Pay cuts that cost too much

I listened last week to the unedifying sounds of council and trade union leaders arguing over the airwaves and blogosphere about the proposed pay cuts at Southampton City Council, which occasioned the recent industrial action there. It led me to think hard about the nature of HR and employee relations today for, as one labour blogger put it, “If Southampton City Council gets away with this, you can bet other councils will do the same”.

According to the CIPD’s annual reward survey, a third of employers are planning to delay pay reviews, freeze or cut pay this year.

Whatever the rights and wrongs of this particular case, my sense is that if an employee relations situation has got this bad, then the pay cuts’ strategy has already failed. The Institute of Employment Studies researched successful examples of private sector employment cost reduction, including pay cuts, in their study Learning from the Downturn.

They found that a sense of mutuality and common purpose, sharing in the pain and any subsequent gain, was critical for the strategy to be successful. So, by this standard, it’s already a failure; that is if you see success as more than just reluctant and begrudging acceptance by staff forced to accept a job on worse terms and conditions, and believe that what we in HR are really about is building an engaged workforce that delivers high levels of service and performance.

I was taught employee relations is all about mutuality, and balancing employer and employee interests. The Times 100 guide to business studies reminds us that “successful employee relations involves striking a balance of interests”. Moreover, “where employees are not happy with their working conditions, this frequently leads to high labour turnover and levels of absenteeism”.

What is, perhaps, most worrying is the build-up of signs that a sense of employment mutuality is under attack, despite this Government’s apparent lauding of the ‘John Lewis model’. Dismissing and then re-engaging staff on worse conditions appears to be becoming a viable policy option rather than a last-ditch recourse prior to closure, even in some businesses which are still paying dividends. The pensions’ funding crisis has been used as the context to cut the level of employer contributions to occupational pension funds virtually in half.

And, under the banner of supposed ‘red tape’, key aspects of employment law and employee protection, such as the Tupe regulations and discrimination compensation, are currently under review.

The librarians and cleaners I heard interviewed on the radio last week hardly seemed the most radical bunch. If HR is really about developing sustained high performance through employee engagement, then should we be hearing more from the profession on what one union leader described as “this onslaught on working people”?

American psychologist Virginia Satir believed that “Feelings of worth can flourish only in an atmosphere where individual differences are appreciated, mistakes are tolerated, communication is open, and rules are flexible”. HR functions need to be creating such environments in the workplace, and pointing out the risks of destroying them.