Letters to L&T Employee: 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