Outing Outsourcing and the Gig Economy

Why get excited about CEO pay piggery when outsourcing and giggery is much more likely to cost you your job? The accelerating trend towards reducing payrolls by replacing employees with outside contractors threatens our livelihoods.    

Compensation people and the objects of our efforts might not survive outsourcing where work is delegated to other outfits or the gig economy in which consultants are given short focused assignments. Even handling employee remuneration and administering pay programs can be outsourced. Total reward professionals need not be involved when independent contractors are controlled by purchasing agents and cost accountants rather than human resource people. Meanwhile, employees from virtually every occupational category stand to lose what little security still comes from a regular job with an organization if they are displaced and then must seek day to day survival by continually negotiating temporary project deals as independent outside suppliers.

Don't be surprised when enterprises are quick to shed employees. Avoiding employment relationships by shipping out work to contractors certainly simplifies business. It reduces management to contract planning. Monitoring the results produced by outside vendors for whom you have absolutely no responsibility means no more "people problems", because you no longer have subordinate employees. Instead, you receive the contracted services of other entities operating at an arm's length distance and required to deliver specified results. No performance evaluations, stressful personal dealings or contentious emotional expectations.

Employee pay is replaced by a clear cost expense item without any burden rate, no taxes to deduct and no imprecision for overtime, commissions, bonus, or variable cash awards. No complicated benefit selections, no individualized payroll deductions. No long-term employment relationship commitment at all. Rather than stockpile people with wide varieties of knowledge, skills and abilities, instead buy totally fungible specialized talent as needed by immediate circumstances from easily replaceable output modules. Like today's electronic equipment -- don't fix it ... just replace the entire unit. Similarly, it is easier to drop a supplier than to fire any regular employee, no matter how problematic their performance may be.

A regressive devolution back to the exploitative practices of dark past years looms. Despite brave attempts by some organizations to introduce more enlightened environments over the last century, too many enterprises consciously accept the old sweat-shop indifference to the humanity of their workers. Instead of valuing and cultivating worker talents, they concentrate on finding the lowest cost highest quality output bidders for their product or service. They don't care who does it as long as it is produced within the proper tolerances of quality, quantity, time and cost for the highest profit possible. That is the typical mandate delivered to top executives of every organization by their owners. It is not a phenomenon restricted to commercial private businesses, either, because the same dynamics operate in the public sector. Taxpayers insist on optimum services at minimum personal cost. Even union pension funds seek high returns on their investments. None of those expectations depend on employee welfare at the enterprises that serve the customers. Whether all these demands create a workplace of robot automatons or one of collaborative independent agents, neither environment requires much HR management.

I'm struggling to articulate an uneasy gut feeling about the potential implications of negative attitudes towards the employment role of organizations. Purchasing production units is easier than hiring and managing troublesome people. Lean vendors can be deployed to supply the same output results as team members, but at the cost of accepting a different relationship ... like, hardly any, beyond that of buyer and seller. The purchase of a product can easily be callously disengaged from the lives, souls and welfare of the producers. But is this the desired future of work?

Unsure if the slide towards this scary dispassionate dystopia can be stopped. Perhaps more of us should speak out. Maybe "outing outsourcers" can become a new rite of public employer shaming that will discourage this ominous trend.

Perhaps that fat cat overpaid CEO truly deserves an imperial reward package if he or she supplies good steady jobs with living wages to regular people.

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review. 

"Cheap Labor to Go" image by PT courtesy of Creative Commons (magnify by clicking on it)

"Outsourcing" illustration by Frits Ahlefeldt, courtesy of Creative Commons

Comments

[jay]

Jim, it seems 'outsourcing' will have a significant role in how organizations do work in the future. The first focus is upon unskilled work but perhaps more is in the offing. The move to higher minimum wages for unskilled work has accelerated the process.

The primary defense is obviously to acquire skills that are less easily outsourced. This needs more study but perhaps it is too late to reverse in a meaningful fashion.

[E. James (Jim) Brennan]

Agree, Jay. Ironically, higher minimum wages for the most unskilled workers now means that employers can attract more skilled people than before. The totally unskilled candidates may find it harder to win an entry rate job over better-skilled rivals. Acquisition of skills needed right here in our economy should be the first priority of vocational education. That might be difficult to achieve, too.

[Jay Schuster]

Jim, how does that work? How does a higher minimum wage impact the ability to hire more skilled folks? If you said it, it must be true, but how??

Rather than spend money paying more for unskilled work, it is certainly true we should spend more to not only increase skill but focus education on something that actually leads to a career. The UC system just increased tuition across the board. A better solution would have been to increase it for degrees in 'underwater basketweaving' and reduce it for degrees in the technical and medical arenas.

[E. James (Jim) Brennan]

Current studies after Seattle's boost in required minimum wages proved that employers became more selective as the cost of labor for their least valuable workers increased. A higher wage attracts more competent applicants. It was a no-brainer to hire those with better/longer work records. Also, part-time but still low-paying gigs sometimes fit as suitable second jobs for industrious folks who now found the higher minimum rate worthy.

Evidence-based academic curricula with tuition varying by employability may be too sensible for adoption by ossified bureaucratic institutions of higher learning, Jay. That's another article, I fear, probably better authored by folks with fancier initials after their name: like you, Pat, Gerry, Dave or even Howard.

[Karen Kervick]

I thought that one always chooses to hire the most qualified, skilled person for a job whether starting rate is $10, $15, or $50. But the point I think is that at a $15.00 rate, a more skilled person who might not have applied at $10 or $12, would now apply for the job, whether a primary job or a secondary one. So the employer will have a more skilled workforce to select from. It will be interesting to see the outcomes down the road.

Playing along on the academic side, if differentiating tuition by degree, wouldn't it be better to look at income potential following the obtainment of the degree and charging tuition accordingly? (which one would think would correlate directly to the salaries of the professors hired to teach in that major, right?) In this case the underwater basket weaving, might have a lower tuition rate as I expect the earning potential to be under water as well....

[E. James (Jim) Brennan]

Karen's points are too sensible to dispute. Seniority-secure academics, however, are likely to contest your economic value arguments. Quests for pure knowledge and efforts to develop artistic sensibilities, for example, may not have a clear relationship to later career income. But I suspect that the subsequent prosperity of graduates (beyond their starting offers) correlates with that of their teachers in more ways than one.