Posts Tagged ‘Pay cuts for middle-aged workers’

“Cut the pay of Joe the Machinist”

August 12, 2011

Booz and Co., a management consulting firm, published an essay recently inviting companies to consider the problem of Joe the Machinist.

Joe has been a machinist for 25 years at the same company, a steady and reliable worker.  Although Joe is a significant asset to his firm, his wages have gone up steadily while his responsibilities have remained largely unchanged.  The result is that Joe is significantly overpaid as a machinist compared with co-workers who have been doing the same job for just two years.

Struggling to ride out the worst of the recession and credit crisis intact, Joe’s company has fired dozens of workers — and considering Joe’s salary, he would seem to be a likely candidate for the next round of layoffs.  Or maybe not.  Joe’s a stellar employee who knows the ins and outs of the organization, the result of his many years on the job.  If management let him go, not only would the company lose his wealth of institutional knowledge, but a troubling message would be sent to the other workers — namely, loyalty goes unrewarded.  At Joe’s age and tenure, moreover, there could be legal implications to such a move.  In short, the company would rather not fire Joe.  But what’s the alternative?

The alternative is to cut Joe’s pay.   The company could retrain Joe for a job whose job description calls for a higher pay grade, but such a job may not be available.  The company could offer Joe a job buyout or it could terminate his employment, but that would be inhumane.  But in any case, the company doesn’t want to pay Joe more than the “market” rate, which in practice means the lowest pay they can get anybody to accept.

If a company regards its most experienced and loyal employees as liabilities, what kind of employees will it have?  It will have employees who work hard at doing those things that supervisors notice and take into consideration on merit pay evaluations, and never do anything else.  It will have employees who leave as soon as they have an opportunity.  Can you have a profitable, thriving business under those conditions?  A large segment of American business is making that experiment, and we can see the results.

Click on Retooling Labor Costs for the Booz & Co. article.

Click on Outrageous CEO Pay? How About Lowering Salaries on Longtime Workers? for comment in Harvard Business Review.

Click on Joe the Machinist, Better Watch Your Back for comment by Sam Pizzigoti on the Too Much web log.

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