Sunday, April 16, 2006

Employee Protection

Since my last blog in praise of regulations, I have been thinking about what might happen if a movement started to promote stronger regulations in favor of employees.

We might think of this movement as an evolution of unionism from favoring a few groups of employees to a fair and universal system of employment standards. That this is overdue is clear from something I wrote a few weeks ago about the plight of upcoming retirees who aren't employed by government. While those who work for governments either directly (civil servants) or indirectly (school and university employees) have guaranteed, indexed, and very generous retirement pensions and benefits, virtually nobody else in society does. Those in private industry unions who thought they had pensions are finding that there's a movement in the corporate world to reduce or eliminate them, and those who have relied on the stock market to increase their savings have learned how quickly their savings can evaporate. And many just can't afford to save for retirement. As the baby boomers start to retire, we will see a sharp divide of haves and have-nots that I have described as a looming humanitarian disaster.

So point one in my employment standards package is going to have something to do with retirement benefits. Perhaps it will be as small as continuing employee health benefits when an employee retires (defined as quitting after the age of 65) and providing a severance package to retiring employees. Perhaps it will be more. Perhaps it should be structurally different: have employers contribute more to unemployment insurance or the government pension plan to cover retirement.

Point two might address the issue of layoffs. Since the 1980s, layoffs have become a fixture in the white collar working world. This kind of layoff is very different from the temporary laying off of factory workers when there's no work to do. Here's an example of the problem. In my town there is a company that lays off a lot of employees every year or two. In between they are active hirers and they hire for the same sorts of job that they lay off. The CEO recently boasted that his stock price does so well because he is responsive to market forces. In other words, he hires a worker (who probably is quitting another job to go there) knowing that if the stock slips he will put the person out of work, get a price boost, and rehire someone else.

Currently, severance laws do not have much teeth for employees. They could be improved. For example, a laid-off employee could get a minimum three month's salary (not overly generous when you consider how long it takes to find a job in the white collar world) plus health benefits extended for a certain amount of time. Perhaps companies should also have to prove that certain conditions exist to lay people off.

Some may counter that companies use layoffs to rid the company of deadwood employees who are reducing productivity. But if the employees really are unproductive, then this should be dealt with more fairly, following existing laws for firing. Layoffs are widely used to circumvent the laws of dismissal, often with minimal severance. Employers are frequently lax in their hiring process because they know that they can easily rid themselves of the employee if they don't work out.

A third issue is job contracts. I am forced to sign a job contract if I want to work, and the employer does not allow any negotiation of what it contains. I may have to agree to not work in the same industry for two years after I leave the company. Employees need some legal protection in what they are forced to sign.

Other than retirement, layoffs and job contracts, I'm not sure what our new employment standards should contain. I come from the white collar high tech world and would expect that representatives of other industries and employment types would need to contribute their own priorities. We should look at protections that are provided in union contracts and European laws as a start for our list of protections that should be universally applied.

But say we have a package of employment standards that we want to be enshrined in law. Step two is the political process of getting this proposal accepted. Again, I'm just sketching out some ideas here, but it's a fair guess that the main counter-argument is going to be that such a law will lead to companies moving jobs to other countries, thereby increasing unemployment.

We should remember that the current Canadian maternity benefits standards did not have such an effect, even though in many companies women are now entitled to over a year's leave at fully salary, with a shorter paternity leave also included. Also, while France arguably has over-the-top employee protections, the unemployment rate is less than 10%, and is partly caused by other structural factors. For example, French productivity is much lower, largely because on average American workers work 1,822 hours a year, while French workers work 1,431 hours a year.

Also, in the last 35 years the remuneration of the directors and officers of corporations has increased dramatically. Compensation of CEOs has increased 1300% in that time, versus a 13% increase in average employee compensation. When we're talking about the compensation of directors and officers of corporations, salary is only part of the mix. We got a rare peak into executive perks during the divorce proceedings of General Electric CEO Jack Welch, which revealed a slew of enormous perks in addition to salary, bonus, stocks, and pension. There are tricks that make compensation difficult to measure, such as huge loans that are forgiven when the CEO leaves the company. To get an idea of the money value of stock options to head honchos, go to, type a stock symbol or company name in the "Get quotes" box, and then scroll down the page and click on "Insider Transactions" in the left column. (Pure off-topic gossip here: if you type in the stock symbol MSFT you'll see that in February 2006 Bill Gates sold $1 billion of Microsoft stocks. Yikes.) For example, if you look up the stock symbol SY (for Sybase), you'll see a lot of transactions where high-ups exercised options at far below market value.

The dramatic rise in CEO compensation shows that companies can be competitive and increase payouts. In a company of 1,000 employees, a $1 million increase to the CEO is equivalent to a $1,000 rise in remuneration to each employee.

This leads me to think of another kind of citizen protection we should have in place: annual reports should be required to include a financial ratio that shows total remuneration of officers and directors as a percentage of profits. Perhaps there should also be regulations governing how they remunerate themselves.


1 comment:

Sang Freud said...

Great post Yappa. Despite your not getting a lot of comments, don't stop. It's the sort of blogging we need.