Short-Term Gain, Long-Term PainShort-Term Gain, Long-Term Pain

Hard times require tough measures. But a growing number of analysts and experts worry that U.S. companies may have damaged their ability to compete when the economy rebounds by cutting costs in the past year through massive workforce reductions.

"People take a lot of short-term action at the expense of long-term gains," says Diane Berry, VP of human-resources consulting firm People3, a Gartner company. "Layoffs aren't a good thing to do, because you could lose a knowledge base that took years to build."

To preserve that knowledge capital, some technology companies are developing alternative ways to save on immediate costs. Accenture rolled out a Flex Plan in June that offers a six-month to 12-month sabbatical to employees of the consulting firm from the senior management level down. Participants receive 20% of their salary, continue to receive employer-provided benefits, keep their notebook computers and E-mail addresses, and are allowed to do anything they want--even take another job, as long as it's not with a direct competitor. To date, about 2,200 employees have taken the offer. The plan has had great success, says Larry Solomon, managing partner for Accenture's U.S. internal operations. "It trims short-term costs while maintaining that employee base that took so long to recruit," he says.

Compaq introduced mandatory vacation days in July, requiring all U.S. employees to take off the week of July 4. The company saw major savings in physical operation costs and vacation costs. Compaq has also eliminated across-the-board pay adjustments for next year.

Reducing merit raises is the first step companies take to cut costs, according to a recent study of 110 midsize and large companies by human-capital firm Watson Wyatt Worldwide.

"Companies first cut jobs that weren't critical to the business, says Rick Beal, Watson Wyatt's senior compensation consultant, "and now they can't cut much more."