As layoffs mount amid the slowing economy, some employers are cutting costs without axing jobs.

Hypertherm Inc. has never laid off a permanent employee in its 40-year history. A 20% downturn in sales in recent months led the closely held maker of metal-cutting equipment to eliminate overtime, cut temporary staff and delay a facility expansion, says Chief Executive Dick Couch.
 

DICK COUCH

Managers are transferring employees to busy segments from those with less work. The Hanover, N.H., company also may bring some outsourced manufacturing in-house to keep its 1,100 workers busy, Mr. Couch says.

Companies such as Hypertherm are the exception. Managing labor costs has become a top priority for employers, which have eliminated about 1.9 million jobs since December 2007. Last month, U.S. employers cut 533,000 nonfarm jobs, and the unemployment rate rose to 6.7%.

Some workplace experts say layoffs are a useful part of the business cycle, allowing employers to weed out poor performers, increase efficiency and promote a high-performance culture. Layoffs "are not inherently bad," says Mark Nadler, a partner at management consultancy Oliver Wyman's Delta practice. "Some people...are just more crucial to the survival of the organization than others."

Others say employers often underestimate or overlook the costs of layoffs. Anat Lechner, clinical associate professor of management at New York University's Stern School of Business, cites expenses for planning, legal fees, severance, outplacement and redistributing work. Layoffs also reduce productivity among survivors and cost a company institutional knowledge, she says.

Add the cost of recruiting and training new workers when business picks up, and layoffs "simply do not make any sense," Ms. Lechner says.

In lieu of layoffs, some employers are freezing hiring, offering voluntary retirement packages, cutting hours, reducing salaries or delaying raises. Other cost-saving tactics include raising employee health-care contributions and slashing bonuses, employer contributions to retirement plans and budgets for training, travel and other perquisites.

Until the recession of the early 1980s, both companies and employees considered layoffs temporary, says Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School. As the idea of permanent layoffs gained acceptance in the late 1980s and 1990s, employers stopped trying to avoid them, Mr. Cappelli says. Today, many companies argue that alternatives such as across-the-board salary freezes and budget cuts are more harmful, because they can drive away top performers.

Private companies, like Hypertherm, may feel less outside pressure to cut jobs and a deeper commitment to employees than publicly held firms, some experts say. Still, a few public companies -- including Lincoln Electric Co. and steelmaker Nucor Corp. -- also have no-layoff policies.

Lincoln Electric, a Cleveland maker of welding and cutting products, guarantees employment to U.S. workers with at least three years experience, says spokesman Roy Morrow. He says the company, with 9,000 employees world-wide, hasn't had a U.S. layoff at least since 1949.

In the early 1980s, the company drew attention for shifting blue-collar factory workers into white-collar sales jobs to avoid layoffs. Today, it routinely cross-trains U.S. workers in key business areas so they can be redeployed, Mr. Morrow says.

The current recession is testing Lincoln's policy. The company recently dismissed about 50 contract workers and an undisclosed number of poor performers with less than three years experience. It is also cutting some employees' hours and moving others into positions with lower salaries. Chief Executive John Stropki said he's acting "in anticipation of a long, deep recession."

Hypertherm's policy is part of a "social contract" with employees, Mr. Couch says. In a downturn, workers are willing to identify inefficiencies because "you know you are not going to work yourself out of a job," he says.

For several months in the early 1980s, Hypertherm adopted a four-day workweek. Mr. Couch calls that step, "the last of the last resorts," and says he hopes to avoid it this time.

Small businesses, which often have less fat to trim than larger employers, can identify creative solutions. "Every $10,000 a month you can save is a person," says Alex Chang, founder of real-estate search engine Roost.com.

A big drop in business this fall prompted Mr. Chang to cut "every expense we didn't have to make" in order to keep all 17 of his staffers, each of whom he considers vital. He eliminated the marketing budget and asked vendors for discounts. Mr. Chang also is considering licensing Roost's technology, moving to a smaller office space and allowing some employees to work from home.

In Georgia, CDH Partners, an architecture firm with 100 employees, is borrowing architects from less-busy firms nearby to ease a project backlog, says CDH president Bill Chegwidden.