On Nov. 2, KPMG Consulting announced it would cut up to 3 percent of its workforce and take a second-quarter charge of $15 to $20 million to cope with the economic slowdown. The McLean, VA-based company has seen its stock fall 28 percent since it went public in February 2001 after splitting from accounting firm KPMG LLP, according to Forbes.

In an effort to cut expenses, save jobs, and prepare for a comeback economy, KPMG has instituted a workforce alternative program that has allowed 260 of its employees to take a voluntary leave of absence for up to six months.

To find out what the program offered and how it fit into KPMG’s strategy to stay competitive during the economic downturn, we interviewed KPMG’s Senior Vice President for Human Resources, Mary Sullivan, and Dean McMann, CEO of Ransford, a firm that tracks trends in the consulting industry and provides consulting for professional services firms.

The offer to KPMG’s employees
From Oct. 16, 2001, to Nov. 1, 2001, KPMG offered some of its employees three alternatives to full-time employment: Work part time on a temporary basis; participate in an on-call program; or take a three- to six-month leave of absence.

All of the options were offered on a voluntary basis and were not available to employees who were on any sort of probation for their performance.

“Our CEO made it clear in all his communications to our managing directors as well as to our staff that participation in the program was strictly voluntary,” Sullivan said. “You had to be a performer to be on this program. Anybody that was on a performance-improvement program of any kind couldn’t participate.”

KPMG had calculated that up to 500 employees would be allowed to participate in the program. A total of 100 staff members, including nonmanagement employees like analysts, consultants, and senior consultants, and 400 management-group professionals, which included consultants and functional support staff at the manager, senior manager, and director level, would be allowed to participate in the program.

Very few employees opted for the part-time or on-call options, but 260 employees chose to take a leave of absence. Those employees receive 20 percent of their base pay, retain their benefits, and are guaranteed that they will not be laid off while they’re participating in the leave of absence program.

They have also been allowed to use banks of paid time off to offset the reduction in their salaries. With the exception of employees whose work visas do not allow it, KPMG’s employees are not prohibited from taking freelance work during their leave. They are prohibited from accepting full-time employment.

“We didn’t mind somebody taking a part-time job—like mothers in a school library or those kinds of things—but we didn’t want somebody directly competing while they were still on our payroll,” Sullivan said. “This was not meant to be a career choice where they would go to work full time for somebody else.”

KPMG’s alternative is layoffs
McMann suggests that KPMG, as well as other large consultancies like Accenture, Cap Gemini Ernst & Young, and Ernst & Young will continue small, quarterly layoffs as long as the economy is troubled.

“The pressure to meet earnings leaves the public firms little choice but to trim overhead,” he said.

(Conversely, he predicts that Deloitte Consulting and PricewaterhouseCoopers will see less friction by remaining private.)

These firms “don’t want to alienate themselves from their current or future workforce,” McMann said. The alternative workforce programs are ways to improve the income statements for a quarter while retaining talent for the hoped-for return to prosperity.

“Layoffs are a black mark in employee relations,” McMann said. “Once you lay someone off or they leave, you’ve lost them. They don’t want to come back.”

McMann said many firms are watching how KPMG—especially as a public firm—fares in the current economy.

“As they make it as a public firm, it will encourage others to go public,” McMann said. “We believe the industry needs to be public because of the need for long-term capital for growth.”

Deloitte leading the pack
While other firms have or have had similar programs, McMann said Deloitte Consulting was the originator of most workforce alternative programs, which included extended vacations, furloughs, and allowing workers to move from full-time status to working on a contract basis.

Consulting has to be innovative in this area because the war for talent will continue when the economy picks up, and no one wants to be caught without enough trained professionals, McMann said. There remains a shortage of people trained in the consulting trade.

What’s in it for KPMG?
Sullivan said the idea for the alternative workforce programs began in August when the company was projecting expected earnings. The alternatives provided a way for the company to manage expectations and provided a “cushion” of time and money to make commitments concerning new business opportunities.

“We don’t have the overcapacity that we might have had with 300 people on some form of reduced schedule,” Sullivan said. “So we’re ready for the current economic environment…and we’re also ready for when the environment rebounds. It bought us some time until the market improves.”

The firm also saw the alternatives as a way to offer employees a unique opportunity to take time off. “A lot of people liked the idea of taking a temporary break to spend more time with their children and their families, to take courses, or finish school,” Sullivan said. “Some people got involved in community kinds of things.”

One group of participants from KPMG’s financial services group had colleagues and friends who were in and around the World Trade Center during the September 11 attacks. Sullivan said that “it was tough for them to get back to work,” and the voluntary leave offered them some time to grieve.

Getting back to work—maybe
There’s no guarantee that the employees who took a leave will be returning to KPMG. They were only promised that their jobs wouldn’t be eliminated while they were on leave. At least two employees who took leave have been asked to return, Sullivan said.

“All our people kept their computers, and we encouraged them to stay in touch with their performance managers,” Sullivan said. “We want them still connected to our business and linked to KPMG Consulting so when we’re ready to go, they’re ready to go.”

Those taking advantage of the offer in October or November will be expecting to return to work between January and May, but McMann said if the economy doesn’t pick up soon, “we’re looking at a large layoff in March.”

“The consulting industry tends to lag about three months behind other industries, so if manufacturing and technology don’t pick up in January, it’s going to be ugly,” McMann said.

Coping strategies

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