Cost-Cutting Starts at the Top

Companies like GM and Ford have learned that management must forgo bonuses before workers get laid off.
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Looks like Santa won't be making his merry way down many office hallways this year.

Early December is usually the kickoff to the holiday season, a time when employees look forward to chowing down on the company tab at the annual Christmas party or, if they're really lucky, start planning where to spend their year-end bonus.

But this year, there's not a whole lot to celebrate. The mood in corporate suites and suburban office parks is more about repentance than rejoicing.

If you're a small business that wants to remain in business next December, it's crucial to send the right message now. Show workers that every employee, at every level, is making the same sacrifices.

Major corporations are slowly getting the message. Not surprisingly, the belt-tightening has been especially fierce at financial firms.

Goldman Sachs

(GS) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

canceled all holiday parties, and Chase announced that bonuses will be down as much as 50%. (The fact that they're getting any bonus still makes them more fortunate than the vast majority of American workers.)

But the cost-cutting goes far beyond Wall Street. Media companies from

Time Warner's

(TWX)

Time Inc. to

ABC News

, a division of

Disney

(DIS) - Get Report

, have nixed their holiday parties, due to a drastic decline in advertising revenue. Even the Pentagon is not immune. Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, canceled his annual holiday reception.

But cutting back means more than saying no to catered chicken and an open bar. It's about avoiding

any

spending that might seem frivolous, no matter how routine it used to be.

Take the far-from-successful appearance the CEOs of

Ford

(F) - Get Report

,

Chrysler

and

GM

(GM) - Get Report

made in front of Congress a few weeks ago. Showing up in private corporate jets to ask for a government bailout was a serious PR blunder. (Considering they were all coming from Detroit, you'd think they could have at least air-pooled.)

Showing an equally tin ear for publicity was Ford CEO Alan Mulally's response -- "I think I'm good where I'm at" -- when asked if he'd consider forgoing his $20 million salary.

What a difference a month makes. In its most recent proposal presented to Congress this week, Ford has put cost-cutting front and center. Although Ford is doing comparatively well against GM and Chrysler and may not need government aid, the company says Mulally would be delighted to work for $1 a year if the company does take Congress up on a handout. Ford is also offering to sell five corporate jets.

Rick Wagoner at GM is making similar concessions, agreeing to a $1 salary, and, like Mulally, driving himself to Washington for the next round of hearings.

Most of us won't shed many tears for these guys, who are still being compensated with massive stock packages. But being upfront about the sacrifices they're willing to make is the only way Mulally & Co. can maintain credibility, and they've finally realized it.

Creative Cuts

Small-business owners don't have a massive cushion of stock options to fall back on, so giving up a salary is usually out of the question. But if you expect employees to stay motivated during a time of cutbacks and layoffs, they have to see the pain is being felt at the top, too.

A recent survey of 321 small businesses by the online payroll service PayCycle found that about half usually pay some kind of year-end bonus. But this year, 58% of those businesses are either canceling bonuses altogether or just the owner's so they can still pay employees.

Giving up your own bonus is a good first step. But there are plenty of other ways to send the message that you're doing everything possible to save money, whether it's giving up a company car, cutting back on travel or switching to a less expensive cell-phone plan.

Anyone who's been successful in business is creative when it comes to earning money. Now it's time to be creative about saving it, too.

Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.