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The Wall Street Journal

Companies Choose Furloughs Over Layoffs to Manage Coronavirus Slowdown

Companies Choose Furloughs Over Layoffs to Manage Coronavirus Slowdown

Wary of rehiring and retraining costs, most S&P 500 firms that announced staff reductions have avoided permanent layoffs; whether that lasts may depend on the recovery

  • July 05, 2020
  • min read

The Wall Street Journal

Companies Choose Furloughs Over Layoffs to Manage Coronavirus Slowdown

Finance chiefs must contemplate what signal a furlough or layoff sends to investors and other stakeholders, such as suppliers, customers and other employees, said Michael Heric, a partner who leads the corporate support team and advises CFOs for consulting firm Bain & Company. Since furloughs are temporary, and workers can be called back at any moment, they telegraph an optimistic message about the company's prospects.

By contrast, a permanent reduction to staff through a layoff can sow doubts about the company's current financial position as well as its ability to recover in the future, Mr. Heric said. But stretching out furloughs over an extended period, beyond six to 12 months, also has a downside. "People become more anxious, they become frustrated, and start to look for other opportunities," Mr. Heric said.

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