The American way of business

Posted: December 19, 2009 in 21st century life, Economy
Tags: , , , , ,

Autumn 2009 has been like no other I’ve experienced, with another round of layoffs in my company and the supposed sale of one division (of which I am a member). It’s difficult to feel good about having a job when so many around you are losing theirs. This year’s layoffs come, as usual, right before the holidays, but rather than happen in one fell swoop, they’ve been executed in dribs and drabs. One day you think you’re safe, the next you get the axe.

The past few weeks have darkened my view of the world and turned me off to many aspects of the American way of business. Here are 5 hard facts I’d like to see changed in this country.

1: Employers feel little impetus for full disclosure (aka honesty)

In 2009, employees at my company had our salaries cut approximately 5% and saw employer contributions to 401K plans dry up completely. Then an email from the CEO went round in October informing us that this would be the case again in 2010, but that, otherwise, the company was in “good shape.” One month later, we learned that our division was being sold, that a number of employees would be laid off in the process, and that another two dozen employees of the midsized company would also lose their jobs, including several top execs.

So what was the rationale, exactly, for that “reassuring” email? With the benefit of hindsight, I would have to say that its purpose was to keep people on the job, producing the company’s products, until such time as it became expedient to let them go. If that happened to fall right before the holidays, when it is virtually impossible to find a job, so be it. That’s business!

2: There is a two-tiered system of compensation

The people who “bring in the money” get rewarded much more handsomely than the people who actually produce the product that is being sold. Because I work in publishing, that product is a magazine. The journalists, editors, and artists who gather information, reformulate it in a style appropriate for our audience, and package it so that it is easy to read get paid a regular salary. The people who sell the ads that support the magazine, if they are at all successful, get paid much more handsomely, earning a portion of the profits and, in many cases, contracts that protect them in the case of a downturn.

Supposedly, they get paid more because they make it possible for us to continue doing our jobs. But if you take away the basic product—envisioned, created, and polished by others—just what do they have to offer?

In the sale of my division, the two top sales people were excluded from the deal. That was the end of their jobs. But both had lucrative contracts that buffered them from that loss and bought them plenty of time to line up a new position. In contrast, the salaried folks who were laid off in the sale received only a basic severance package (one week’s pay for every year of service to the company).

Is that really fair? Maybe not, but that’s how it goes in business!

3: The high cost of health insurance encourages employers to lay off older workers

The younger a company’s work force, the less likely it is to develop serious illness. So, naturally, it’s cheaper to insure younger employees. Older workers tend to develop chronic illnesses such as type 2 diabetes and hypertension—or more acute health problems such as cancer—and the cost of insuring them goes up as a result.

With the skyrocketing cost of health care, employers are motivated—more than ever before—to lay off workers “of a certain age” in order to make insurance costs more manageable. After these workers are let go, they can keep their health coverage in effect for an additional 18–24 months through COBRA. But COBRA coverage requires the worker to pay the portion of his or her premium that was previously picked up by the employer. In many cases, this extra cost renders health coverage so expensive that the worker cannot afford to keep it going.

The solution: A new job, right? Then the worker will have insurance again.

Not so fast. Prospective employers are likely to bypass older job applicants—again because of age—in favor of younger, supposedly healthier prospects. They are also continuously downsizing the overall health insurance package they offer their workers, and increasing the employee’s portion of the premium.

4: Employers feel no loyalty to their workers

It is widely accepted business practice to base hiring decisions on a company’s profitability. No profits, no new jobs. Makes sense, n’est-ce pas?

But what about the people already employed by the company? When the overall profit line flattens, does the employer have any responsibility to maintain its current workforce? In this country, the answer to that question is a resounding “No!”

I’m not talking about a loss of operating revenue, only a decline in profits. In a time of serious recession, when jobs are quickly evaporating, is it ethical to lay off workers just because profits aren’t following an ever-increasing trajectory? When an employee invests the better part of his or her creative energy in the company’s bottom line over the long term, shouldn’t the employer exhibit some loyalty in return?

In a vibrant economy, when jobs are plentiful, both employer and employed rightly act as free agents. But when a downturn hits, don’t the rules need to change? Or is the motto of the American business world best expressed as “every man [and woman] for himself”?

5: Unemployment insurances is inadequate

Let’s say that, before you were laid off, you earned $50,000 a year, with health insurance. If you live in New York City, as I do, and are single, as I am, then my first question is: How have you survived financially?

My second question: Are you ready to see your compensation more than cut in half?

The maximum weekly unemployment benefit in New York State is $405—or $21,060 a year. On top of that, the benefit is subject to federal tax. And you’ll have to pay the full premium for your health insurance through COBRA, easily several hundred dollars a month. Try to survive according to this formula. (Hint: You can’t.)

New York lags behind neighboring states in its maximum allotment, which is $584 in New Jersey, $576 in Connecticut, and $628 in Massachusetts. Even at $628 a week—or just over $32,000 a year—survival is iffy. Compare that to the annual salary of a US Congress person (most of whom supplement their income in other ways), which is $174,000.

Clearly, unemployment insurance is largely a symbolic measure—meant to make you think there is a safety net, when what really awaits you is a concrete floor.

Its overall effect: to make you snap up the first job offer that comes along, whether the position makes full use of your talents, compensates you fairly, or offers health benefits or not. The game is rigged in the employer’s favor. Wonder why wages and other compensation are eroding?

It’s just business as usual.

  1. One question – what would you prefer companies to do? A company by definition will only care about its bottom line, or else it will fail to survive. Nobody tells you everything about their situation (companies or people), and of course companies need their employees to work productively until the time they don’t need them at all, so some murkiness in communication will occur.

    If you want to be compensated at a level you feel you deserve, you are going to need to demonstrate your worth to those who decide your paycheck. If they won’t listen, you should be able to find a competitor that will (the flipside of no lifelong loyalty from the company means no lifelong loyalty is required of you either). If you can’t find anyone that listens, then you ain’t worth what you wish you were.

    And while you can make a good case for either healthcare or unemployment reform, you don’t make a good case by comparing unemployment allotments to pay rates for people who are actually doing something (yes, even Congressmen are doing SOMETHING). You aren’t supposed to be able to survive on unemployment, it’s only supposed to get you though until you can get another job. The overall effect you describe is the intended effect.

    • mizbabygirl4 says:

      Thanks for the reply. It seems that you actually read my whole post, and I appreciate that. As for your points, I disagree that a company will “fail to survive” unless it pursues business as usual. Just as companies that provide superior products and customer service engender loyalty from their customers, a company that strives to treat its employees as fairly as possible also stands to gain a lot, not just in loyalty but in morale and creativity. In the long run, this means a better product, too.

      I also disagree with your characterization of the reassuring memo that went round in my company as “murkiness in communication.” It wasn’t murky; it was plainly dishonest.

      As for compensation, I am already paid at the top end of the scale for my position (editor). I would be paid pretty much the same regardless of which company I worked for. My beef is that only sales people generally earn a share of the profits—at least in my company. (I did have a stake in profit-sharing with the previous owners of my company, by the way.) So if I want to be compensated at the same level as the sales team, and have the same protections in place, I would have to change careers, not companies. But the sales team has to have something to sell to bring in the revenue—and that something was produced by the creative team. Are the sales team’s talents more valuable than the creative team’s? Take away the product and let’s see how they do.

      I realize that the health-care situation at present is out of employers’ hands. It’s a shame that one’s ability to get and stay healthy has been linked to the ability to get and keep a decent job. Ultimately, I think they should be separate so that, even if you are unable to work, you can still get high-quality and affordable health care. I also think that pricing of health insurance should be such that a company does not have to pay more if it employs older workers.

      As for unemployment insurance, I disagree again. Unemployed people are doing something: looking for a job. And they should be able to survive financially long enough to find one that makes best use of their talents and rewards them accordingly. That’s better for the whole country. In the US, unemployment insurance replaces less than 25% of the worker’s salary. In Europe, the rate is more than twice that level—roughly 50% in France in 2005, for example. In the US, a worker loses unemployment benefits if he or she moves to a different state, where the job situation may be more favorable. This discourages the unemployed from relocating to where the jobs are and makes it more likely that he or she will remain dependent on unemployment insurance. In the European Union, this is not the case.

      My main argument is that we have become so accustomed to this way of doing business that we rarely question its long-term value. I believe that families, communities, and businesses would be more stable and fruitful if a little humanity were injected back into the business world. Instead, we operate on the assumption that we have to get our share before somebody else takes it away. Why not design business so that there is a share for everybody?

  2. A. Pigafetta says:

    It seems to me that the unsavory aspects of American business practices are a reflection of American values – the emphasis on the “bottom line” and a simultaneous belief that what is good for business is good for Americans, which isn’t necessarily true. Sure our economy is much more dynamic than Europe and more innovative than that of China, but that dynamism increases the viciousness and uncertainty in the day-to-day lives of Americans. The European model adjusts the bottom line by ensuring health care and a stronger social network for its citizens. These are reflections of broader societal values enshrined in law, restricting corporate greed. Americans, by contrast, place much less value on broader societal quality of life issues and much more emphasis on individual achievement (i.e. “self reliance”) and a distrust of government. If people lose their jobs or aren’t paid a fair wage or don’t have health care then it’s their fault (productionengineer’s pov, I would think) and they need to make changes, perhaps with a little help from the government, but nothing more. The irony of the American and European mindsets is that each is to some degree a self-fulfilling prophecy – those who succeed (financially, professionally) in American society are who exude the values they most admire; whereas the Europeans’ strong social safety net increases the general quality of life (Jefferson’s pursuit of happiness), but that satisfaction leads to a less dynamic economy and less social striving. I, personally, would prefer the European system because those are my values, but I believe that, given the choice, most Americans would choose their model. (Denmark, which has an extremely high payroll tax and exceptionally strong unemployment insurance, seems to offer the best of both worlds – dynamism and a strong social safety net – but it’s an open question whether their model would work for other countries.)

  3. AD says:

    On your third point, I’ve found this article,, informative and interesting.

    Hope things are looking up in 2010.

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