Market "Downgrades": Bringing Tough Calls to a Conference Room Near You?

The world is changing and the impact of this is making its way to the doorsteps of HR and compensation professionals, bringing with it some thorny challenges and difficult decisions.

Unless you're completely buried in the wind-up to year-end, you've probably caught wind of the pay drama that has been taking place in and around the Mott's apple juice plant in Williamson, New York.  Dr. Pepper Snapple Group (DPSG), the company that owns Mott's, is seeking a $1.50 an hour wage cut, among other concessions, from its hourly workers there in a reported effort to bring the plant's costs in line with "local and industry standards."  According to the company, Mott's workers average wages of $21 an hour compared with a $14 an hour average hourly wage for comparable jobs in the area.  DPSG reported net income of $555 million in 2009 (on revenues that were down 3%), following a los of $312 million the previous year.  The union representing Mott's workers counters that the plant's hourly employees are highly experienced and deserve well more than $14 an hour - from a company that is earning record profits.

The story has generated a lot of debate (just take a look at the comment stream of the second NYT article).  From the standpoint of a compensation pro, though, it also raises many questions.  For starters:  How did plant wages even get to this point?  (It is unlikely that management just woke up one morning and discovered that they were paying 50% over local market norms.) And... we know from media reports that DPSG made over $500 million in profits in 2009, but how have Mott's - and this particular plant - performed?  What about other Mott's plants and at the plants of Mott's competitors in the beverage industry - what do we know about the state of wages and profit performance in comparable settings?  Are competitors doing well on all counts - or shuttering plants and sending work overseas?  What was the overall business case that drove the decision?

My objective here isn't to debate the merits of either party's case, but rather to put us all on notice that the uncertain economy and the labor market turbulence following in its wake are bringing tough challenges and decisions our way - if not today, then in the not-so-distant future.  Market rates for different roles and skill sets are going down as well as up these days.  This will prompt difficult questions that we, as stewards of our organizations' compensation plans, will likely be obliged to weigh in on.  The onus is on us to be considered and thoughtful in our response.

Base wage or salary is the foundation of the employment relationship.  Mess with it, for good reason or not, and you mess with the very core of the value exchange between worker and employer.  The repercussions might surprise you.  (This is just one of the reasons - I'll say it again - for the growing emphasis on variable pay, which creates earning and reward opportunities outside this "sacred core".)  I'm not suggesting that there will never be circumstances - whether driven by market conditions, employee performance or what have you - that warrant base reductions.  I'm just saying that these decisions, when they must be made, had better:

• Reflect a strong, clear and defendable business case
• Be made considering the perspectives and likely reactions of all stakeholders (owners/shareholders, affected and unaffected employees, customers, etc.)
• Be implemented in a manner consistent with any and all core values the company professes to hold

And certainly the involvement of a collective bargaining unit brings its own set of dynamics to this scenario.

My point is simply this:  Tough calls could be coming soon to a conference room near you.  Are you up to the task?

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  Follow her on Twitter at @annbares.

Comments

[Kevin W. Grossman]

Important post, Ann. Thank you. Goodness I don't envy the management teams that have to make these tough (hopefully compromising) calls.

We've only just begun the change management of how we work, how we lead and how we're compensated.

[Ann Bares]

Kevin:

Thanks - appreciate the comments. You're right, this is probably only the beginning of a whole lot of changing coming our way. Hopefully, we'll be ready and up to the task!