Would you rather lose your job or take a 10 percent pay cut?
In the carpet industry, the choice is often made for employees by executives desperate to bolster shrinking margins in the face of slumping demand and rising material costs.
And it's typically rank-and file-employees, rather than executives, who bear the brunt of cutbacks.
Executives at Beaulieu of America, on the other hand, chose to cut their own salaries as well as those of their employees "until further notice," said Ralph Boe, president and CEO of the Dalton, Ga.-based carpetmaker.
The 10 percent cuts for about 5,200 Beaulieu employees come on top of companywide rolling furloughs and salary cuts in 2010.
"We felt we had to do it across the board in order for it to be significant enough to offset these big increases in raw-material expenses," Boe said Thursday. "We felt the only way we could really get buy-in from the associates is if everyone goes along with it."
Layoffs vs. Pay cuts
It's an unusual move in an business environment where fewer than one in five employers chooses salary reductions over reduced benefits, layoffs or hiring freezes, according to statistics from Kansas-based Compdata Surveys.
Compdata found that nearly one-third of employers choose layoffs and almost half choose to reduce benefits to deal with current economic conditions.
Truman Bewley, an economics professor at Yale University and author of "Why Wages Don't Fall During a Recession," said employers are more apt to cut staff or hours than nominal wages during tough times.
"Employers worry about hurting staff morale and losing the loyalty of their employees if they cut pay," Bewley said. "There is a fear that, if you lower wages, once employees are able to find another, better-paying job, they will walk out.
"But when you get in financial trouble and it's a matter of survival, most workers understand and will agree to wage cuts, especially if they think the sacrifice is being shared by all," he said.
Beaulieu's move may preserve up to 500 jobs company-wide, officials said.
"They're a family-owned, family-run company, and that's just how they do it," said Kemp Harr, publisher of Floor Focus Magazine. "The bosses huddle together and voluntarily say, 'We'll take the pay cuts.'"
Beaulieu announced wage cuts just days after rival Shaw Industries said it would lay off 30 North Georgia workers. Mohawk Industries this year has slashed its work force by 200, according to public filings.
Beaulieu, which industry analysts say has lost 15 percent of its sales since the housing downturn began four years ago, also has laid off some workers.
"We're expecting salaries to stay at this new level until either business gets better or our raw materials costs reduce significantly enough to allow us to get back to a reasonable margin for our business," Boe said. "No one likes to get cut in pay, and it particularly hurts the large force we have working in the mills, but that's where most of the money is spent in wages."
The price of oil has hit all carpetmakers right in the wallet. Most carpet fiber and carpet backing is produced using petroleum products.
But Beaulieu also has been hurt by the floundering housing market. Most of its revenue comes from residential sales, Harr said.
Housing starts have fallen steadily since mid-decade, to about 25 percent of 2005 home construction, according to statistics firm The Market Edge.
Unemployed workers in Dalton applauded Beaulieu's move, especially considering how hard it is to find a job after a layoff.
"I'd rather take the 10 percent pay cut with jobs so scarce," said Deborah Mock, who was laid off from Mohawk two weeks ago after working on and off for most of her adult life in the carpet industry.
She can't leave Dalton unless she can also find a buyer for her home - an unlikely proposition in today's housing market.
"When you have to pay your bills, to keep things on level ground you've got to grasp for straws," Mock said as she searched for jobs Thursday. "Every time we're about to get back on our feet, something happens."
Misty Valdez said she's giving up on carpet after she was laid off for the second time from Shaw.
"I'm going back to school to study nursing," Valdez said. "I have a son, and I want to provide better for him."