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Saturday, November 19, 2005

The Dangers of a Moralistic Approach to Compensation

This article in today's on-line NYT ties in eerily with an experience of mine several years ago and another earlier this week.

If you read about halfway down the first page you'll see that while the article says "GM", it's really discussing drastic cutbacks in employment, wages, and benefits at the GM subsidiary Delphi. One of it's largest divisions is Delphi Packard Electric, which is direct competitor with one of my former employers.

In 1996 I had an altercation with an engineering manager who was losing an Engineering Technician to Delphi Packard. His tech was making $7.50 an hour for us and left to work at a nearby DPE plant for $15.15 an hour. It was one of those conversations that you get used to when managing compensation, with the manager taking the moral high ground that the corporation was abusing and underpaying our people. Our industry was moving off-shore or to Mexico for cheap labor, and Delphi was raising their starting wage in the face of that trend. We couldn't make this manager understand that as a company we would be totally irresponsible to match Delphi's irresponsibility. GM and Delphi didn't respond, or couldn't' respond because of their culture and unions, and now all that has come home to roost. Last year, my old company hit the half billion dollar mark in revenues. This year, as the article shows, Delphi is caught up in bankruptcy and is cutting jobs, cutting the wages of those jobs it retains, and cutting retiree benefits not only for future retirees, but for those already retired.

This past week I received an email from one of our managers about the resignation of a staff member, leaving for more money. The manager wants me to conduct the exit interview personally so I can hear first hand what the market is like. This isn't a common occurrence since our avoidable turnover is trending at only a little over 6% for the year, but it sometimes happens. When it does, there's always someone at some level of the organization that takes the moral high ground that we should have paid more. And, since our corporate initiative to develop and recruit World Class Talent began, there is an erroneous and dangerous assumption on the part of many that WCT means world class wages (as if money was anywhere near the top motivator for employees in any study since the 1950's).

Point being, I believe in the Father, Son, Holy Spirit, Communion of the Saints, Resurrection, and the Business Cycle. While I'm confident that Mike Hyatt and our Executive Leadership Team have us on the right track for growth, I'm equally confident that we'll have bad quarters, even bad years, on the way to an exciting future. When those bad times come, today's high minded moralism is tomorrow's loss of jobs. Conversely, today's controlled growth in salaries and overhead, is tomorrow's triumph when more moralistically managed competitors go under.

Finally, we need to have a celebration this February 3rd. That will be the third anniversary of the last Reduction in Force that Thomas Nelson experienced. That's the main benefit of solid compensation management; job security for the workforce.


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