Belt Tightening: Forced Vacation Is Catching On at Slumping Companies

BELT TIGHTENING

Go Relax. NOW.

Is it really a vacation if your boss orders you to go? And is it possible that such an order might actually foreshadow a layoff? In a "cost-cutting move" that preceded its disappointing fourth-quarter revenue prediction, Sun Microsystems Inc., in Palo Alto, Calif., told 38,000 employees to stay home during the week of the July 4th holiday, and to take the remaining days either as vacation or without pay, says spokeswoman Diane Carlini. "They have to take the days one way or the other," she says.

Adobe Systems Inc., in San Jose, Calif., also told 2,000 employees to make Independence Day a weeklong event. "Many employees typically take part of that week off anyway," explains spokeswoman Cheryl Edwards. And spokesman Randy Lane says Palo Alto­based Hewlett-Packard Co. asked, but did not require, that all 90,000 of its employees take six vacation days.

Oxymoron or not, forced vacation is all the rage as companies grapple with slumping earnings. But what's the financial benefit of making employees take paid time off? Typically, vacation is accrued as a liability as employees earn it. "The savings come from the reduction in the earned vacation liability," says HP's Lane. Adobe's Edwards says the measure is expected to save $4 million in "labor costs." But while reducing accrued liability makes the balance sheet look better, there's no effect on expenses beyond the incidental savings of closing the office.

"The only way to get a cost savings is not to pay for paid vacations," says James F. Harrington of Price-waterhouseCoopers LLP. But both Sun and HP cap the vacation time that employees can accrue, and neither allows workers to cash out unless they leave. That, of course, raises the possibility that forced vacation is a harbinger of layoffs.

"When people get laid off, generally you don't want them to have vacation accrued," notes Albert J. Meyer of investment research firm David W. Tice & Associates, in Dallas. More optimistically, Meyer says that if employees use vacation during slack periods, companies can be at full strength and will be less likely to incur overtime when business picks up.

For some companies, that's standard practice. Each July, General Motors Corp., for example, encourages salaried employees to take off while the plants are converted for the next year's car models. --Tim Reason

BALANCING ACT

In April, Financial Executives International (FEI) and the National Investor Relations Institute (NIRI) joined forces to issue guidelines for earnings press releases that they hope will establish industry best practices for these sometimes too-rosy reports. The guidelines were the result of prodding by the Securities and Exchange Commission's chief accountant, Lynn Turner, who earlier in the year had expressed displeasure with what industry insiders refer to as EBS releases--that is, "everything but the bad stuff."

Earnings press releases generally come out several weeks before 10- Qs are filed with the SEC. The releases frequently include pro forma financial results that are broader than those reported in 10-Qs, which follow the framework of generally accepted accounting principles (GAAP). The concern, especially in the investment community, is that the earlier releases often did not reconcile with GAAP.

"What the guidelines stress are press releases with a more-balanced picture of a company's condition that also reconciles its results with GAAP disclosures," says Dean Krogman, a vice president at the FEI. -- Leslie Schultz

NO IDEA: At least 70% of 401(k) plan sponsors don't know how to determine the total cost of plans, says Aon Consulting.

THE WORKPLACE 

Perk Up

Slowdown or no, CFOs may have to factor Starbucks coffee bars into their next budget if they hope to attract and retain experienced IT professionals. Office amenities--including everything from on-site day- care centers to a concierge who picks up dry cleaning for employees working late--will become important this year, says D. Jeffrey Waters, senior managing director at the New York office of real estate services firm CB Richard Ellis Inc. According to the Information Technology Association of America, by year's end, U.S. companies will face a shortage of 425,000 IT workers, in spite of the economic downturn. The rub: IT pros have the leverage to demand workplace perks. And as long as the extras are in demand, and don't eat up space needed for the core business, Waters doesn't think they'll disappear.

While some executives view workplace amenities as extravagant, Jim Eckert, director of corporate real estate and facilities management at Toledo, Ohio-based Owens Corning, sees them as a way to boost productivity. For example, workers there can use an on-site medical center, which, for minor complaints, might make a time-consuming trip to their own doctor unnecessary. Furthermore, walking trails that surround Owens Corning's urban campus provide a place for employees to meet and exchange ideas.

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