It All Becomes Clear Now

Some time ago a video went around the Internet of a FedEx delivery driver throwing an expensive computer monitor over a seven-foot security gate, marking the package as “delivered,” and driving off. A few weeks later a second video showed us another FedEx driver stealing a package left by another service off of a doorstep while making a later delivery. This was rapidly followed by a blizzard of additional videos, some real and some staged, in which people in FedEx uniforms (real and home-made) did a variety of wince-inducing things that the company would probably like to believe never actually happen, before something else popped up and the world’s collective attention moved on. At the time, I was baffled by the minority of these videos that were eventually verified as real; it seemed fantastical that even a very large company could possibly experience that much bad behavior in that short a span of time. Little did I know that many of the people involved didn’t actually work for the company…

You can pick up the story from the Bloomberg site if it hasn’t been taken down, but apparently ever since FedEx bought Roadway Package Systems in 1998 and developed it into the FedEx Ground subsidiary, they’ve been classifying all of the delivery drivers as independent contractors, not employees. As a result, the company does not pay for overtime, health or retirement benefits, or even the drivers’ Social Security contributions; they actually deduct money from the drivers’ paychecks to cover the use of the delivery trucks and the cost of the uniforms that these personnel are required to wear. According to some of the lawsuits that have popped up about this, the company is, in fact, taking as much as sixty percent of the “wages” paid to these personnel, turning what would otherwise be good jobs into ones that barely pay…

It remains to be seen how the various legal actions will turn out; U.S. Circuit Courts in Indiana and D.C. have sided with the company, but the U.S. Ninth Circuit Court of Appeals in San Francisco ruled that the FedEx Ground drivers are employees (and entitled to all of the same rights as any other employee) in a decision handed down just this past August. Now the Kansas State Supreme Court has ruled in favor of the drivers (as of October 3^rd), and the National Labor Relations Board (NLRB) has rejected FedEx Ground’s claims, finding that the drivers are in fact employees. This issue is still a long way from being resolved, and so far the company is still fighting, but the momentum seems to be with the drivers. As a former management consultant and analyst, I can’t help wondering if anyone has pointed out to the company that this whole policy was idiotic in the first place…

FedEx Ground drivers are the company’s front line customer service personnel; in many cases they are the only human contact customers will have with the firm. If those employees are conscientious, helpful, and treat both the customer and their packages well, it reflects well on the company and makes people more inclined to use the service again. If those employees are grumpy, surly, disgruntled, resentful, or angry with their employer, they are likely to do things like throwing packages of delicate electronics over fences, leaving packages in garbage cans, or even (in extreme cases) leaving the shipments at any random address along their route rather than delivering them. And while it would facile to blame the company for all of the bad behavior of its personnel, this system is creating the perception that the company does not care about its delivery personnel, and will cheerfully rip them off for more than half of what they are allegedly making in the first place…

None of this excuses the bad behavior (and outright criminal offenses) being committed by the “independent contractor” driver personnel, of course. But it does offer some explanation for those nagging questions about how an otherwise highly successful company ends up with that many miserable excuses for employees…

The Ethics of Overtime

This past week I mentioned the concept of stealing time from the employees, which I should hasten to note does not have any ethical issues; it’s a crime in most of the United States and an outrage anywhere. Hourly personnel must be compensated for each unit of time they work, and if you ask them to exceed the legally mandated standards for a shift they must be paid overtime. Where this question gets murky is when we consider the employees who are not paid on the basis of hours worked; the so-called “exempt” personnel. It has become so common for employers to consider the exempt classification as a blank check that there’s actually a common joke about this: Exempt personnel are called that because they are exempted from having a personal life. But while this is (usually) legal, and almost always stupid, I have to ask if it is also unethical…

First of all, we should probably acknowledge that forcing your employees to continue working beyond the 40 hours of the standard work-week isn’t just offensive to slacker sensibilities, it’s also counter-productive. Years of research on this have shown that individual performance drops off somewhere between 48 and 52 hours per week depending on the individual; if you exceed that point you will actually start getting less work done the more hours you require. Or, to put in another way, forcing your employees to work 60 hours each will generally result in less quality work getting done than if you had just let them leave after 40 hours, while also generating resentment, fatigue, absenteeism, stress-related medical conditions, and resistance/obstruction to management directives. Keep up this policy and you can confidently expect all of your employees with initiative and determination to leave for better jobs, driving the company into an eventual death spiral…

This runs counter to the best interest of the company, the stockholders, and anyone else who has a stake in its success, which may be considered both unethical and a gross violation of fiduciary responsibilities. It also has the effect of lowering the quality of life, working lifespan, and ultimately productivity of your best personnel, which would make this policy appear unethical in its own right. Yet, at the same time, there are numerous examples of industries where a 40-hour week isn’t possible, because tasks in that context take more than 40 hours per week to complete and can’t reasonably be split into multiple shifts – familiar examples being healthcare, childcare, law firms and entertainment. Even worse, at least from the ethical perspective, is the case where work could be completed by a second shift, but the company can’t afford to hire one…

It would be easy to dismiss these cases by saying that if the company can’t afford to meet expenses (payroll or otherwise) it is effectively bankrupt, and should just surrender and end operations – ignoring the fact that this will throw the employees out of work, ruin the stockholders, and possibly destroy the entire community. It would also be easy to dismiss the whole problem by saying that people are not being forced to work in these jobs or go into those careers, and should just quit if the hours are too long- ignoring the fact that sometimes there is no other suitable job available. And perhaps even worse yet is the fact that once we allow one company to squeeze unpaid overtime out of its employees because it faces bankruptcy we are stepping out onto some treacherous ground: how are we to determine who is close enough to the edge to be allowed such an exception, and who is doing this just to save money and fatten the bottom line?

Which brings me to the inevitable question: Under what conditions is it ethically acceptable for a company to demand extra hours of work from its employees just because they are of exempt status and (presumably) want to keep their jobs? If this is excused by the needs of the company, the community or even the nation, how dire must the situation become before this is acceptable, and who gets to decide? Most people would probably prefer working 45 hours a week to being fired outright, just as most firms would prefer hardship to insolvency, but at what point does this stop being a necessity of hard times or difficult industry conditions and become exploitation of people caught on the wrong end of a power imbalance?

It’s worth thinking about…

Stealing Time

Readers of this blog (assuming I have readers) who live in the Western US or other parts of the world may not be familiar with the Jimmy John’s chain of sandwich shops. The company is a Subway competitor, with two major differences: the quality of their food is much higher and their business model is based almost entirely on take-out and delivery service. In fact, many of the locations in Central Michigan don’t even have seating; if you purchase food there you will have to find somewhere else to eat it. I’ve been a regular customer ever since we first encountered the chain, during the first week we were here in Lansing. It really annoyed me to find out that some of the franchises are being sued for stealing time from their employees – especially considering the wider implications of that crime…

You can pick up the story here if you’d like, but the basic concept is simple enough – and much more common in the US than I wish it was. Two of the Jimmy John’s franchises are being sued by former employers who claim that the franchise owners routinely required them to work “off the clock” without pay or other compensation. In practice, this has the effect of lowering the minimum wage, and therefore the payroll expenses experienced by the business. Employees are given the choice of working for less money or being fired, and during bad economic times they may need the job badly enough to put up with such demands…

It’s unusual to encounter this kind of chicanery in franchised businesses, since most franchisors have strict rules against the practice and in some cases can fine the franchise holder or even revoke their franchise agreement for doing so. People are likely to assume that the company is complicit in such exploitive practices even if they do realize that the locations in question are independently owned and operated; if they don’t realize the locations are franchised they will just assume that the corporation is screwing its own employees out of their minimum wages. Given that both the pay and the working conditions offered to fast food employees is already legendarily bad, no company wants to be associated with making things worse…

What may be getting lost in the shouting here, and is certainly being ignored in the highly politicized debates over a higher minimum wage, is the public impact of these wages and working conditions – and specifically, the fact that an increasing number of minimum wage workers are having to rely on public assistance just to stay alive. Fast-food companies – or quick-serve restaurants, to give them their industry title – have some of the highest operating margins of any major enterprise, and certainly have one of the highest ratios of how much the CEO makes relative to the average employee. Unfortunately, they are doing so by paying their employees starvation wages (sometimes literally) and dumping the cost onto the taxpayers; effectively a massive public subsidy for fast-food makers at your expense…

Now, I’m not going to suggest that every employee working far too hard for minimum wage is the head of a household trying to support multiple dependants on effectively no pay. Many of these positions are held by students, part-time workers, secondary wage earners in their households, and other who are not being driven to the edge just to provide a corporate executive with a larger bonus. My point here is that the fact that this is happening to anyone is an outrage, and the fact that these companies are effectively stealing your tax dollars as much as they are from the employees makes it a public disgrace. Requiring highly-paid employees working under exempt status to work more than 40 hours a week may be unethical and counter-productive, but at least it’s legal. Stealing time from your employees is Grand Larceny, plain and simple, and the people doing it should be charged as common thieves and prosecuted accordingly…

Dumping these expenses onto the public is effectively stealing the money that would otherwise be used for fire departments, police protection, public health, education and other vital services – and I don’t even have a name for that crime. But anyone who can accept a $20 million or $30 million salary while making his or her employees live on public assistance (or starve to death) needs to re-evaluate his or her personal values, assuming they still have any. And all of the people who are dead-set against raising the minimum wage should probably consider exactly who is paying for that public assistance, because it certainly isn’t the companies doing the exploiting – or shall we just call it stealing and have done with it? A crime by any other name…

Supply and Demand

Quick, name the most basic remedy you can think of for there not being enough of something available in the market. Did you say, offer more money for it? Well, if so, that would indicate that you have a good understanding of how a free-market economy actually works, with the laws of supply and demand stating that anything for which demand exceeds supply with experience a price increase, and anything for which supply exceeds demand you should expect to see prices drop. It would also indicate that you know more about economics, or perhaps business in general, than the American trucking industry, which apparently can’t figure out why there aren’t enough truck drivers available despite lowering wages repeatedly over the last decade…

I got the story from the New York Times online, but apparently this issue has been kicking around for a while now. Adjusting for inflation, the average trucker’s salary is apparently 6% lower than it was a decade ago, despite an increasing demand for people to haul various goods and resources around the country. It seems obvious that this might be having a negative impact on the size of the labor pool – or, as reporter Neil Irwin puts it in the original article, “It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job.” But what I found shocking, and truly appalling, about the facts of this case is the response from the industry, which is apparently complaining about a lack of skilled workers rather than instituting higher pay scales…

Now, I should come out and admit that while I have some experience with both shipping and logistics issues, I have no formal credentials in either of these areas, and I have certainly never run a trucking company. However, this has nothing to do with the issue at hand, because as Mr. Irwin correctly points out, saying that there is a shortage of skilled workers is effectively the same thing as saying we aren’t paying our workers enough. A significant number of drivers who are already qualified to handle these jobs have left the industry over the last decade due to declining wages, and the same factor makes training to be a truck driver increasingly less attractive. It is no exaggeration to say that this whole “crisis” is entirely within the ability of senior management to fix…

Without a great deal of additional research I can’t tell you if this situation is an outgrowth of runaway executive compensation (as Mr. Irwin implies), a decrease in the importance being placed on the role of labor, effects of an global recession, effects of an international economy, or some more subtle cause; I called the situation shocking because whatever the cause the solution is relatively simple. I called it appalling because this mentality – treating the workers like an unfortunate nuisance or an annoying inconvenience – runs counter to everything we have learned about management over the last hundred years, not to mention psychology, sociology and economics. The belief that you can ignore the workers, mistreat the workers, or act against the best interest of your workers and hope to achieve any long-term economic success has been debunked over and over again, and any first-year business student could explain the fallacy to you in detail – but apparently the people being paid multi-million-dollar salaries to run these companies can’t…

I can accept that even highly educated people might have trouble with subtle ideas – like the concept that outsourcing work to another country will throw people here out of work, eliminating the customers who would otherwise have purchased your product. But the idea that if your wages are too low, no one will be willing to take those jobs is another matter. I don’t know how this crisis is going to turn out, or if the Trucking Industry will be able to pull out of this tailspin while there is still time. But I really hope we can nip this kind of thinking in the bud before it destroys anything else…

The Ethics of Benefits

In all of the recent controversy over whether companies in general should be excused from having to pay for employee benefits that violate the company’s religious beliefs – or those of the people who control the common stock, anyway – one of the things that doesn’t seem clear is what a company’s obligations to its employees actually are. These days even arch conservatives seem to be okay with the idea that everyone deserves adequate medical care, assuming that no one asks them to pay for it. And I have already written in this space about how benefits are really part of a company’s compensation package, and how offering better ones is really no different from paying higher salaries than a competing firm. But the question of what constitutes a critical quality of life issue and what is just something that people would enjoy getting someone else to pay for isn’t always clear. I thought we should take a closer look…

First off, let’s consider the various health-related benefits. It may seem fantastical at this point in history that some companies don’t offer even the most basic healthcare coverage, but if all jobs came with health benefits there wouldn’t have been any need for the Affordable Care Act in the first place. Even here, however, it isn’t always clear what the critical factors are. For someone who as trouble getting around, the ability to select your own physician (so you get to choose a provider nearby your house) may be vitally important; for those with greater mobility it may not be. People with chronic conditions may need access to specialists, or want to see a doctor who is already familiar with the progress of their disease, while somebody whose primary health issue is limited to patching up their parasailing injuries may not care who is applying the bandages and painkillers…

As difficult as that is, it gets worse when we move into things like dental and vision benefits. If you need new glasses every year, then vision coverage is very important; if your eyes are 20/20 you may not care about this. Life insurance can be of relatively little use to someone who is single and childless; death and dismemberment coverage is critical for anyone who works with any kind of heavy machinery, but not so much for someone who never uses anything more dangerous than a copier. By the same token, someone who is relatively healthy may regard a time bank of sick days to be a nuisance, while somebody with a chronic health problem may need those days to avoid losing their job, and management may not want to offer them at all…

Things become even more extreme when we move into other kinds of employee benefit. For someone without children subsidized day care and personal days to deal with school/PTA meetings, soccer games, taking children to the doctor and what have you may seem like the company is punishing (and in some cases, fining) them for not having families, by making them do the family peoples’ work and lowering the pool of funds available for benefits they could use. But to a single parent trying to care for multiple small children on a relatively low income such benefits may be the difference between survival and succumbing to poverty – and rescinding them (or just not offering such benefits in the first place) seems cruel. The same could be said for tuition benefits for someone trying to escape from dead-end jobs, or even about the free turkey and pie giveaways we used to see at Thanksgiving and/or Christmas in some companies, in the case of a disadvantaged family that will otherwise be feasting on macaroni and cheese with puffed cereal on the side…

The more we consider this issue, the more it seems as though one person’s critically-needed benefit is another person’s wasteful boondoggle or inappropriate entitlement. Which leads me to ask the question: What do we, as employers, have an obligation to supply to our employees? Do we owe them more than the agreed-upon wages that we feel are fair compensation for the work that we are requiring them to do? If we have an ethical responsibility to provide the necessities of life, who gets to decide what things are really necessary and which are merely desirable? Happy and healthy employees are more productive, and ultimately lead to a more profitable company – provided that the costs involved in making them that way don’t exceed the increase in the firm’s income. But at what point does something stop being a basic necessity of life and become an inappropriate use of company funds?

It’s worth thinking about…

They’ll Be Back

Imagine for a moment that someone you know has just written his or her name, address and telephone number on the wall of a public building in a nearby park, so that their friends who live near the park will know how to get in touch with them. When you suggest to them that this might not be a good idea, since total strangers now have their contact information and could use it for various nefarious purposes, your acquaintance tells you not to worry; there is no way that anyone would use such innocent scribbles against them, and even if someone wanted to, those letters will soon wash off in the rain and be forgotten. If you just rolled your eyes and muttered something to yourself about people who live in a fool’s paradise, congratulations! You’re smarter than a number of businesspeople who have turned up in the news lately…

I’ve already brought you the story of the Abercrombie and Fitch CEO who was unwise enough to tell an interviewer that his company did not offer larger sizes because they only wanted customers who were within an unfortunately narrow standard of appearance – the “cool kids” as he called them – thus perpetuating negative stereotypes of both status-conscious teenagers and the fashion industry itself in one fatuous statement. What you may not have realized in the resulting media firestorm is that the original blunder was made in 2006, but it didn’t explode and start hemorrhaging money and market share from the company until December of 2012 (or earlier this spring, depending on your point of view). Even more remarkably, it didn’t actually come home to roost for the CEO himself until this week…

You can pick up the original story from the Huffington Post Business page if you want to, but basically the media storm and loss of shareholder equity resulted in 75% of shareholders voting to reject the company’s proposed executive compensation packages and demand lower ones. This is a non-binding vote, which means that so far the consequences are minimal – the company can still pay any of its officers anything it wants to – but if no action is taking the long-term effects are likely to get worse. At the very least, this will make it enormously more difficult to obtain any new investment (would you buy shares in the company at that point?), and if the stockholders are provoked enough they could move into some real stockholder activism, which could include suing the company and the CEO to recover their money…

Of course, we don’t actually know what the CEO of A&F was thinking when he made the original statement, but it seems unlikely that he thought there would be any consequences. The company had been reasonably successful to that point using that product development/marketing strategy, and it would not be unreasonable to suppose that their customer base shared those views about being cool, trendy and elite. At worst, one might expect that a policy statement with which the public and/or one’s customers did not approve would simply fall away into the void and be ignored by the end of the next news cycle. And, in fact, that might even have happened in a pre-Internet era…

It has often been observed that things you see cannot later be unseen, or things you hear unheard; now it would appear that anything you say publically cannot be unsaid – and anything that is recorded can make it onto the Internet and become public whether it was supposed to be or not. This is not to suggest that you can’t say whatever you like; freedom of speech is still a cornerstone of American life and hopefully it always will be. But the notion that you can make an offhand remark and never worry about who will hear it or what they might do as a consequence belongs to another time. If you are speaking publically, on the record, or even just where other people can hear you, be careful with your words. Because they will be back…

I’ll Take That Bet

Here’s a hypothetical for you: Suppose your company has the opportunity to hire a CEO on a medium-term contract (5 or 7 years) at a quite reasonable salary – less than you would expect to pay for a manager of his stature, and considerably less than he could get from a number of other offers. The only catch is, he wants a large severance payment in the contract, so that if you want to fire him early, it will cost you an extra $11 million to get rid of him. Would you accept that contract, knowing that in effect you are betting that the savings on his salary (and the money you will make by having him on your senior management team) will make up for the potential loss if you decide to fire him? Would your feelings about this change if his first three years in office were your best ever, with your highest revenue and lowest costs? If you did take this bet, would you still pitch a fit if he collected his $11 million “golden parachute” after his last year with your organization included a $149 million loss?

Well, you might want to talk it over with some of the people from the Massachusetts Blue Cross/Blue Shield organization, since that’s essentially what has just happened to them. You can get the story off of the Boston Herald web site if you’d like, but the basic story is that the CEO of the Massachusetts Blue Cross/Blue Shield stepped down at the end of last year because the Board was fretting about that year’s operating losses. Exacerbating the whole situation is the fact that the outgoing CEO’s predecessor received an even larger severance package in 2005 ($16.7 million, in fact) – and the fact that the organization is a non-profit…

Now, as I’ve previously noted, a non-profit is not the same thing as a charity. Being a non-profit organization does grant an organization several advantages under the law, most notably not having to pay taxes, but since a corporation only pays taxes on profits and a non-profit can’t have any profits, this isn’t as big a deal as you might think. In theory, all this should do is produce a leaner, more efficient corporation, since it can use 100% of its revenue to pay employees, buy equipment, and improve its services. Even more to the point, perhaps, in 2005 the most recent economic boom was in full swing, many people who should have known better were predicting nothing but peace and prosperity for the next thousand years, and the idea of spending $11 million on a CEO’s severance package seemed almost trivial, since a couple of college students could make that much in a weekend by starting a website. The move certainly wasn’t illegal, and it hardly seemed unethical (let alone “unconscionable”); at the time, it represented a savings of over $5 million from the previous CEO’s severance package…

The point I’m driving at is that all business decisions have to base the inherent risks of the situation against the payoff if your choice is successful. If your business environment is highly dynamic, long-term high-risk activities may not be a good idea; if your country or state are in the middle of an economic bubble that even a toddler could tell would not last forever (and might not last for seven years) then gambling on the stability of your senior management may not be your best choice. This is especially true in an industry like health insurance, which (like the securities, real estate, and airline industries before it) had been skating on thin ice while lobbying Congress to maintain its artificial industry conditions for decades before the deluge finally came. In the teeth of an economic crisis, a healthcare revolution, and an increasingly nasty political struggle for the future (if not the soul) of this country, having to publically admit that you bet $11 million on the performance of your new CEO and lost is a hard thing to carry off…

The question is, when you are given the same choice, somewhere in the future, will you take that bet, or play it safe and risk not getting those three banner years instead?

The Ethics of Non-Profit Salaries

We’ve been hearing a lot in recent years about CEO compensation packages, and how many top firms are now paying their senior managers more than the GDP of some developing countries – or enough to feed half of Asia, depending on your point of view. As I mentioned in an earlier post, this isn’t necessarily a bad thing, and all of the neo-Marxists out there can just settle down about it; companies are created to make money, and if you can show that a given employee’s efforts increased your net profits by 700% then there’s certainly nothing wrong with given them a piece of the action. But what happens when that scenario will never and can never happen – because the company is a non-profit organization, required by law to break even every year? Do those same rules apply?

Some people would tell you that every member of a non-profit organization should work for free – less necessities like health insurance and such, of course – but in reality, all this would give you is an agency staff made up entirely of people who do not need to work for a living. Which is to say, volunteers, amateurs and dilettantes, for the most part. Given time, there’s no question that some of the volunteers will become quite adept at managing a non-profit organization, but anyone who believes (as a distressing number of people seem to) that running any large organization is easy is displaying the “anything I don’t understand must be easy” fallacy, as well as their own ignorance, and should be vigorously ignored. Certainly, running an organization with a $100 million budget, 4,000 plus service locations, and tens of thousands of employees is a job you’d want a professional for; the question here is what should you pay them?

An article that ran this week on the ABC News website quotes the Charity Navigator organization as saying that the average compensation for CEOs of charities that size is about $462,000, which is almost laughably tiny when compared with CEO salaries for for-profit companies the same size. But the article is about the scandal resulting from the Boy’s and Girl’s Clubs of America CEO getting a total compensation package of nearly $1 million last year while accepting Federal support money. In fact, the compensation and perks being granted to the senior management of this organization has so outraged a group of Republican Senators that they’re threatening to hold up all legislation that would give money to the agency. Which seems reasonable, at first; $4.3 million on travel, $1.6 million on conferences and meetings, and $544,000 on lobbying fees is certainly over $8 million that won’t be going to help any children. The real question, which is being ignored in the political grandstanding, is whether the agency is being run well, and if so, whether the same results could be obtained if you spent a smaller amount on salaries…

Which brings us, I think, to the heart of the ethics question that is integral to this issue: if a non-profit agency is being run properly, in terms of providing high-quality service to its constituents, should its decision to pay a higher than industry standard salary to its CEO be questioned? Should Congress be able to make that decision (or at least strongly influence that decision) in return for grant funding of less than $18 per child served per year? The idea that the Federal Government itself could provide the same services for less would be laughable if it wasn’t so sad, and so is the idea of Senators, who get paid their own considerable salaries for life even after they leave office, being sanctimonious about anyone else’s pay. If the agency is providing high-quality services for a better price than the granting agency could by itself, should ANY grant maker be able to exert that kind of external control? On the other hand, since non-profit organizations do not have stockholders (and have only limited government regulation), if grant makers and other donors do not exert some kind of control on these agencies’ spending, then who will? For that matter, how do we even know if the non-profit agencies our tax money is being granted to are well-run in the first place?

It’s worth thinking about…

The Ethics of Fitness Programs

Let’s imagine that you work for a company that offers an employee discount on everything they sell in their retail stores; say, 20%. Let us further imagine that the company makes a whole range of fitness and wellness programs available to its employees, either at no charge or at cost. Assuming that there are no other barriers that would prevent any employee from using any or all of these programs, the question is should the company offer incentives to people for using the fitness and wellness programs, losing weight, and bringing their body-mass index (BMI) into standard acceptable ranges? Incentives beyond the obvious benefits of better health, lower medical bills, a longer life, and so on? And, if they do, does this constitute discrimination against people who can’t or don’t want to use such programs or can’t/don’t want to conform to the BMI standard for correct weight?

Before you answer, consider that (as reported by the “Consumerist” website), Whole Foods is doing exactly that; offering a larger employee discount to people with lower BMI ratings – which the company provides, free of charge. The original employee discount was 20%, and the company has presented the program as an extra 10% off for anybody who can achieve their “healthy” BMI rating, but this still raises a number of ethic questions…

On the one hand, there’s no doubt that some people are naturally more able to comply with this body mass standard than others – be it because of an active metabolism, a relatively low natural fat content, a love of sports or exercise, or many other reasons. This policy is therefore offering a greater benefit or perk to those people, while requiring much greater effort from other people to receive the same benefit, and withholding it altogether from still others. This is especially problematic in the case of individuals who do not conform to the mainstream BMI rankings. In my case, for example, the “healthy” BMI number for a man my height would require a weight I have not seen since high school (and could not safely reach under my circumstances), yet I would still be denied the higher discount rate if I fail to reach it. The same problem would occur in the case of someone of high BMI rating who can’t exercise or lose weight because of a disability, but would still like to receive the discount and eat healthier food…

On the other hand, there’s really no arguing with the fact that people who are fit will, in general, work more productively for more years while costing the company less in both health benefits and working days lost to fitness-related illness. Therefore it is definitely within the company’s interests to pay their employees to achieve and maintain better health. Certainly, there would be no controversy over the company paying employees a bonus for better or harder work, which means that paying them extra to maintain their physical condition so that they COULD do better or harder work isn’t exactly outrageous. Which leads me to pose the following questions: Does the company have the right to reward its employees for maintaining a more utilitarian physical condition? Can they incentivize people to achieve a lifestyle that benefits the employees as well as the company? Or are they required to provide all of the same compensation, including perks, to all personnel, regardless of physical condition or the consequences thereof?

It’s worth thinking about…

Belling the Cat – Again?

In yesterday’s post I brought you the story of how the six largest US banks are planning to distribute $112 billion in year-end bonuses (or even more, if their year-end earnings are high enough), and how there’s nothing you or I or even the President can do about it unless we happen to be stockholders. In fact, there’s actually a lot more than you and I can do about it than the President can; we can buy stock in these companies and start agitating for a stockholder’s revolt (the President can’t; all of his investments are held in bind trust while he’s in office). You can view the story here if you didn’t yesterday, but the point is, even this does not explain what I mean by “belling the cat.” So let me clear that up…

For those who don’t remember, Aesop’s Fables include the story of a grand meeting of mice to discuss the scourge of their existence: the cat! After several hours of discussion and debate, a clever young mouse gets up and suggests that they put a bell around the cat’s neck, so they can always hear her coming and run away in time. The idea is met with great acclaim, until an old, wise mouse gets up and says: “That’s a great idea! But there’s just one problem: which one of you is going to volunteer to put the bell on the cat?” Upon which, the meeting rapidly adjourns…

In the case of the banks, I’ve already mentioned that none of the parties expressing dismay and outrage over these plans has any standing (legal or otherwise) to compel these corporations to give out more reasonable bonuses or do anything else; so long as no laws are broken the government can’t take any action, and these are private companies and therefore not accountable to public opinion. Only the stockholders of these companies have any control over the salaries and bonuses being paid, and there’s some dispute about whether they do either. But quite apart from that depressing fact, there’s the issue that for the most part, even the people who could exert pressure on these corporations don’t want to…

Elected officials, such as congressmen and senators, could in theory pass laws that prevent banks from paying this type of bonus. But those laws would be subject to legal challenge (there’s nothing in the Constitution that says Congress can legislate ethical behavior) and would also run the risk of the banks giving greater financial support to political opponents who are not trying to pass such legislation. Institutional stock owners (such as mutual funds) could form voting blocks and attempt to put pressure on the banks, but such institutions are themselves run by executives who would be subject to the same sorts of laws; there’s really no point in expecting them to take such actions. Wealthy private stockholders could band together and exert the needed pressure, and occasionally some of them do, but they’re more likely to demand a bigger piece of the action for themselves than to impose limits on behalf of the average American…

In fact, for the most part, the only people who could impose such restrictions are either bankers themselves or people who can not afford to make enemies of the bankers. Unless all of the rest of us band together and demand accountability from our political leaders (in terms of election reform and “clean money” laws) and our business leaders (in terms of stockholder revolts and other organized small stockholder actions), the people extending these bonus structures will continue to ignore both the government and the stockholders exactly the way cats would ignore a group of unruly mice voting to bell them…

And no one is likely to volunteer to get the job done, either…

Belling the Cat

I read with great amusement – the nasty, cynical sort of amusement I always experience at times like these – the stories in the news about taxpayer outrage regarding the bonus structures some of the largest surviving financial institutions (including several of those bailed out with public money last year) are currently implementing. According to this story from ABC News six of the largest US banks have are planning to give their top managers $112 billion (or possibly even more) in year-end bonuses. This is causing a great deal of consternation in Washington, where Administration officials have been quoted as saying that it’s outrageous that the banks are going right back to business as usual after the buyout, and a great deal of anger and resentment across the country as people struggling to find work react to the story. So why am I laughing? Because it was obvious all along that this was going to happen…

The first thing to keep in mind about this story is that all of the banks in question have repaid their bailout money, and are therefore no longer under Federal control. So it’s not actually your money they are paying their chief executives, unless you’re one of the stockholders. The other thing to keep in mind is that while this may be tone-deaf, arrogant, or downright disgusting, it isn’t actually illegal. There are Federal laws about HOW a corporation can go about compensating its people, but not about how much; so long as the stockholders of these companies are okay with the use of those funds, there isn’t anything our government can do about it (a fact that several Administration officials seem to have forgotten). Perhaps even more to the point, there’s no clear evidence that these corporations are actually doing anything wrong…

Consider, for a moment, the possibility that these companies may be right when they say that these top officials are the best talent available, and that the companies’ performance will be even worse without those individuals running things. Personally, I can’t help thinking that a chimp, two hedgehogs and a slug could run a bank better than some of the idiots who are shortly to be receiving billion-dollar paydays, but I’ve been wrong before, and it’s certainly possible that these allegations are correct. In that case, allowing these key personnel to be snapped up by foreign financial institutions would be foolish, and using the $112 billion to pay bonuses with is only responsible management practice. Here again, it would be my preference to take the same funds and put them into small business loans, thus stimulating the economy, creating millions of new jobs, creating tens of millions of new banking customers who would then be able to pay the bank interest on car loans, credit cards bills and mortgages, and not making the rest of America angry enough to get out the pitchforks OR giving the banks’ political enemies the capital to permanently hamstring the entire industry with new regulations…

But that’s just me, and in any case it’s not important. The reason that none of this outrage or outcry is going to matter in the slightest is that none of the people crying out to express their outrage has any control whatsoever over the banks in question. As previously noted, none of these institutions are beholden to the Federal government any longer, so Administration officials can say whatever they want; the banks don’t have to listen. The same goes for the “person-on-the-street” out there in America. Unless you’re a stockholder, Bank of America and Goldman don’t care what you think of them; you can take your business elsewhere, but you’ll have trouble finding a bank that isn’t run exactly the same way. For the amount of good any of this is going to do, it might as well be a group of mice demanding that the cat wear a bell for their safety…

And even that doesn’t consider how closely this situation resembles the original Aesop’s Fable…

The Ethics of Down Time

In some of my earlier posts in this space I’ve already commented on the need to handle employee paid leave (vacation days, sick days, and paid holidays) fairly and even-handedly. It may seem incredible, at times, that anyone is still arguing the other side of this issue; leaving aside the legal, social and regulatory aspects of paid leave, even a purely pragmatic view should be sufficient to confirm that denying your workers time off with pay will result in lower productivity, poorer worker relations, and increases in such undesirably behavior as shirking and employee vandalism. But what happens when the people requesting time off don’t have a doctor’s note or a religious observance they need to perform? What if it’s just a matter of needing a couple of days off?

If your immediate reaction was to roll your eyes and mutter something about giving people inches and seeing them take miles, you’re not alone. Anyone who has ever managed a group of workers knows that there are always going to be people on the crew who are going to regard any benefit you offer as an attempt to squeeze anything extra they can get out of the company, just as there are always going to be those people who have to observe the Feast Day of Saint Monday (better known as calling in with a hangover) multiple times every month. But what about cases where somebody has put in three straight weeks of 80 or more hours trying to finish a project on time, or people who are not eligible for stress leave even though they’ve been through a rough experience on the job? What is a manager supposed to do in those cases?

The obvious answer in these cases is to use comp time if you have it, but many employers do not have a comp time program, and in many cases union agreements, offset shift arrangements, or remote supervision issues would make one impossible. It’s sometimes possible to give somebody a day (or even an afternoon) off in a purely informal sense; telling them to go home and marking their time card as present, or clocking out for them, or whatever, but this brings up the problems of other members of the work group resenting this “special” treatment and the fact that this tactic is technically perjury (falsifying in-house attendance documents). And if the person receiving this special consideration is perceived as the office brown-nose (if the other members of the work group believe that you are arranging your assignments so that workers you particularly like get to have more time than everyone else) the overall effect on the group is likely to be even worse than just offering your stressed-out worker a few hours off the books…

Of course, the best solution would be to distribute the assignments so that no one is pulling significantly more work than anyone else while building the team up to the point that when someone who reports to you is experiencing a serious problem, the other members of the work group will suggest that you give the affected teammate the day off even before you think of it. Backing this up with either a comp time program or a discretionary budget (something that allows you to do overtime pay or special merit rewards for off-the-clock work hours) that you spread around evenly would be even better. But the situation is still going to come up every so often when you have the choice between doing what’s best for your employees, and following the company’s attendance (and compensation) policies. When that happens, what will you choose?

It’s worth thinking about…

Tipping Over the Court Decision

We’ve already considered the issue of tips as part of an employee’s regular compensation in this blog, and I’ve also mentioned that as a Manager in the drugstore days, I was not allowed to accept them (customers would occasionally insist, and I’d then accept on behalf of my crew – and share the wealth with everyone who was on-shift that day). What you may not know is that while a number of states allow employers to pay lower-than-minimum wages to employees who receive tips, most of those same states have laws preventing employers from paying supervisors or managers based on the assumption of tips, OR letting supervisors and managers participate in “tip pool” systems. Which makes the situation going on in California right now all the more confusing…

If you’ve ever seen a tip jar on the counter at a bagel shop or a coffee house, then you’ve seen a tip pool in operation. In some restaurants, for example, you will see a team of servers looking after multiple tables, to the extent that it’s really difficult to tell who did the most work looking after a specific party – or who the customers were trying to reward when they left their tip. So what will happen is that at the end of the night, the manager will add up all of the tips left during that shift, divide by the number of people who were waiting tables (and sometimes by the number of hours worked), and pay each waiter that amount. Obviously, it doesn’t make any sense to have the manager (or supervisor) who is responsible for dividing up the tips also share in them; there is no way any of the staff would ever trust such a process, and no reason the customers (or higher management) should trust in such a system, either. You’d have to be an idiot even to suggest it…

Apparently, the people running Starbucks are that sort of idiot. A lawsuit filed in California in 2004 brought to light the fact that Starbucks was requiring its personnel to share tip-jar proceeds with their supervisors, despite state laws prohibiting this practice. The company defended this regulation by pointing out that a Starbucks supervisor does 95% of the same tasks as anyone else in their retail locations, including taking care of the customers, and that therefore it was appropriate that they share in the rewards (tips). Starbucks corporate also noted that its “supervisors” can’t hire, discipline or terminate the employees they direct, and are not responsible for distributing tips the way a manager running a tip pool would be. The court, however, felt differently, and last year awarded the baristas about $86 million in damages, and $20 million in interest. Which would have settled the matter had the company not appealed…

Which, of course, they promptly did. A story being reported this week by the Associated Press indicates that the 4th District Appeals Court has overturned the lower court’s ruling, agreeing with the company that the supervisors are doing essentially the same job as the baristas and should therefore be given a share of the tips. Which wouldn’t be a problem, except that the ruling directly contradicts the section of the state’s labor code that governs compensation schemes, which explicitly states that employers may not pay supervisors (of any kind) from tip pools (of any kind). Needless to say, the case is on its way to the California Supreme Court…

Now, I don’t want to rag on Starbucks, which is having enough troubles of its own, what with the closing stores, stock devaluation, and new direct challenges from McDonalds and Dunkin’ Doughnuts. But I can’t help thinking that this is not a healthy policy, both the original tip-sharing requirement and the ongoing legal battles. On the one hand, it has the potential to be a massive public relations nightmare, and on the other hand it has the potential to devalue supervisor positions all across the service sector (if companies are allowed to start cutting those salaries and paying the corresponding employees from tips), lowering the standard of living for supervisors and the quality of personnel who would be willing to accept those jobs. The repercussions could destabilize yet another sector of American commerce, lower the quality of service and ultimately performance and profit levels for thousands of companies, and drive the economy that much further into the tank…

Seems like rather a lot to risk over just not having to pay your supervisors another dollar or two, that’s all I’m saying…

The Ethics of High Pay

Since we’ve been talking about extreme compensation issues on this space lately, I thought it might be interesting to take a closer look at the ethical issues that surround getting paid 5,000 times more than your line workers do. Americans have a long and rather ambivalent history of both dismissing and wanting to be among the super-wealthy; the stereotypes of rich people as useless drones who can’t cope with the most trivial tasks and of the self-made man (who started with nothing and is now richer than any king) are both entrenched parts of the American mythos. Many people deplore nine-figure compensation packages and rail against them as monuments to greed and examples of the rich sucking the lifeblood out of the workers, yet I feel we are justified in asking how many of these same people would refuse such wealth if it were offered to them – and if that would actually be the best course of action anyway…

Now, I’m not talking here about the people who pack their board of directors with cronies, who then vote for outrageous compensation packages for the CEO while knowing that he (or she) sits on their board in turn and will return the favor. That sort of thing IS unethical (although unfortunately very common) and requires no further examination. Neither do companies that lay off people and outsource their jobs in order to pay senior management more, companies that raid the corporate pension fund to support the lifestyle of senior executives, or companies that allow the CEO to spend millions of dollars on risqué birthday parties for his spouse. All of these are cases that have appeared in the news over the last few years, but there’s no “other side” to this discussion (e.g. no one is going to argue in favor of these things)…

Let us instead consider what you might do if the company that hires you wants to make you the CEO and pay you $100 million for your services. The first thing might be trying to earn the money. Compensation plans in that range usually involve stock options, and if you can use your industry knowledge, strategic brilliance and innovative new ideas to achieve higher sales and a stronger stock price, you probably deserve a piece of the action. Certainly, if you can achieve a $700 million increase in overall stock value, gaining a 15% share of that achievement no longer looks quite as outlandish. By the same token, if you can improve wages and working conditions for your employees, lower the company’s carbon footprint, and help to improve the country’s trade imbalance (by exporting product instead of jobs) you’re probably entitled to a nice reward, and if you can do all of that while keeping the factory open and saving the town your firm is based in, they’ll probably throw you a parade, too…

Of course, if that isn’t enough for you, you could take some of your $100 million and do good works with it. You could build the town a new health center and a new library; offer to match funds for a new high school facility and a new senior center; sponsor community college programs and endow scholarships for local kids who want to go off to college. In doing so, of course, you’ll improve the health, education and quality of living of the people who live in your town, generating huge improvements in both public relations and worker productivity, and ultimately making even more money for the company. But you could always re-invest that in the community, too…

It’s important to remember that all of this, especially the doing good works without causing even worse damage by accident part, is extremely difficult. There aren’t more than a few hundred people in the world who can do the things I’m describing successfully, and therefore they command the high price that a scarce resource always does. But even more to the point, the idea that money – even when paid to a single individual for doing a job – is somehow evil is ludicrous. Money is a tool, nothing more; it’s what you do with it that makes it (and you) truly good or evil. And if you believe yourself to be a truly good person, then it stands to reason that you could do a lot of good with a lot of money…

It’s worth thinking about.