Avoiding the I’ve-had-it moment

Avoiding the I’ve-had-it moment

The Internet is agog with stories of Steven Slater, who quit his job as flight attendant earlier this month after an agitated exchange with a passenger. Slater dramatically exited his JetBlue aircraft by sliding down an emergency chute, but not before picking up a couple of beers for the road (to prison, it seems).

Since then, Slater has managed to garner over 200,000 supporters on the Internet. A few of them even posted bail for him. The incident itself has come to represent the angst of Americans unhappy with the gradual erosion of the quality of their workplace. Slater is now so popular that there are even ballads in his honour on the Net.

The fact that the level of dissatisfaction is so high that people can empathize with someone who endangered others should make companies look closely at how they have treated employees.

In the recent economic slowdown, a lot of companies have taken advantage of employees’ scarcity of choice. Rampant and sticky joblessness in the US has palpably changed the balance of power between company and employee. Companies, spurred on by Wall Street’s inexhaustible urge for higher earnings, have tried to pare costs to the bone, and employee benefits have been easy targets. The few qualms that soft-hearted managers have felt about treading over such benefits have been allayed by the fact that everyone else has done the same. With few alternatives, employees have gamely accepted both additional work and reduced benefits. As a result, the social contract between company and employee, never great at the best of times, even in many developed countries, may now be on the verge of collapse. Many employees can rightly feel that they have been short-changed by their managements during the downturn.

The manner in which managers achieve savings is often overlooked. Reducing employee benefits, which saves a small fraction of the cost, is often the path of least resistance. Boards that are eagle-eyed when employee (not CEO) salaries rise should equally take note of benefits that have been removed. Managements have a duty to take hard decisions, but boards have a duty to ensure that these do not cross the line where short-term gains are eroded by long-term value destruction.

In fact, companies would be far better served by targeting other costs, such as rents or brand spending. Boards may also want to incentivize long-term benefits, which cannot simply be taken away at the management’s whims. These include the quality of office space, recreation facilities, and so on. There may also be a case for compensation to be re-engineered in such a way that a portion is deferred, to offset the temptation to cut employee benefits during tough times.

There is an onus on boards to not allow companies to linger in loss-making industries for too long. It is difficult to explain from a theoretical standpoint the persistence of industries that make losses and yet take inordinately long to consolidate. The Slater incident throws light on an aviation industry that, under huge cost pressures, tries to squeeze out the last ounce of employee productivity, even to a point where an employee chooses to rebel. A recent study has shown that this form of cost reduction appears to have passed the point of diminishing returns, and, for the first time in many years, productivity growth in the US has slowed.

The challenges of employee engagement may appear far less obvious in India, where rapid growth means there are jobs to be had. However, given the current state of global uncertainty, one cannot ignore the possibility that some industries in India could face a slowdown in the near future. Companies may want to plan in advance how they would deal with employees in the event.

Govind Sankaranarayanan is chief financial officer,Tata Capital Ltd. He writes on issues related to governance

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