Monday, October 29, 2012

Critical crossroads for labour.

What happens when both pay increases and further layoffs become impossible?

The simple and cynical answer to the question in the headline would be that the plant or operation simply closes, more people lose their jobs, and South Africa’s severe unemployment problem takes a further step into socio-economic mayhem.

But that would deny the escalating dire consequences, the presence of entrepreneurial ingenuity, a strong survival instinct on all sides, and a still critical mass of goodwill that seeks solutions rather than confrontation.

The average South African can be forgiven for having a strong sense of foreboding about recent events on the labour front. Demands have been ostensibly outrageous; strikes have again been spontaneous, violent and disruptive; and normal governing processes of centralised bargaining, conciliation, legal prescriptions and Trade Union control have simply broken down. Like climate change itself, we seem to be having more than one “strike season” a year. It’s not unfitting to assess these events as being revolutionary, especially against the political slogans of “economic freedom” and the problems of unemployment and inequality.

But the appearance of a revolution is also masking the inexorable path of an evolution: one that globally has started to challenge the Anglo-Saxon business model and in particular the supremacy of capital and the commodity expression of labour. This challenge does not necessarily threaten the need for free markets and freedom of choice. It is merely interrogating the inevitable outcome of conflict between the main stakeholders of capital, labour and state -- an inescapable result of a near exclusive focus on wealth distribution, whether in profits, wages or taxes, rather than on wealth creation itself: a focus on reward rather than contribution.

We see the same obsession at a national level. Everything is skewed towards what we can get, rather than what we have to give. Often conflicting goals such as profit maximisation, employment equity, job creation, minimum wages, labour laws, social security, housing, land reform, health care, and yes, even the irrefutable need for education can only be satisfied by meeting one fundamental condition – the creation of wealth in the first place. It is the sacred cow that we keep leading to the slaughter house to cut out prime steaks before it has had a chance to grow and multiply.

Like post-war Germany and Japan, we have to find a new labour accord and a less conflict ridden approach to real market informed wealth distribution in the workplace. It will require shedding some long and fanatically held ideological paradigms and ultimately come back to one fundamental and self-evident truth – that wealth can only be created by providing a product or service to another human being in an environment of free and fair transaction. All other considerations are subject to this condition. It is also the easiest thing to teach at any level of economic awareness, and to solicit allegiance to that common purpose.

While many are frightened by the apparent breakdown of structure in wage negotiations and collective bargaining, it can also be interpreted as an inevitable result of growing dysfunction in centralisation of power as well as dysfunctional labour markets either by manipulation at executive level, or extortion at the lower ranks. Add to that extreme lawlessness and intimidation, and collusion between government and capital, then ivory tower supply and demand theories simply become immaterial.

Much has been said and written about pay disparities in South Africa. In turn much of it relies on some dubious statistics and classical supply and demand theory which simply and dangerously scoff at the explosive role of mass envy and resentment. Unfortunately logic and scientific argument are no match for emotion and hysteria. They ignore the simple truth that perceptions create an experiential reality for a large body of people who have become deaf to this logic. We certainly need to quell the disruptive symptoms of economic imbalances, but we can’t ignore causes either.

So while the executive bonus and top earner wage freeze is little more than a gesture, and arguably a blunt, perhaps even trivial emotional tool, if it helps to reduce the national fever by a degree or two, then it has some validity as treating a symptom. In the longer term, however, we far too readily accept that there is a functional market at senior and executive level. Pay disparity is not only about pay differences, but also about perceived fairness and the validity of criteria that are used to reward different levels of employment. There are many, including shareholders and authoritative remuneration studies, which question the legitimacy of some executive earnings, irrespective of the wage gap and need for differentiated pay.

Fragmentation could be a good thing if it means a sharper focus on the wealth creation cell itself – individual sites and companies. There increased awareness, understanding and communications have become critical. It is far easier to teach people the principles of maximum wealth creation and optimum wealth distribution by making the information relevant to that particular workplace. It is also easier and more effective to strengthen this awareness through open and transparent channels of communication.

A 2nd important positive that could flow out of the current turmoil is one that answers my initial question: what happens when both lay-offs and pay hikes become unsustainable. The answer is of course, flexible pay. And it will require entrepreneurial ingenuity, survival instinct and a critical mass of goodwill – attributes that we are being forced to adopt as the walls of labour unrest on the one side and critical unemployment levels on the other close in to crush us.

So it is not surprising that the Chamber of Mines proposed exploring profit sharing as one element of solving mine labour turmoil. We’ve been there before, of course, so it will be interesting to see what new designs it comes up with and how it will avoid the failure of these schemes so far to temper belligerent wage demands, or a recurrence of the much vaunted Kumba share option scheme which could not prevent newly created semi-millionaires from going on strike for higher wages.

The inherent problem with employee profit sharing is that wages are seen as a cost to profit so certain employees can benefit at the expense of others being laid off.

There are four absolute pre-requisites for any form of flexible pay:

· It must be simple and understandable,

· It must have a clear line of sight where employees can see the effect of actions or events on wealth creation and their pay,

· It has to be accompanied by regular and understandable information sharing.

· Pay-outs or feedback must be regular – at least quarterly if not monthly.

Conventional profit sharing schemes can seldom meet these requirements – share option schemes even less so.

But I have personally witnessed (see this article) how easy it is to teach and communicate principles of wealth creation and distribution at any level of awareness and comprehension in the workplace. We developed such a programme called People and Wealth at the then Western Areas Gold mine in the early 90’s. It was championed by the HR Manager at the time, Ben Coetsee, whose passion for enhancing understanding was driven by some traumatic labour violence years before.

Using illustrations, role play, replicated bank notes, and objects such as beads and beadwork, we watched in amazement how an illiterate Mozambican mine-worker could explain wealth creation and distribution at the mine, in effect bringing to life the mine’s value-added statement. I used the final product effectively in many other sites during my consulting days, and it lives on in the work being done by Fayruz Abrahams in Port Elizabeth.

Flexible pay requires a certain level of trust between the stakeholders. For that they have to be on the same page, have access to understandable information and share some common goals: features that are essential for normalising industrial relations.

I have little doubt that the current tumult is moving us in that direction.


  1. Your Employee Reporting idea turns out to be prophetic and ten before its time has come

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