On "All Things Considered" a week ago, I heard someone call for businesses to be patriotic as well as individuals. He suggested that businesses halt all unneccessary layoffs as they are bad for the morale of the country. He defined layoffs as being unneccessary if they were being done merely to maintain a profit margin, not for survival or such things as meeting payroll.
I thought it was a wonderful call.
Then today, in a CNN article, I read this bit:
"American Airlines announced CEO Donald Carty is giving up his pay for the rest of this year; the world's largest airline company is asking employees to volunteer for pay cuts to help it weather the financial crisis. "
Perhaps the call was not such an unrealistic ones and perhaps we will see a new day of business ethics. Yes, it's only one, but let us hope that it is contagious.
Publicly-held businesses that try to do anything but seek profit and skirt the law ultimately fail...
And people should realize that when they work for them.
Just as important as what File said, business (by way of the board of directors) have a clear legal responsibility to maximize shareholder value through profit. The issue of patriotism is nice - if it makes good business sense. If not, the board (and company through the board's actions) can be held accountable in court.
And yet--can not an argument be made for it being good business sense to reduce layoffs in this environment? After all, increased layoffs will mean reduced consumer confidence, which will mean less spending, which means less profit.
The argument is that they recognize the environment and do their part to keep the economy from crashing. So perhaps they should eliminate executive bonuses before layoffs. Or perhaps they should have across-the-board paycuts, or reduce entertainment expenses (though, I'll confess that would hurt the industry I'm in).
I think it is reasonable to call upon businesses to help bolster the economy before you call upon individuals to do so. The businesses have more economic power.
Quote:And yet--can not an argument be made for it being good business sense to reduce layoffs in this environment? After all, increased layoffs will mean reduced consumer confidence, which will mean less spending, which means less profit.
One hidden advantage to layoffs is that a company that has their sights set on a particular talented individual in the competition might just be able to snap them up for cheap if they get wrongly laid off. Plus, that person now has a chip on their shoulder against the new rival.
But overall, most businesses operate in a structure where the outside economy will impact the business far greater than the business impacts it. It's like treating the Earth as a ground electrically. Sure, it's not an infinite reserve of charge, but it's as close as you're going to get to it.
Now when you focus in closer and closer, sure, a single auto plant or papermill can take town a whole town. I suppose that shows why them big cities just keep on getting bigger.
Ouch. My butt hurts from talking out of it for so long. Sheesh. Somebody else take over and waffle for a bit.
Quote:Originally posted by Redlass
"American Airlines announced CEO Donald Carty is giving up his pay for the rest of this year; the world's largest airline company is asking employees to volunteer for pay cuts to help it weather the financial crisis. "
In my experience, companies that have gotten to the point of pay cuts are going to get to the point of layoffs. Cutting 10% of the salary (to pick a number) is a very small percentage off the top of operating expenses. Unless the employees are given something for their volunteering it's a bad proposition for the employee - let me give you less money then lay you off.
I participated in a salary deferment program a few employers ago where I deferred 20% of my salary for a period of time in exchange for some extra stock options. Those options may or may not have been worthless (so far I've about broken even with dividends from the stock) but it made it feel more like a bargain and like I wouldn't get screwed. I got laid off in the middle of the deferment period and I ended up getting treated a bit better because I had chosen to participate. I was given some stock options that hadn't quite become vested yet, all of my back pay, and all of the options I earned from the deferred salary. I also felt like I had done my best to not get laid off, but I did so in a way that did not hurt me financially.
But a salary reduction is different. Unless they make some sort of provisions like "people who participate will be laid off after those who don't" or an exchange of stock options for salary or extra time off or something I can't see it becoming very popular.
Janice
Salary reductions or deferments make sense (from an employer and employee perspective) if the need for it is temporary with a strong liklihood that conditions will improve. My Dad once took a 20% pay cut in an effort to help the company stay afloat during a difficult economic time. Three years later the company was strong, the 20% he had given up was paid back - with interest - and all members of the management team who had participated in the reduction and stayed during the tough times were nicely rewarded with salary increases (up to what salaries would have been with normal raises and without the cut three years previously). On the other hand, early this year my former employer (I've been gone two years, thank goodness) has cut all non-management salaries by 10-15%, cut all management salaries by 20%, and hourly employees have been reduced from working 40 (or more) hours to working only 25 to 30 hours. The entire industry was and is declining and the company went through a buy-out about 9 months before the reductions were put in place. Business is still way down, morale has deteriorated, the best and brightest (and anyone else who could, for the most part) have found other jobs, and the company is now in a position where layoffs are almost a certainty. Even if business improves for the industry, this company no longer has personnel with the skills and motivation to turn the company around.
As a stock-holder (although my holdings are minimal), I expect companies to make a profit. If they are unable to make a profit I will move my meager investments elsewhere. While it's nice to avoid layoffs and keep employees working when possible, losing money to do it doesn't help anyone in the long term. When investors stop investing in a company there will be no jobs with that company for anyone.
I remember reading that one airline (perhaps Delta) had a contract which guaranteed no layoffs to pilots who had been employed before 1998 (I don't know if this also applied to other airline employees.)
Obviously this airline might lay off everyone employed after 1998, even though it might feel it had a need to lay off everyone hired after 1995....
I suppose when airlines are constrained from laying off as many people as they feel they need to, they have to ask the rest to take pay cuts.
In a bankrupt company, no one will get paid, so it is probably wiser for the remaining employees to be grateful they're still working, and deal with the pay cut.
One of my friends was kvetching about how her cousins, a pilot and flight attendant, made $200K and $80K respectively. (She is in the midst of a divorce and is kind of financially stressed out.) She didn't think pay cuts would be too much to ask.
I should emphasize that I agree a business shouldn't avoid layoffs if it means the difference between making money and losing money.
But in most cases (the airlines excepted), businesses lay people off so they can maintain high profit margins. I don't think it is too much to ask that for a temporary period, a business be willing to accept reduced profit margins. In other words, they make a profit of only 30% instead of 85% or 110%.
If a business has a choice between cutting into its profits or cutting into its staff, then I don't think the staff should be the first place it looks in these economic times.
I would hope that an investor would recognize that a business that protects its people--its intellectual capital and those whom they've already invested training and hiring dollars into--is going to have more stability in the long run.
Layoffs save short-term dollars but they often cost the company a lot more in the long run. It's just those expenses (recruiting, reinventing processes, lower productivity from employees who are unfamiliar with the tasks, etc.) aren't always linked directly to their cause.
The airlines have to lay people off. They're cutting back on flights and don't need as many people. They also run their business on a very tight margin. I'd also argue that a lot of the e-companies over-hired (it amazed me how many employees some of these places had). However, not all companies laying people off are in those same situations.
Quote:Originally posted by Redlass
But in most cases (the airlines excepted), businesses lay people off so they can maintain high profit margins. I don't think it is too much to ask that for a temporary period, a business be willing to accept reduced profit margins. In other words, they make a profit of only 30% instead of 85% or 110%.
Businesses are required by law to maximize shareholder profit. Reducing margin to be a nice person will result in shareholder lawsuits, firing and other nasty things.
Quote:If a business has a choice between cutting into its profits or cutting into its staff, then I don't think the staff should be the first place it looks in these economic times.
People are not usually the first place cuts are made. My experience is that people are usually the first visible place where cuts are made.
Quote:I would hope that an investor would recognize that a business that protects its people--its intellectual capital and those whom they've already invested training and hiring dollars into--is going to have more stability in the long run.
Not sure I agree here. If planes are flying at 30% and overall flights are down 20%, having a trained person "for the future" simply means that I reach bankruptcy faster - or that I have to borrow money faster. Borrowing means interest payments rise, which means that I must raise price, which means that the overall economy suffers.
Quote:Layoffs save short-term dollars but they often cost the company a lot more in the long run. It's just those expenses (recruiting, reinventing processes, lower productivity from employees who are unfamiliar with the tasks, etc.) aren't always linked directly to their cause.
Layoffs can be dangerous things, but they are an economic necessity sometimes. I know a company that had several thousand employees, sold off its core businesses, representing about half the company and laid off 75%. Why? Because the big support infrastructure was no longer needed. Might it be needed in another year or so? Sure. Will there be increased costs then? Sure. Do I save millions now? Yes.
Quote:The airlines have to lay people off. They're cutting back on flights and don't need as many people. They also run their business on a very tight margin. I'd also argue that a lot of the e-companies over-hired (it amazed me how many employees some of these places had). However, not all companies laying people off are in those same situations.
The sense I get here is that companies have a cavalier attitude towards layoffs. I have yet to see one senior management team that hasn't agonized over the decision.
------------
I remember growing up in the florist my grandparents ran. For years, my father and his siblings delivered flowers while they were growing up. Then they hired a deliveryman. When my generation got old enough, we did the job for free and they laid him off. He was almost family then, but we were family. The issue is that a business in a free market society is not run like commune, nor does it engage in socialism for the benefit of the employees.
Business exists to create wealth for shareholders. That's the actual economic definition. Any altruistic efforts (for example, cause related marketing) are simply a cost-effective means of advertising, retention or promotion.