Sweating it out at the shop

Acme's productivity bridges the recession

 

 

It wasn't only the two weeks of tropical breezes and sunny beaches that were making life easier for the Acme executives at their hastily-called strategic planning conference at the Caribbean island resort. For the past few years, business had been wavering between abysmal and lousy. Finally, it appeared the company's fortunes had turned and executives were seeing the world in a sunny new light.

"I guess it's a fact," beamed Mel Feezenz, Acme's CFO. "You heard Jack tell us revenues are up, although not by much. And we've held costs flat."

"I was glad to hear that, too," replied Barry Caide, the HR director, as the pair walked the beach, absorbing the warmth and sunshine. "I'm sure glad the downsizing is over," he added. "For a while there, it seemed all we were doing was processing pink slips."

"I trust," Mel continued, "that we're not planning to let payroll start eating our lunch again."

"Absolutely not," replied Barry. "Although we can't be sure Jack is right, his comments about our high worker productivity are correct. Besides, the last thing we need now is to get a reputation for hiring and firing. It would make us look like we don't know what we're doing. But, hey, enough of that. Join me in another round of golf."

"Sure. There'll be somebody around the pool to join us," said Mel as they turned inland.

Meanwhile, back home at the Acme plant, the operations staff had its own problems trying to get a foursome together. The downsizing hit Acme's production departments, and line managers were finding their departments short-staffed as business picked up.

"Look, Malcom, we don't have any options here," said Stan Darde, Acme's production manager. "We've got to get product out the door. Work is backing up and that's not good."

"Yes, I understand," replied Malcom Tente, the first shift foremen in Assembly Department 7. "For months now, you've been pressuring us to produce, and we're doing it by working way more than 40 hours per week. How about getting us some help, Stan?"

"We can't go there again. You know there's a hiring freeze in effect," answered Stan. "Don't count on more bodies any time soon. But, we actually did get you some help. You know very well that we've always used the third shift for light maintenance and non-production activities. For the past week, we've got production on all three shifts."

"Big deal. You cannibalized the other two shifts to staff that one," said Suzie Lazen, Acme's production scheduler. "The net result, Mr. Einstein, crippled us with three severely understaffed shifts."

"Stop your beefing, Suzie. You guys are racking up comp time, aren't you?" asked Stan.

"That's a joke. And you know it," retorted Malcom. "The engineers aren't getting OT or comp time, and the rank and file will never be able to cash in theirs. Who's going to do the work? That's why every department needs backup."

"Don't fret, my friends. I'm sure we'll be hiring more people when Jack gives us the nod," said Stan as he headed off to the next department.

"If he's right about staffing up, I'm glad," answered Malcom. "But, let's face it, Suzie. Nobody up there really cares. It's a buyer's market, and none of us will be going anywhere else very soon.

"You're right," said Suzie. "Everyone is miffed and exhausted. The engineers and lower-level managers feel they're being used. Some hourly folks already accumulated a month of comp time and are beginning to realize they're living an impossible dream. I can schedule the work, but who's going to do it?"

"Good question," replied Malcom. "The grapevine tells me some are planning a work slowdown. We're already so short-handed, I doubt it will make a difference. And I doubt if I'm going to do anything to prevent it."

Is there some way that this situation pitting labor against management can be defused? Is there some way to achieve a win-win outcome? How could this situation have been avoided in the first place?

A corporate consultant says:

Can this be a recent case? Are there really still companies out there today whose executive cadre is stupid enough to produce this situation?

Common sense reveals the foolhardiness of such retreats amid downsizing. But even the apparent absence of common sense doesn't mitigate it, given the negative press heaped on companies that have pulled similar stunts. This management invites, indeed justifies, unionization, loss of investor confidence, and other fallout.

Avoiding this crisis wouldn't have required more than management's ability to add two and two and come up with four. So what can Acme do to recover?

A five-step process can re-establish credibility by articulating honest remorse; reinvigorate worker productivity through corrective actions; and access the discretionary productivity of the troops by involving them in crafting "next steps."

1. The top dog should conduct staff meetings with each shift, acknowledge the frivolity of the retreat, take personal responsibility for poor judgment in permitting it and apologize for the decision.

2. The top dog should articulate an awareness of productivity metrics and acknowledge the plant staff for having produced so much more with so much less.

3. The top dog should share sales forecasts and other information with production workers to clarify what'll be needed to stabilize business during the next six months. The top dog should ask for their help in implementing the plan, explaining how their efforts will be rewarded if targets are metbonuses, the ability to cash in comp time and other incentives. Now would be the time to explain the method for gathering input from staff to gain their suggestions for next steps.

4. Before these staff meetings, the top dog should already have met with the CFO and HR to determine how to augment labor staff quickly without eroding financial stability. Strategies might include temporary or contract workers, subcontracting or altering pricing and delivery schedules. The top dog should announce the decision during the meetings.

5. The top dog should already have met with the senior executives to determine the nature and extent of the sacrifice they need to make to repair their credibility. This might include reduced pay, forfeited bonuses or working full shifts in the plant. The top dog should announce the decision during the staff meetings.

Francie Dalton

Dalton Alliances, Inc.

410-715-0484

fmdalton@daltonalliances.com

An attorney says:

It is Acme that is living the impossible dream. First, a company can't produce an excellent product or avoid costly and time consuming turnover when its work force is "miffed and exhausted." Second, Acme can't lawfully provide "comp time" to its non-exempt employees instead of paying time and a half overtime.

"Comp time" commonly refers to the practice of allowing an employee to take paid time off

at some later date equal to the overtime hours the employee worked. While many employees might not complain, it is illegal under federal wage hour laws, as well as the laws of most states with comparable requirements.

The Fair Labor Standards Act, the federal law that governs wages and hours, requires that non-exempt employees be paid one and one-half times their regular hourly rate of pay for hours worked in excess of forty in a work week. Allowing a non-exempt employee to take the equivalent overtime hours off does not comply with that requirement. Aside from the fact that it provides for time off and not pay, the time and one-half requirement is not met. For example, if an employee paid $10 per hour works forty-two hours during a week, he is due wages of $400 for the regular work week plus two hours at $15 per hour, for a total of $430. Under a comp time arrangement, even if he is given two hours off with pay later, he is only paid $10 per hour for those two hours.

Many employees either don't know that they are due time and a half, instead of comp time, or don't object to that arrangement. However, employees who are not even permitted to take the comp time off will complain sooner or later. When the U.S. Department of Labor receives a complaint of a wage hour violation, typically, it will audit the employer's company-wide pay practices. Back pay is assessed for a period of two yearsthree years if the Department of Labor finds there was a willful violation of the law. This could result in significant liability.

What can an employer do to avoid racking up overtime pay at time and one half? One option is to hire part-time employees to work the additional hours at straight time wages. Often, part-time employees have less experience and also are paid a lower hourly wage. An employer also can use temporary employees, who are often not entitled to employee benefits.

But Acme's current practice can only lead to troublelack of morale among the troops, exhaustion leading to costly mistakes, and expensive and time-consuming turnover. It's time for Acme to abandon its impossible dream and wake up.

Julie Badel, Partner

Epstein Becker & Green, P.C.

Chicago, Ill.

312-499-1418

jbadel@ebglaw.com

An academician says:

The overall problem here is systemicStan has responsibility for production numbers but doesn't have the authority to control the resources he needs to produce those numbers. It's like a ball team's management telling a coach to win the pennant, but only use six players to control labor costs. It just ain't going to work!

Give Stan control over the labor costs as well as the production numbers and let him work out a way to grind out product with decent margins.

This is not rocket science, folks. It's simply a change in the accounting system and who makes the

decision about using resources. It should be fairly easy to calculate the maximum labor cost per unit volume of production for Acme to make a healthy profit in whatever they produce. Stan has control over production, so he must decide what labor he needs to deliver his production numbers while controlling costs.

Stan has a lot of options including temporary workers, contract workers, overtime, more permanent workers, bringing back retirees at reduced time, two shifts, three shifts, 10- or 12-hour shifts, outsourcing and a variety of other strategies. These choices also give him the flexibility to adjust to the sales and production cycles by moving people in and out. However, he needs to have control of these options.

The current system produces a ton of frustration. People who are working on last year's problemsnot this year's opportunitiesare making the labor decisions. Moreover, they're looking for a fixed head count. How do you calculate the appropriate number of employees to make a profit? There is no fixed headcount number. Headcount should be flexible to meet the sales and production demand.

Homer H. Johnson, Ph.D.

Loyola University Chicago

312-915-6682

hjohnso@luc.edu

Our "in the Trenches" stories are created as a learning tool; the names of the companies and the people described within them are fictional. 

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