Corporate Downsizing: A Fictitious Internal Memo

The following post is a fictitious internal memo of my employer. I was considering doing a typical rant, but the procedures I describe in the memo are so absurd that I found it best to write it from the company’s perspective, and have the reader evaluate the moral rectitude and wisdom in it.

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The Reebok company has dramatically downsized its retail division staff. Instead of three full-time managers and one third key (or hourly paid worker with managerial responsibilities) in each store, there are now only two managers, and two full-time assistants (at hourly and reduced pay) and two part-time assistants with additional help if necessary. The goal is to achieve cost savings for the company. How much savings were accomplished?

I don’t have the exact figures available, but here I will make some rough estimates [all made up]:

In the old system: 1 store manager ($45,000 salary plus $10,000 fringe benefits=$55,000); 2 assistant managers ($30,000*2 salary plus $10,000*2 fringe benefits= $80,000); 1 third key ($18,000 wage, hourly). Annual Total: $153,000.

In the new system: 1 store manager (same, $55,000), 1 assistant manager (same, $40,000), 2 full time assistants ($24,000*2 wage, hourly= $48,000). Annual Total: $143,000.

So there are an estimated $10,000 in savings in the new system, which under current sales would boost profits by an equivalent amount. What are the number of hours per week in the new system vs. the old?

Old: 40 (store manager)+ 80 (2 assistant managers)+30 (3rd key)=150 hours/week

New: 40 (store manager)+40 (1 assistant manager)+ 80 (2 full time assistants)= 160 hours/week.

In addition to savings, there is an increase of 10 hours of work from managerial labor. Therefore, the latest cost-saving strategy by the company will contribute to the bottom line, and will make it easier to deliver $31.4 million in executive compensation to our Adidas CEO (Reebok is an Adidas subsidiary), deliver $1.04 billion in profits, and make our shareholders happy at the same time. The quality of the labor could decrease, because there might be less motivation among the full-time assistants to perform to the highest level, but this threat is small and negligible. This is so, because even the managerial activities in retail are essentially low-stress, straightforward and physically safe, such that the requirement for full-time assistants are correspondingly low.

In addition, given the fact that there are plenty of desperately young and unemployed people in this country, there is a large pool of employable talent available to the company. The pressure of unemployment will make workers more motivated to perform better.

Another part of the cost-saving strategy is to ensure the termination of older workers with higher pay and seniority and the hiring of young and flexible workers willing to relocate from one store another store. Added flexibility will benefit the company, and the wage expectations among the young workers are lower too. It should also be noted that the student loan crisis is making young workers more fearful about their own future, and so hiring them at low pay will pose no significant obstacles to the company. Their low pay may make it impossible for them to repay all the debt, but that is better for our company, because hassles from bill collectors are the best reminder to come to work for us.

Is there a threat that young inexperienced workers might be less productive than older workers? This is very unlikely, because sales skills can be quickly learned by practice. Young workers tend to learn quickly and that might be more beneficial than to have older workers, who might have added experience, but don’t want to learn new ideas. They might also be more resistant to the corporate policies we impose.

In any case, from a bottom line perspective investors and executives should rest assured that the latest cost saving strategy will, in fact, be positively reflected in the next quarterly report.

From the perspective of the workers, the impacts are the opposite than for the company. Several assistant managers upon being offered a lower paid position have left the company, and so have many other salaried workers. Some workers quit, others were fired, and others were demoted. The preference for the company has been the first option, because the second second involves the entitlement to unemployment compensation, which are six months of benefit payments that unnecessarily add to our payroll expenses from the perspective of the company.

The most troubling prospect for the company are the demoted workers, who preferred to stick it out out until they found a better position elsewhere, or simply because they thought that there were no better alternatives around. Why would that be a problem? This category of workers will be the most disgruntled one. They might continue to work, but at reduced incentive and willingness. Even worse, they could bad-mouth and chastise the company in front of other employees, which will lower employee morale further than it already has. If that turns out to be the problem, then the company has to resort to two methods aside from outright firing.

(1.) the reduction of responsibilities such that the demoted worker will impose the least damage on the company.

(2.) the reduction of work hours. This solution has the same effect as the first one, but, in addition, it has the added benefit of demotivating the worker (e.g. “How can I pay rent with only 20 hours of work?”), and accelerating his/her decision to quit.

If these two methods don’t work, then the worker has to be fired, but this can not be done without cause. The management will have to make up a reason to fire the worker, such as the lack of fulfilling their duty etc. If a suitable “just” cause can be found, it could even spare the company from paying unemployment insurance.

What will happen to those unemployed workers? Some have the networks and/or marketable skills that will help them gain employment elsewhere, but if they don’t then they will remain unemployed, which will diminish their rehiring chances. Some manger surveys show that they would prefer to hire current workers with unrelated skills to unemployed applicants with previous related skills to fill a vacancy. Unemployment creates financial stress to the workers (surveys report that up to three-fourth of Americans have less than six months of savings to fall back on; 27% report no savings at all), and that can negatively affect families (e.g. more quarrel, divorce, poverty etc.).

But none of this will affect the company, because the workers’ problems are a societal externality. Our primary concern is the preservation of our business model, which will work so long as there are enough workers desperate enough to work under any conditions that we envisage. (It should be noted that there is a small potential that the company will be stuck with poor workers, whose family and personal problems carry into the job. In many cases, it will be hard to discern these problems on the higher level, and in that case I would prefer the Walmart strategy of helping workers apply for food stamps, Medicaid and other kinds of social benefits to assure a minimum level of standard of living for our employees.)

Based on some of the Facebook comments I have read from employees at our company, some of these employees are very disgruntled and disappointed as a result of the termination of staffers. This is a calculated risk that the company is willing to take. “Is my job the next?” can be the questions that the workers will want to ask. But in most cases these rants will peter out, and will not dramatically change worker behavior and productivity. Humans, including workers, can get used to a lot of terrible things befalling them, including the threat of layoff.

But, in any case, the top management will be advised to take account of the following precautionary measures in order to avoid a dramatic decline in employee morale, which could threaten our business model.

(1.) impose firm restructurings and layoffs in unpredictable intervals, i.e. not very month, even though this might be the most effective business solution. In general, adjustments should not happen more than once a year. They should not happen the same day or month every year, and they should not be announced long in advance of time. The workers will continue to know that restructuring will happen at some point, but the point is that if it becomes less predictable, then workers will worry about tit less, and the company’s goal is to maximize employee morale regardless of company decisions.

(2.) promote an ideology of brand loyalty among employees. Due to the commoditized nature of the relationship between employees and employer it might be difficult to foster loyalty among employees (reflected in reduced employee tenure) unlike in the past (think of terms like “corporate feudalism” during the era of lifetime employment). But the store management should be most closely instructed in the ideology to ensure sufficient employee morale among the ground staff. The higher pay and status that is accorded to the management, and their participation in conference calls that make them think that their voice actually matters in the larger company structure, should ensure such result.

But the lower level employees should also feel and think that their employer cares for them, and that their accomplishments are valued by the company. If the workers reach the daily sales goal, the employees should be praised by management. The employees should wear a little gold star on their name tag. They should have fancy job titles like “retail professional” rather than plain “sales associate”. There should be an employee of the month (though that carries the risk of envy if only one employee permanently qualifies for that title). They should undergo training in the “retail university” (studying retail and brand knowledge and being quizzed over it) to give the appearance of high value work, and instill a sense of accomplishment among the employees, and so forth.

All these ideological campaigns contribute somewhat toward sustaining employee morale, and have the advantage of not raising the monetary expenses of the company. The workers should subjectively feel valued without them asking for substantial things like job security and pay raises, and, even worse, demands like unionization and/or worker ownership. It is paramount that workers either show allegiance to the company, or- if that is not possible- at least prevent them from making common cause with other workers for more rights by keeping them isolated. The complex structure of the organization can ensure that unionization continues to remain difficult in the retail sector. Walmart has shown us the example of shutting down stores that organized unions, and opening up new stores a few blocks down the road. And while this stand-off is happening, the bottom line is largely unharmed, because of the multidivisional structure of the company.

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