Furloughs: Bad Business 101?

According to Wikipedia a furlough is a temporary leave of absence from employment, armed services, or a prison term. It can be voluntary or involuntary and may be mandated by employers due to economic conditions.

Companies offer goods and services people want or need and will pay for. When a company becomes successful the pyramid of management allows for specialized and stratified levels of employees for example: laborers, middle management and a board of directors. The board makes decisions based on profit and loss. Managers enforce the boards decisions by 'managing' the laborers.

Furloughs are mandatory time off without compensation. Monies saved on payroll are retained by the company for it's bottom line. Please note I did not use the word salaries. The people being fuloughed are often paid-by-the-hour laborers. Salary means a set amont of pay per year regardless of the hours needed to perform a job. or not as is sometimes the case, but that would be another article.

What do companies save by furloughing workers? IOS Inc. has 100 employees, 80 are laborers making $10 an hour, 15 managers collect $40k a year salaries, and five board members earn $70k a year salaries. Based on profit and loss the board decides to recoup funds by furloughing the laborers for five days in the next fiscal year. Managers break the bad news to the laborers and oversee impelementation netting the company $32000.

This means the 80 people who can least afford it will loose a week's pay. If they are lucky they will be able to take scattered days instead of an entire week diffusing the devestating effect over multipe weeks and months. While these people are absent who no one will be interfacing with the customers. In fact the 15 managers should take the same amount of time off because their workload will be equally diminished without anyone to manage. Board members are not able to cover the work of 80 laborers. Imagine Steve Jobs or Steve Wozniak showing up because you got the blue screen of death. You'd fall out of your rolling ergonomically correct office chair causing a whole other financial disaster.

Without laborers the customers who rely on IOS Inc. products to run their business flounder effectively halting their operations for five days meaning they cannot meet the demands of their consumers nor compensate their laborers. The trickle down effect of the furlough creates a lack of product and revenue which would regenerate the cycle of economy. It's like that shampoo commercial, and they bankrupt two friends, and they each bankrupt two friends, and so on, and so on, and so on until we have a FINANCIAL CRISIS.

The reality of furloughs is exponential and subscribes to the basic principals of trickle down theory. The devestation quickly invades the economic driving force; consumers. Studies show furloughs antagonize workers who are then less productive. Many employees see furloughs as a sign of immenent corporate failure and begin seeking alternate employment. In fact furloughs save a lot less money than actually laying off a lesser number of employees because they don't allow the company to recapture the cost of benefits, office overhead, and equipment. In my example laying off just one member of management for six months will recoup almost as much in salary alone as furloughing all 80 workers. As a corporate leader you have to issue yourself the Mr. Spock challenge: Do the needs of the many outweigh the needs of the one or the few? I guess it depends if you are one of the many, the few, or just the one.