Professor Mike Lord comments on the recent news of job cuts for R.J. Reynolds Tobacco Co.

12.5.2009 Article, Faculty News, Human Resources

Jobs on the line
Originally Posted on Saturday, December 5, 2009 | By Richard Craver
Reposted from The Winston-Salem Journal

Job cuts, potentially at a major level, appear on the horizon again for R.J. Reynolds Tobacco Co.

Reynolds said yesterday that it is asking for volunteers among its 1,800 manufacturing employees to take a severance package as part of a business analysis.

The company has not set a job-cut goal, said Jan Smith, a senior director of communications for Reynolds. The offer will not affect plant employees "who do not express interest in leaving, nor any other Reynolds Tobacco employees," Smith said.

The last two times Reynolds conducted a business analysis, it resulted in major job cuts.

It eliminated 2,600 jobs companywide, including 800 in manufacturing, in 2003-04. q It is nearly done with a cut of 570 white-collar jobs that began in September 2008 and is scheduled to end in early 2010.

Reynolds did add between 800 and 1,200 local jobs as part of buying Brown & Williamson Corp. in July 2004.

Smith said that Reynolds has identified areas where it could improve productivity and cut costs.

"The company's decisions on how many jobs are eliminated, and which jobs, will be driven by business needs to ensure the company has the staffing levels and skills sets it needs to continue operating effectively," Smith said.

She said the last time manufacturing workers had the chance to volunteer for a severance package was September 2003.

That Reynolds is reducing its manufacturing work force is not surprising given lower demand for cigarettes nationwide, analysts said.

Contributing to the decline are higher excise taxes, more smoking bans, increasing social stigma regarding tobacco products, and reduction in Reynolds marketing. Reynolds said in November that its cigaretteshipment volume fell 11 percent in the third quarter to 20.6 billion cigarettes compared with a year ago. Reynolds said that the industry decline was 12.6 percent. Since 1983, Reynolds has eliminated 80 percent of its local work force through at least 16 job-cut announcements, going from 15,500 fulltime workers to 3,030 by early 2010.

Employees who contacted the Winston-Salem Journal expressed concern that Reynolds may be preparing for either a major manufacturing reduction or a transfer of production to contract vendors in 2010. Such a restructuring could include the closing of its Whitaker Park plant, where production was reduced significantly in past efforts. Reynolds has 1,200 workers in Tobaccoville and 600 in Whitaker Park.

Analysts and economic officials question how many volunteers Reynolds will get given an 11.1 percent unemployment rate in the Triad, including a hard-hit local manufacturing sector.

Many of Reynolds' manufacturing employees make between $50,000 and $62,400 a year. By contrast, the average manufacturing employee in North Carolina makes $31,574 a year, according to the N.C. Employment Security Commission.

Michael Lord, an associate professor of management at Wake Forest University, said that the attractiveness of the severance package will depend on each employee's own situation.

"In general, this very weak economy will cause more employees to hesitate or to even just automatically reject the offer," Lord said.

If involuntary reductions do happen next year, there's no way to tell exactly what those might look like or how large they might be. There are too many uncertainties. "But the cuts could be substantial." Smith said that Reynolds expects the offer will be attractive because of a decision made in 2008 to reduce its overall severance package, beginning Jan. 1, 2009.

The severance package offered yesterday is the same as in September 2008 â?? two weeks of pay for every year of service, with a minimum of 13 weeks of pay regardless of years of service, and a maximum of 78 weeks, along with benefits and outplacement assistance. The new package still will include two weeks of pay for every year of service.

But it will be paid in a lump sum as soon as employment ends rather than a "salary continuation" period, Smith said.

She said that there are other changes "which are better aligned with what most companies our size offer, and better than what some of them offer."

Of the 570 jobs eliminated in the September 2008 restructuring, 320 were involuntary and 250 voluntary. Employees eligible for retirement and retiree health benefits represented 90 percent of the 250 who volunteered to leave, Smith said. "We think a significant number of our manufacturing employees may be interested in leaving if they have the opportunity to do so with a severance package," Smith said. "Many of our manufacturing employees are currently, or will soon be, eligible for retirement benefits as well."

Reynolds is not alone in cutting jobs. Phi l ip Morris USA completed the closing of a cigarette-manufacturing plant in Concord in July, affecting 2,500 jobs. Several hundred jobs were transferred to its plant in Richmond.

The severance package "will give Reynolds' employees who have been thinking about retiring an opportunity to do so with enhanced benefits," said Gayle Anderson, the president and chief executive of the Winston-Salem Chamber of Commerce.

"Like so many of our manufacturing companies, demand is declining and productivity is increasing, with the inevitable result that their work force gets smaller," Anderson said.

News of the job cuts initially lifted Reynolds' share price to a 52-week high of $53.37 before it closed at $53.04.