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HOW TO FIRE

Life Without Layoffs
 

Sheldon Weinig thinks it's morally wrong to lay of employees when times are tough. He's betting millions that his policy is also a good investment.
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Sheldon Weinig says he runs a "serious" no-layoff company. "Not a no-layoff company like the Japanese run, where the rule doesn't apply to women and to people over 55," he says, but one with a clear moral commitment to provide continuing jobs for employees unless they are consistently found unsatisfactory in performance evaluations or are caught breaking company rules.

"You can't treat employees like machines that you put away in a closet and take out three months later," declares Weinig, who is president and chief executive officer of publicly held Materials Research Corp., a $71 million-a-year manufacturer of equipment and materials for the semiconductor industry.

Weinig doesn't just believe layoffs are morally wrong. He also argues that because a no-layoff policy can produce a stable and spirited work force, it is a good long-term investment for any entrepreneur who wants to build a strong, united organization. A no-layoff policy will promote pride and thus commitment to the company, he suggests. It will conserve a company's vast investment in recruitment and training -- not only by avoiding departures during recessions, but also by making employees less likely to leave when times are good. The American idea "that you can hire workers off the street whenever you need to expand" is probably a key reason many U.S. products break down more often than imports from Japan or Europe, Weinig claims.

Top managers who work for Weinig emphasize two other benefits: The no-layoff policy increases employees' efficiency during business crises by reducing their anxiety, and it discourages employees from seeking union protection.

Critics, on the other hand, say that no-layoff policies rarely inspire American workers as much as Weinig suggests. MRC's own executives acknowledge that so far they haven't been able to quantify the benefits of the company's no-layoff approach. Garrett E. Pierce, MRC's vice-president for finance, notes that many employees remain "skeptical" that the company will keep its promise in the face of a slack economy. The no-layoff policy, which was formally announced last year, has not yet produced as great an increase in morale as managers might have hoped, he admits.

Meanwhile, the direct financial costs of MRC's no-layoff policy have been substantial. Weinig estimates that to avoid layoffs, MRC may be spending as much as $4 million this year -- the pay and benefits of 100 surplus employees at $40,000 each. That is enough to increase the Orangeburg, N.Y., company's pretax earnings at lest fourfold.(Materials Research, which is listed on the American Stock Exchange, reported that its pretax income fell to $518,000 in the first six months of fiscal 1982 from $3.7 million a year earlier.)

Weinig, however, claims that the real cost of avoiding layoffs is much less than the $4 million in extra personnel expenses the MRC is incurring. The company has coped by cutting its domestic labor force since December 1980 from 703 to 615 through attrition and careful controls on hiring. The excess employees who remain are justifying their salaries by doing work that is useful, at least in the long run, or receiving training that will benefit the company when business improves. Some are doing jobs formerly performed by outside contractors. Others are doing tasks that had been neglected when the company was businer, such as compiling complete records of the company's engineering standards.

The company's personnel department has established a pooly system that has shifted about 30 people from one section to another for short-term assignments. Managers in sections where business is slow can declare employees surplus; other managers can then ask that these individuals be assigned to work for them.

As a result, a highly trained metallurgist is running electrolytic plating equipment on the evening shift, doing the routine work of an ordinary skilled worker but also looking for possible improvements in the plating process. Excess production workers are doing work formerly performed by security and cleaning companies, whose services have been eliminated. Regular MRC employees took over the installation of a ceramics kiln that normally would have been assigned to an outside contractor.

Generally, the salaries and benefits of transferred employees are charged against the budgets of the sections that are temporarily using them, but top managers sometimes charge part of the cost to a general corporate expense budget. That is important, because transferred MRC workers continue to receive their regular salaries even when they perform jobs normally done by people paid substantially less.

MRC, which Weinig founded in 1957 when he was a professor of metallurgy at New York University, had little experience coping with excess personnel until the 1981 recession. Its sales expanded at an average of 40% per year for five years through 1981, because thin metal films manufactured by MRC-made machines are crucial to semiconductor production. But the 1981 recession and Japanese competition have hurt U.S. semiconductor producers, and the producers have cut their purchases of MRC machines. Meanwhile, rising U.S. interest rates have pushed the dollar dramatically higher against foreign currencies, making MRC products much more expensive in Japan and Europe than those of foreign competitors. Since May 1981, MRC's total sales have averaged 15% below the year-earlier level.

As sales began to decline, Weinig chose to declare publicly his commitment to a no-layoff policy. He wanted MRC to be a "special organization," he says, comparable to such companies as Hewlett-Packard Co. and IBM, where a similar policy has reportedly contributed to high employee morale. After extensive talks with key executives, Weinig formally promised, at a meeting of MRC's supervisory and professional staff, to avoid layoffs. At an annual employees' meeting, Weinig solemnly declared, "MRC will not lay off an employee who is a contributor to MRC's goals." And he gave each employee a copy of his statement.

At least some employees agree that MRC's approach makes the company special. "This no-layoff policy is the best thing I've ever encountered in my life," says Gaetano Ragusa, a 52-year-old former Bronx taxi driver who rose to supervise eight people in the metals division before automation and stagnant sales led to the merger of his group with another. Ragusa now operates a numerically controlled saw in the ceramics division, a job that would normally be performed by a much lower paid production worker. The temporary assignment enables Ragusa to learn the latest ceramics-processing techniques. He says he is confident that it will lead to another excellent supervisory post when business improves.

Donna Griffin, 27, was first hired as a ceramics production worker and later moved to a job as a guard. She was then shifted to custodial work and finally was assigned to operate a Xerox 9500 copier full-time, replacing the company's outside printing service. She says she does not mind the transfers. "There are a lot of people out there without a job," she notes. At one point Griffin asked to be kept as a custodian rather than move back to a production job. "When the Xerox machine breaks down I wish I was cleaning toilets again," she jokes.

On the other hand, not all employees have accepted transfers happily. Three young production workers quit when they were shifted to custodial or guard jobs.

Although Weinig and his top executives spent long hours discussing whether to promise no layoffs, they acknowledge that their approach could fail. Garrett Pierce says he would have been more cautious if the decision had been his. "As a financial person, I would suggest, 'Never say never," he comments.

Pierce's cautious view actually has a parallel in the statements of the large corporations Weinig says he admires. Although Hewlett-Packard and IBM have no-layoff policies, neither makes as rigid a promise to its employees as MRC does. Hewlett-Packard says in a statement of corporate philosophy only that a key objective of the company is to "provide job security based on [employee] performance." IBM's policy, according to a spokesman, is to tell its employees that "We have a continuing objective of full employment." No-layoff policies have built morale at these companies not because of the strength with which the policies have been stated, but because of the consistency with which they have been applied over decades.IBM, for example, has provided full employment for its people since the Depression.

Today, many American businesspeople argue that the odds are against any no-layoff policy repaying a company as much as it costs, even over many years. Elliot Levine, a securities analyst with First Manhattan Co. in New York, suggests that the costs of a no-layoff policy are so high that benefits such as higher morale and lower spending for recruitment are unlikely to outweigh them. "It's going to take a lot of doing" to make up for $4 million in nonessential spending on employees this year, he declares. Most of the investment community seems only modestly impressed with MRC's long-term prospects. From a high of $36 in early 1981, the price of the stock recently dropped to $12 -- a decline that reduced the paper value of Weinig's 20% stock ownership by nearly $13 million.

Some critics argue that a no-layoff policy can be an excuse for managers to neglect the people who own the company. "You have a certain moral and legal obligation to the shareholders," says David L. Mitchell, president and CEO of $27 million-a-year Data I/O Corp. in Redmond, Wash. He suggests that the costs of a no-layoff policy could easily wind up harming "the core strengths of the company" for the benefit of junior production workers who have done little to build the company up. Although Data I/O is prosperous -- sales rose 15% and profits 10% in the most recent quarter as demand continued to be strong for its semiconductor memory programming devices -- it laid off 70 production workers early this year because new manufacturing quarters permitted greater efficiency. Eventually, 21 employees were rehired.

Mitchell also suggests that a no-layoff policy can be an excuse to flinch from dealing with serious problems. "If you've got a little spot of cancer forming and you go and have it removed, you might win yourself a longer life," Mitchell suggests. "When you have to fire people, you get a lump in your throat that almost makes it impossible to talk, but that's not a good reason for avoiding it."

Weinig himself sometimes fears he could be wasting his company's -- and thus his own -- money on the no-layoff policy. He admits that he sometimes doubts that the average employee believes his promise or perceives it as making MRC a special organization.

But Weinig promises to stick with his policy, and he argues that most other entrepreneurs should adopt a similar one. But there are many who can't, he acknowledges. Resort operators must hire mainly seasonal workers. Some entrepreneurs plan to sell their businesses soon after they start them. Other companies are too young and unstable to be able to promise their employees no layoffs.

But Weinig claims that a no-layoff policy will almost inevitably be adopted by the sort of person who is most likely to build a truly fine organization. He says that a deep understanding of employees' human worth demands it. "The guy who's going to build up a company -- he's got to have a commitment to the dignity of his workers," Weinig declares. "If a man says he's got a commitment to his workers and he isn't committed to not throwing them out on the street, then it's just plain lip service."

Last updated: Sep 1, 1982




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