Recession is when your neighbor loses his job, depression is when you lose yours, the saying goes. Although the manufacturing and services neighbors of IS departments are losing jobs in growing numbers?U.S. companies announced a whopping 652,510 layoffs in the spring, according to Chicago-based outplacement company Challenger, Gray and Christmas?IT workers aren\u2019t depressed. The Information Technology Association of America (ITAA) reported this spring that demand for workers remains robust, with companies hoping to fill 900,000 IT jobs this year (versus 1.6 million last year). Nearly half of those positions will go unfilled because of a lack of qualified candidates, the ITAA predicts.So then layoffs are a nonissue for CIOs? Not quite. While IT workers aren\u2019t worried about their jobs, the days of wine and roses are over. Managers can no longer keep star employees happy with hefty bonuses and option grants, eternally new equipment purchases, and ever-flowing Mountain Dew. "Obviously, things are not the same with the stock down," laments Judy Harris, CIO and vice president of beleaguered e-business software maker Commerce One in Pleasanton, Calif. Many CIOs are reducing contractors to cut costs, putting a strain on staffers; others are squeezing budgets for perks and training.Rohn Jay Miller, senior vice president of products and technology for San Jose, Calif.-based Knight Ridder Digital, faces a situation fairly typical for CIOs. He\u2019s not ending performance bonuses, slashing training or killing important projects?but he is watching every dime. Not long ago, he received an astronomical bill from a Japanese restaurant for an IT staff meeting. "I nearly went through the roof," he says. Sushi is out, he told the team, sandwiches are in.So what\u2019s in store for CIOs as you manage IT staffs? Less spending and more managing, for one thing. Promote from within and use noncash incentives such as extra days off and flexible schedules. Make sure employees are learning new skills, even if they won\u2019t use them soon. Finally, forget the things you can\u2019t control. "If someone gets a call from Microsoft to be the grand poobah of something, there\u2019s not much I can do," Miller says. His advice: Write off the loss and celebrate the dedicated workers who remain.Walk the TalkThe most important action a leader can take in times of cutbacks is to foster trust among employees, says Alan Wolfson, a senior consultant for Hay Insight, a division of Philadelphia-based HR consultancy Hay Group. Wolfson likes to tell the story of the CEO who issued a mandate to kill the coffee budget?from the comfort of his private plane. Not only must senior leaders share in the pain of cost-cutting, they must tell it straight, Wolfson says. "Be truthful."At Knight Ridder Digital, the online division of newspaper publisher Knight Ridder, Miller oversees a staff of 50, half in product development and the rest in IT. Like most online publishing concerns, KnightRidder.com is struggling to find a profitable business model. The division cut 50 staffers in December (none from Miller\u2019s group). Miller now meets regularly with his four top managers, on whom he relies to report the staff\u2019s worries. What he hears is that his workers worry about the overall future of the company and fear that consultants will get all the cool work. (Knight Ridder Digital is working with PricewaterhouseCoopers to develop a single digital publishing platform for the company\u2019s 38 websites.)Miller believes that running an IT department is like raising a healthy family?it\u2019s not a democracy but there is open and honest communication. That honesty extends to the business\u2019s prospects. Miller says he is always clear with employees about the risks they are taking by working in an industry that is young and unproven. "The good news is you get to help invent it, and you\u2019re out at the forefront of technology. If everything collapses tomorrow you\u2019re still in a great position," he tells them.It\u2019s not enough to solicit feedback, Wolfson advises; managers should act on those ideas whenever possible. Jerry Miller, CIO of Sears, Roebuck and Co. in Chicago, has an intranet where IT employees can offer suggestions. Some of the ideas from Miller\u2019s staff?using fewer lights at night and standardizing technologies, for example?have been adopted.Jerry Miller strongly believes in giving employees a voice. Right now, when Sears\u2019s earnings are in the tank and the IT organization is undergoing a major restructuring, that policy helps with retention. Miller is outsourcing 200 maintenance and support jobs to India this year. A year ago, the announcement of the outsourcing caused considerable distress among Sears\u2019s IT staff, but Miller thinks that is dying down. Attrition rates have remained in the single digits. He plans to retrain many of the affected workers for jobs on various e-commerce and wireless projects, although he admits that ultimately some people will not fit into the new roles or will choose to leave. Let Them LearnFor companies that can afford it, a lull in business is a great time to concentrate on training. Jerry Miller\u2019s education budget for Sears will increase this year (his e-commerce boot camp already trains 80 to 100 people a year). Other companies such as United Parcel Service will try to do more with less. UPS CIO Ken Lacy oversees a staff of 4,000 worldwide and boasts a $1 billion annual technology budget. The slowing economy is biting into the shipping giant\u2019s profits, forcing Lacy to trim his IT consultants, who comprise 15 percent to 20 percent of his workforce. Lacy will continue to send people offsite for technical training. For management and communications courses, he\u2019s testing online versions that employees will be able to take on their own time at a much lower cost to the company. Training is important for retention, but Lacy believes that the ability to keep killer projects moving forward is even more critical. His IT team is busier than ever on the company\u2019s high-profile projects in e-commerce and smart labels, which are paper labels that contain information for routing and tracking materials. Weed the Cubicle RowsAs the economy slides back to, shall we say, conservative growth levels, employees can no longer dupe supervisors with a smile to make up for little experience or motivation. After several years of intense staffing needs and sometimes lower standards for hiring, CIOs are now getting pressure from above to get rid of the deadwood, says Dave Van De Voort, head of global IT workforce effectiveness at HR consultancy William M. Mercer in Chicago. Reward your best performers (cash preferred) and get rid of employees who are just warm bodies, he advises.Jerry Miller and other executives at Sears will be taking an aggressive approach this year to performance evaluations, which take place twice annually in IS. "If someone is holding back the team because of a lack of ability, we owe it to the team to make the necessary changes," he says. For many IT departments the sputtering economy is actually a relief in some respects. With projects slowing, employees have time to catch up for once, fine-tune processes, plan for the future and do something really nutty?like take a vacation. "We are now putting more time into celebrating our accomplishments," says Harris, who spent her first 18 months at Commerce One frantically building up infrastructure and staff."The dotcom culture was a tremendous distraction," observes Van De Voort. "The environment now is more stable."