Companies try pay freezes to avoid layoffs

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 Barack Obama, who ordered a pay freeze for White House employees earning over $100,000 a year, the move on Wednesday, 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 7.2%. 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 a multibillion-dollar stimulus package being crafted by Obama and Congress.

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 employee 401(k) accounts.

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

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

In some cases, employers are 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," says Terry Connelly, dean of Golden Gate University's Ageno School of Business. Pay cuts and freezes, which once affected mainly union workers, are spreading to white-collar industries, he said.