Recent grim economic news amounts to a test for companies regarding their workforces.
Will firms take a short-term, panicked approach, axing people and valuable programs to shore up earnings over the next several quarters? Or will they act according to a long-term vision, where they live up to claims of treating people as “their greatest asset” even at the expense of short-term profits?
The stakes are big, and could well determine which firms emerge as the places with the most employee engagement, the best ability to attract talent and the greatest sustainable performance.
Signs of a double-dip recession or protracted downturn include the June employment situation. U.S. job losses in June outpaced those in May, reversing several months of improving payroll job declines.
It’s hard to judge how employers have handled the economic troubles so far with respect to their people. On the one hand, there’s evidence firms rushed to cut employees—72 percent of firms surveyed by consulting firm Watson Wyatt Worldwide in April had laid off employees or otherwise reduced their workforce.
But there also are indications of sound responses. A May report from consulting firm Towers Perrin (which plans to merge with Watson Wyatt) found that 74 percent of employees agree their company’s structure facilitates efficient operations, up from 66 percent in the last quarter of 2008 and 58 percent in the first quarter of 2008, “suggesting the latest rounds of restructuring have been done thoughtfully and in a manner that doesn’t automatically demand doing more with less.” In addition, company interest in furloughs—which can preserve morale if used instead of a layoff—has grown.
Towers Perrin found that employee engagement globally held steady between the fourth quarter of 2007 and the first quarter of this year. But polling firm Gallup found a slight drop in engagement among U.S. workers between July 2008 and March 2009.
And the Corporate Executive Board research group found that the percentage of employees globally displaying high levels of discretionary effort dropped sharply between 2005 and the first quarter of 2009.
In this light, trimming jobs from already lean firms is risky. Gallup has found that organizations with a layoff or downsizing saw the level of “actively disengaged” employees rise by 3 percentage points, to 24 percent.
It’s possible to avoid an engagement drop with a layoff, says Jim Harter, chief scientist for Gallup’s workplace management and well-being practice. Experts including Harter suggest management explain the rationale for any downsizing to employees.
Some companies may have to cut people in the coming weeks or months just to stay afloat. There are no easy answers in this ugly economy. But it may be time to suck it up and hold on to the employees that firms profess to value so highly. The long-term payoff—in engagement, in reputation and in performance—could be much bigger than the short-term pain.
A recent essay in the liberal-left magazine The Nation makes a bold proposal: The federal government should create a grand strategy to get nearly every American a job. Does such a full-employment policy deserve the backing of businesses?
This idea merits at least some consideration from the corporate world. After all, one of its authors is a former captain of industry—Leo Hindery Jr., who served as CEO of AT&T Broadband.
Hindery’s co-author is Donald Riegle Jr., a former U.S. senator from Michigan.
Hindery and Riegle say the nation’s economic priority ought to be creating 24 million jobs so virtually every American interested in working can find employment and the economy can reverse course.
“The right way to earn our way back to long-term prosperity is through stimulus efforts that will help develop, broadly deploy, fairly compensate and, especially, fully employ our human capital, which will always be our greatest source of national wealth,” they write.
Part of their argument is that the official unemployment rate dramatically understates the extent of a job shortage in the U.S. While the official unemployment rate was 8.5 percent in March, a broader Department of Labor measurement of labor “underutilization” indicates the situation is nearly twice as bad. The so-called “U-6” figure adds in people who want full-time work but had to settle for a part-time schedule and “marginally attached workers,” who aren’t working or looking for work but who want and are available for a job and have looked for work in the recent past. The U-6 rate was 15.6 percent in March.
Pointing to the country’s still-skimpy safety net and Hooverville-like tent cities emerging around the nation, Hindery and Riegle say the billions being funneled into the financial sector bailout and first stimulus package aren’t up to the task of getting Americans back to work.
A second stimulus package should focus on employment, they argue. Among their specific proposals are several that business leaders—especially the leaders of multinational firms—are unlikely to like. These include passing the Employee Free Choice Act designed to make unionization easier and a strong “Buy American” requirement for federal government purchases.
On the other hand, business leaders probably can appreciate the authors’ call for tax incentives for business investments in such things as new laboratories, innovative products and manufacturing equipment. Also appealing to the business crowd should be Hindery and Riegle’s push for more public investment in infrastructure, improved trade adjustment assistance, additional aid to state and local governments and expanded job training for young people in skills such as advanced welding and computerized machine tool operation.
They also say the government ought to help create millions of jobs for American adults, in part through a new program that emulates the best of New Deal initiatives—the Works Progress Administration and Tennessee Valley Authority.
“None of the actions we call for will be easy to accomplish, nor will they come cheap. Yet we need all of them so that American workers can be fully employed in jobs that pay fair wages. We need them to rebuild, and sustain, the great commercial engines that fostered the broad American middle class of the past century and underpinned the global prosperity of the past quarter-century. We need them to bring an end to America’s sorry status as the world’s largest debtor nation. And we need them for our national and economic security.”
Yes, Hindery and Riegle’s “Jobs Solution” runs the risk of bureaucratic waste and higher corporate taxes in the long term. And companies historically have feared full employment for the bargaining clout it gives workers. But businesses rely on healthy consumers, who ultimately are just workers wearing a different hat. Given the dead-end nature of growth fueled by consumer debt, decent jobs for average Americans is the way forward for both workers and firms. A full-employment economy, in other words, may be the best solution out there for employers.
An economic stimulus idea now gaining currency is a natural fit for the HR community.
The proposal is a payroll tax holiday, and it could be a win-win-win for workers, employers and the concept of a sustainable economy.
A payroll tax holiday would involve suspending for a year or two the federal taxes now levied to pay for Social Security and Medicare. These taxes are tied to wages, hit both employers and employees, and amount to more than 15 percent of much of the wages paid in America.
Because it’s a tax break, a payroll tax holiday appeals to Republicans. And as a means to put money in the hands of average workers, it appeals to Democrats.
Fatter paychecks would put a smile on employees’ faces.
Pausing payroll taxes makes sense for employers, too. Businesses would have a lighter tax load and a happier workforce, which would get a de facto raise even amid salary cuts and pay freezes. Plus, workers are likely to spend more, stimulating the demand that companies desperately need these days.
Of course, there’s a catch to putting the kibosh on payroll taxes. It jeopardizes the funding for Social Security and Medicare.
But as Hendrik Hertzberg writes in The New Yorker, those programs are too well-entrenched to be imperiled by a payroll tax holiday. In fact, he calls for eliminating the payroll tax altogether and replacing it with taxes on things we as a society want to get away from, like pollution, oil imports and excessive consumption.
“This wouldn’t be just a tax adjustment,” Hertzberg writes. “It would be an environmental program, an anti-global-warming program, a youth-employment (and anti-crime) program, and an energy program.”
Advocacy group Get America Working! argues that shifting from payroll taxes to equivalent taxes on materials, energy and land ultimately “would create tens of millions of jobs, help the environment, and in all likelihood lead to a net tax reduction.”
Radically changing the tax structure is an ambitious goal. But as Hertzberg suggests, the economic crisis at hand opens the door to dramatic changes like eliminating what is essentially a tax on work.
HR folks could be among those saying this is change we can believe in.
At first blush, the recent news that Caterpillar is cutting its workforce by more than 20,000 people seems like another sign that American companies are in grave trouble during this recession.
But Cat’s story is more complex, as I recently learned during a face-to-face interview with Sid Banwart, the company’s chief HR officer. The iconic maker of 20-foot-tall trucks and other heavy equipment has been taking people management steps during the downturn that may result in Cat purring happily a few years from now.
For one, the Peoria, Illinois-based manufacturer is reducing its workforce according to a certain long-term logic. Banwart said that about 8,000 of the 23,000 jobs getting cut affect Cat’s “flexible” workers: contract, staffing-agency and part-time employees. Excluding its flexible workforce, Caterpillar’s headcount at the end of 2008 was nearly 113,000.
There’s a debate about whether the rise in temp and contactor jobs is a good thing for American workers, especially given the historic weakness of the U.S. safety net. Still, temps and contractors can help companies preserve key employees during downturns and ramp up quickly in a recovery.
Indeed, Banwart says Cat’s move to largely trim its flexible workforce follows a deliberate strategy to handle troughs in its business cycle. The plan is designed not only to lower costs in a recession but also to allow the firm to hold on to long-term talent. “It’s actually worked out quite nicely for us,” Banwart says of the strategy.
Even though it is cutting workers, Cat has made it clear that executives also are sharing the pain. In December, the company said executive compensation for 2009 would be cut by as much as 50 percent, while compensation for senior managers would be slashed 5 to 35 percent. Cat also suspended merit pay increases for management.
In chopping the overall pay of executives, Cat is tapping into a national mood of shared sacrifice and intolerance for fat-cat excesses. “We believe it is important to lead by example,” Banwart says.
What’s more, the equipment maker is doing its best to avoid getting stuck in the recession rut. Banwart says Caterpillar is looking ahead to 2020, when it sees revenue possibilities of $100 billion—double the $51 billion it took in last year. The downturn will pass, in other words, and the world will return to building schools, hospitals and roads.
“This is a time when we emphasize the power of the ‘and,’ ” Banwart says. “We must deal with the current reality and maintain the ability of the company to grow following the downturn.”
For example, Cat plans to spend $1.5 billion on research and development this year, Banwart says. And Cat is continuing efforts to develop future managers. Between now and 2020, Banwart expects the company to need thousands of new leaders.
It’s too early to say whether Cat has pounced properly with its cutbacks or if it has acted like a corporate ’fraidy cat—with potential harm done both to its employee morale and ability to ramp production back up quickly. Banwart says voluntary turnover has “shrunk almost to zero.” But that could be a reflection more of the dire job market than commitment to the company.
A key test will be if Cat’s employee engagement scores continue their seven-year rise despite tough times. If they do, that will be a good sign that this Cat, while wounded, has a lot more life in it.
Something big is happening in Washington right now when it comes to the social contract around work.
The economic recovery package pushed by President Barack Obama that is currently moving through Congress isn’t just about stimulating short-term demand and investing in longer-term goals like better schools and infrastructure. The American Recovery and Reinvestment Act also promises to renew the U.S. safety net—in a way that should help both employers and employees.
It appears President Obama and congressional leaders have come to see the same light.
The $800-billion-plus legislation at hand includes incentives for states to close some major holes in unemployment insurance coverage by making it easier for low-wage and part-time workers to get benefits, for example. It also temporarily boosts the skimpy level of U.S. benefits by $25 per week and continues the current extended unemployment benefits program—which provides up to 33 weeks of extended benefits—through 2009.
For one thing, it would allow workers receiving unemployment checks to qualify for Medicaid, the health program for low-income people. There’s also a provision whereby the federal government would pay 65 percent of COBRA insurance premiums for a year for out-of-work individuals wanting to continue their group health coverage.
All of these changes combined would do a lot to give U.S. workers a measure of economic security. Such stability has been eroding during the past decade for Americans amid shrinking health care and retirement benefits, stagnant wages and growing layoff risks.
With more out-of-work Americans receiving more generous unemployment checks and more of them being able to obtain health care, employers themselves stand to benefit. Existing employees will be less stressed about losing their jobs, and therefore more productive. And the level of consumer demand should rise as the jobless have more cash to spend.
To be sure, there is something nerve-racking about pushing through such significant changes—even if temporary—in such short time and without extensive hearings.
And critics raise valid concerns about some of these proposals. According to The New York Times, for example, Republicans wanted to prevent wealthy people from getting the COBRA help or Medicaid.
Democrat Henry Waxman reportedly countered that means-testing would slow down the assistance. And indeed, speed is of the essence. Business are retrenching and slashing jobs by the tens of thousands. Consumer confidence is at a historic low. The country is effectively hurtling toward an economic abyss.
Just as we encourage businesses to innovate themselves out of tough times, shouldn’t we let government do the same thing in the form of serious stimulus spending and an updated social contract? In response to the biggest economic crisis in a generation, shouldn’t Washington go large?
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