Hi Friends,
                                              Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do.
                                                  There is just no time to look back, no time to wonder,"Will anyone read these pages?"
                                       With regards,
                                       Hemen Parekh
                                       27 June 2013

Tuesday, 31 March 1987

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 healtto 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

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