I think pay freezes are going to be widespread as companies struggle to hold on and wait out the recession."

And though he foresees more layoffs, too, Challenger said companies are aware that layoffs carry their own costs, financial and otherwise.

"You can lose company know-how," he said. "Important relationships disappear that make cuts much more costly. You can't just get that back when you hire new people when times get better."

Range of industries hurting

Recent unemployment data underscored the grim reality facing workers.

The number of newly laid off Americans signing for unemployment benefits in mid January jumped by 62,000 to 589,000, the Labor Department reported. The total matches a 26-year high reached four weeks earlier. The number of people continuing to draw benefits climbed to 4.6 million, and both figures were worse than economists expected.

The Cleveland Clinic in Ohio imposed a hiring and salary freeze across its 33,000-worker health system in December. Aluminum producer Alcoa Inc., which last month said it was slashing 13,500 workers worldwide, has also imposed a salary and hiring freeze.

Luxury retailer Saks Inc. is axing 1,100 jobs, eliminating merit raises and suspending matching contributions to its 401(k) plan.

Caterpillar Inc., the world's biggest maker of mining and construction equipment, in late December said it was cutting executive compensation by up to 50 percent. It's also suspending merit pay increases for managers and support staff.

Earlier that month, FedEx Corp. said it was cutting pay for senior executives and freezing 401(k) contributions for a year. And AK Steel Holding Corp. is cutting pay for salaried employees.

At the White House, Obama's pay freeze affects his chief of staff, national security adviser and press secretary.

Connelly called Obama's announcement "tone-setting leadership" and offered a new twist on an old saying: "Saving the buck starts here."

Even White House isn't immune from pay freezes 01/31/09 [Last modified: Saturday, January 31, 2009 3:30am]
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