GIVING BONUS THE AMERICAN WAY

Synopsis: Communication For Productivity Letters written to some 7500 Workers / Managers / Union Leaders, following a period of strike / Go slow / Murders (1979 - 1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open / honest communication led to a remarkable atmosphere of trust between Workers and Management, which, in turn, increased productivity at 3% per year (ave).

March 31, 1987

To:

Dear Friends

GIVING BONUS THE AMERICAN WAY

The Idea of giving bonus to employees is catching-up in America (may be they imported it from India!).

But as true Americans would do with anything, they have improved upon  it!

( 1 )   Workers must first accept a wage-cut of 25%!

( 2 )   Then workers must keep the LABOUR COST at 10% of sales.

( 3 )   And If the workers, succeed in achieving both, then they would get a bonus as follows :

If the Labour-cost as % of sales	Bonus will be equal to
( a ) Remain at Target level of 10.0%	1.0% of Sales
( b ) Go down to             9.5% (Better than target)	1.5% of Sales
( c ) Go up to                 11.0% (Poorer than target)	0.5% of Sales

At this stage, I cannot help reminding you all that our own

              Manpower cost____     =  28.1%  (1985-86)        

Powai + Madh Output

And I cannot help feeling that there is an URGENT NEED to Import this vital managerial KNOW-HOW from America to save our Industries!

That is right. The Industry that started this_new system in America was about to be wiped out.

The company Is called A&P.

They are in the business of selling,           
 

·     food articles (grocery/vegetables)      

·     milk products            

·     soft drinks       
     

·     small household Items.

They do not manufacture anything.  They Just sell (like our Bania and the Bhajiwala).  But even they face severe competition in their business.

So severe that,

·     In 8 years, the company had to close down 70% of its stores!

·     The company made  losses for 4 years continuously!

·     Worker morale became very low.

DESPERATE ACTION      
      

In desperation the company Introduced the earlier-mentioned BONUS-SCHEME on experimental basis in 60 stores after negotiating It with UFCW (the Labour-Union).

RESULTS?

( I )    EFFECT ON WAGES

( 2 )   EFFECT ON LABOUR COSTS   

( 4 )   EFFECT ON EXPANSION

Purchased 65 loss-making Food-stores from a competitor (BATES INC.) on condition that UFCW (Labour-Union) would accept Bonus-Incentive!

( 5 )   EFFECT ON PROFITS (OPERATING)

UNION STARTED IT ALL!

It seems the whole idea came from the, Union! In 1981, when A&P closed down 81 stores (In America they don't need Gov+.permission), the UFCW  (the labour-Union) purchased 6 of those stores which are still employee-owned!

This gave an Idea 'to the Management. Why not  link BONUS to LABOUR-COST? This would be a true profit-sharing.

A&P Chairman, James Wood says,

"The Idea of people getting a piece of what they are trying to achieve, has always appealed to me enormously".

WHAT DOES THE UNION THINK?

"This (scheme) involves putting part of our  wages at risk - something we would not ordinarily volunteer to do,

but, 

Intense competition and mergers In the retail food business have spread Labour concessions (wage-reductions) to many stores.  If this continues, the A&P profit sharing  scheme may, one day, become an Industry-standard".

ANY LESSONS FOR US AT POWAI?

Plenty.

How long can we carry-on the way we are doing?

*Manpower cost Includes :  

All monthly cash payments + Co.'s contribution to PF, ESIS + Bonus + Ex-Gratia + LTA  + Medical reimbursement + Cost of Canteen, Dispensary, Transport & Welfare facilities

After studying these charts, I wonder whether we need to travel halfway around the world to America In search of know-how on wages and bonuses!

Much nearer home, we know how bitter medicine has brought back health  to Jaipur Metal & Electricals Limited!

Question is,

"Shall we display the courage or close our eyes like an Ostrich and bury our head In the sands?"

Hemen Parekh

THE END OF CORPORATE LOYALTY?

Synopsis: Communication For Productivity Letters written to some 7500 Workers / Managers / Union Leaders, following a period of strike / Go slow / Murders (1979 - 1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open / honest communication led to a remarkable atmosphere of trust between Workers and Management, which, in turn, increased productivity at 3% per year (ave).

17 Mar 1987

To:

Dear Friends                     

THE END OF CORPORATE LOYALTY?

De-massing

Down-sizing

Re-structuring.

To 5,00,000 white-collar workers who left their companies  during last 2 years, these words  mean,

"You are fired (lost your Job)"

In troubled American Companies, these Staff reductions are often needed to SURVIVE - But healthy companies are doing it too !

Why? 

To get expenses in line with foreign rivals.

But is this (staff reductions) posing a threat to employees' feeling of Loyalty to their companies ?

Apparently in America it does. In a Business Week/Harris Poll of middle managers, 65% said,

"Salaried employees are less loyal to their companies now than  they were 10 years ago".                           

Of course, who does not want a loyal work-force?

George McCul lough. Vice President, Employee Relations - EXXON Corp., looks at staff reductions differently, when he says,

"There will be fewer people to run the business, so they will  be' busy. And when they are busy, they will be happy".

So EXXON went ahead and cut  Its work-force by 17%!   For EXXON, in a dog-eat-dog type of competition, company-loyalty  was a luxury they can no longer afford!                                        

But is it possible, that, a work-force, demoralised by uncertainty, could hurt them even

worse in future?  

But before you worry about the future, you have to survive the present. And that is why DU-PONT made 11,200 employees leave "Voluntarily" (by making a one-time payment of $125 million)  but made a recurring annual saving of $230 million (after-tax!).

And DU-PONT is not alone.  During last 18 months, 300 companies have  slimmed down in America.

But the fortunate part is that the "retiring" employees do not hold grudges against their companies.  They understand that the managements had no choice but to cut costs in the face of,

-     Severe foreign competition

-    De-regulation (i.e. Increased domestic competition)

-    Technological changes

-    Recession (lack of demand).

DU-PONT Chairman HECKERT recently told employees,

"We now have several thousand more employees than Jobs.  That   Is far too many to handle through attrition.  To help DU-PONT's   competitive position, the number of layers of managament is - being reduced and unnecessary tasks are being eliminated".

But not all employees see eye-to-eye with the management. A 20 year old (service) EXXON employee says,      

"We "used to be a community..... Now it is clear (that) there Is only one Important group the shareholders".

And If an employee Is not asked to leave, he will most likely be asked to

-    Take up a new Job.

-    Go to another city

-    Accept a salary-cut/salary-freeze.

-    Agree for demotion

But any of these (options) is better than being fired (lose Job) as the following 1,28,076 Americans found out!

Losing Job is a bad thing that can happen to a wage-earner.

But a wage-earner does not realise-that the man on the road Without a Job is WORSE OFF!

A few months ago I had an opportunity to meet Mr.Edmond Ayoub who Is  -the Chief Economist of one of the biggest Labour-Union of America - the USW (United Steel Workers of America).                         

Ayoub sounded desperate - and angry.

Desperate because

-     American Steel Industry Is operating below 40% capacity      

-    1,25,000 Steel workers are unemployed.

Angry because

Cheap labour of Japan, Korea and Taiwan is producing CHEAP steel, dumping it in America and in his own words,

"Successfully exporting their unemployment to our (American) shores"                                                      

But Ayoub did not  like it when I asked him,                         

"At $100/day wages, your American workers had enough money to buy a car, a house and cake for eating.  And now 1.25 lakh of these workers have lost Jobs,

We have, perhaps,  125 lakh workers who do not have even a loaf   of dry bread to eat and who would be only too happy to work  hard for 8 hours a day - for Just ONE dollar/day.

Is there good-enough reason to deny them their ONE dollar?

Will the high-wage Island of Bombay city end-up being Pittsburgh - the one time steel capital of the World?

H. C. PAREKH