Sunday 4 August 2013

Politics 9 - Percentage Formula



I had cause to read the Cyprus Mail this morning, and was driven to write a comment to an article about the trade union of bank employees reorganizing the downsizing of the Bank of Cyprus.  I know, I should improve my prioritizing, i.e., Blog first, then, the media.

The EU has applied draconian measures to the Cypriot economy where some banks have ‘gone under’.  Unfortunately, Cyprus politics has been tied to Greece, and still is.  Hence, the application of strict rules for a much-needed ‘bailout’ by the EU.

The financial story is quite complicated, and would require more space than this Blog allows.  But, with regard to the Bank of Cyprus, the EU Troika forced the bank to freeze 47% of the accounts, and depositors having more than € 100,000 had the excess turned into long term bonds, not to mention a maximum daily withdrawal amount of € 300.

Naturally, many employees were ‘invited’ to accept retirement, and the remainder will experience severe pay cuts.

“The union proposed the percentage of pay-cuts that should be imposed by the banks, as if this were its responsibility. It decreed that cuts for salaries between €2,000 and €4,000 would be 10 per cent, between €6,000 and €8,000 at 20 per cent and over €10,000 at 30 per cent.  The unions dictated that the higher the salary, the higher the percentage cut, which on the surface seemed fair but it is not, because it reduces wage differentials”.

“Why should a senior bank executive, who works long hours, has many more responsibilities and much more pressure suffer a bigger pay cut than someone in middle management with a much easier job? Only unions, the great levellers and enemies of excellence, would think this is good arrangement. In effect, the unions are imposing an income tax policy, which they have no legal or moral authority to do, in the name of workers’ rights and nobody is prepared to challenge them.”

Thus, I felt that a comment should be made, because this has always been one of my favourite subjects.

What is the purpose of a salary increase (All things being equal)?  There are two simple reasons, 1. To reward excellent work, and 2. To adjust for inflation.

Of course, we all know that annual salary increases are regarded as an automatic event, regardless of employee excellence or the cost of living, and that is the first incorrect model.  Furthermore, management tries to use a formula of percentages for salary adjustments which is also unfortunate for employees at the bottom of the scale.

If there is an increase in inflation of 1%, and a related increase to the cost of living, does the CEO’s family annual grocery bill increase by € 2,000 and that of the cleaner only increases by € 200 (Assumes salaries of € 200,000 for the CEO and € 20,000 for the cleaner).  Of course not.  The cost of grocery essentials increases equally for both families.

Therefore, the unions, in this example, are right to apply a varying scale, and those at senior levels should stop complaining.  There are good times and bad times ... this is not a good time.

It is time for using the 3-star hotel.

Please comment via the Blog page (See below).


15 comments:

  1. Your discussion about pay is interesting Bernie. Unions have impacted working conditions for the many workers in the west. However enlightened management that provides fare payment, good working conditions and other benefits to attract and maintain a productive workforce are more effective and unions are not needed. However, many or even most organizations are not managed by such people and most unions are not interested in their members except for union dues. Men and women in suits whether management or union are primarily interested in themselves, not employees or members.
    Cheers.

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  2. Therefore, John, what is the answer?

    Unfortunately, and generally speaking, it would be hypothetical to talk about enlightened management in the same breath as the civil service. With enlightened management there would hardly be any unions. Therefore, critical focus should not be directed at the unions.

    In the specific case that I addressed above, I believe that the union were correct to highlight the widening income gap in the population due, in part, to some managers thinking that workers should feel comfortable with an 'across-the-board' percentage increase.

    Additionally, I think that the 'entitlement' psychology, about annual salary increases, needs to be seriously examined. Why, for example, is there a 'bonus' for people simply doing their job.

    Of course, this is not a simple matter, but it must not be ignored, because that is what creates a psychology of 'entitlement'.

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  3. At one time working in civil service was a calling, not a job. The pay might not be the highest but the it was secure, benefits generous and a good pension guaranteed. Unions came into the picture and the calling became a job, one of the highest paid jobs in the economy. Why, because the unions knew the employer was trapped by it's own rules. Look at the postal workers, they usually went on strike every five years. Now technology is putting the lazy buggers out of work. Teachers held kids to ransom in Ontario last year. Teachers are among the highest paid workers, certainly higher than factory workers. The police, firefighters, EMS drivers, whoever, earn six figure salaries because they black mail the people who pay taxes and who get no increases in pay year over year. The 1% are greedy bastards too. Even if they screw up and hundreds of employees (eg Nortel)loose their pensions they get millions in golden parachutes. Who are entitled Bernie? Not the average working stiff.

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  4. You appear to be agreeing with me. Certainly, I would not join a trade union. In my post, I was hoping to show that annual pay increases calculated using percentage formulas were intentionally misleading, thus, enabling management to expand the income gap between the rich and the poor. The example given by the Cypriot trade union wasn't a perfect example, but it did highlight the fact that cost-of-living increases, are (or should be) very similar for everyone.

    There was a related story in today's newspaper stating that judges have all agreed not to accept their salary increase this year. I suppose that their old BMW's will just have to go for one more year (sarcasm).

    Let me paint a picture of explanation. The annual review approaches and a worker whispers to his group leader, "How big will the rise be this year?" The group leader says that he'll try to find out, and comes to me with the same question. I reply, by asking him if he knows how much the cost-of-living has risen this year, it seems that it was about $60.00 per month (for the average 4-person family). "Then, everyone will get an extra $60.00 per month next year." I informed him. He didn't speak to me for the rest of the day.

    There is no entitlement for my well-paid employees ... only the contractual amounts.

    Of course, job description changes, or promotion, are a different thing altogether.


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  5. Laughing out loud, Bernie. Obviously, you are an enlightened manager who has absolutely no competition from any other company in your industry!

    For us, the universities, we realize that not everyone can be an Einstein. Management still has to assign a teacher to every classroom. What is more, this labor is so essential to a teaching research institution that it cannot function without warm bodies. Managers also know that in industries where excellence is absolutely required, they are going to need some incentives.

    Henry Ford knew that if he paid ALL of his employees above the market average (the cost of living), he would get a work force that would work hard to keep their position at his company. He was willing to pay.

    The rest is competence!

    The unions do not stop bosses from giving raises to their stars. Think of salaries as the water that floats the boats, no matter what size boat. Think of salaries as the grease for the wheels of industry. Think of salary as the quality of the company and its product.

    Nancy
    Treasurer, Union for Part Time Faculty

    ReplyDelete
    Replies
    1. Laughter is my deliberate attempt at world peace.

      Obviously, I agree that everyone can not be an 'Einstein' but, equally, not everyone is entitled to be equally paid. My focus was on the rapidly increasing income gap between the rich and the poor. It is not acceptable for a manager to have a 5% salary increase when his secretary is also given a 5% increase. It is totally unfair. And if she excels highly in the job ... promote her.

      It seems to me that to financially reward the "stars' of a company, was said somewhat 'tongue in cheek'. A union would see this as a precedence.

      Delete
  6. This one is to John:
    There have been periods where graft occurred in the unions, the same as it occurs in real estate, banking, industry. But I don't hear anyone saying that they are never going to use a bank again after the 2008 crash. Another problem with your argument about the unions is that you equate them with business. There is an "owner" or a "boss" that runs them. Not true. The unions have no big bosses. The unions have members and the members are the union. The members elect their leaders all the way to the top. At the local levels, most officers work for no pay. ( don't get paid to be the treasurer, for example. At the state and national levels, yes the officers and organizers are paid. But members pay their salaries. Members determine their salaries.

    Nancy

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  7. "I don't know what kind of union you are in Nancy but you live in a dream world. First, management cannot reward a union member for working more effectively than the others. Jealousy is the key emotion in a union environment and each person must be treated the same within their wage classification no matter what. The shop steward is there to ensure workers are treated all the same and to grieve any variation in the process.
    Second, at the top echelon of the union are bosses and members do not have freedom to dissent union policy. The shop steward makes sure individuals play the game. Surely you don't think Buzz Hargrove and his team didn't control the CAW membership. The Steelworkers union is equally tough and trades unions decide which members are assigned to jobs through the hiring hall.
    I have had experiences where goons interfered with the "democratic" process of union meetings. At one time I was involved in a strike that lasted nearly nine months until the Union bosses at their remote Head Office decided it was time to settle. The workers had little to say about it.
    Nancy, unions are big business with vested interests the same as banks, government, Universities and business organizations. They are not social organizations.

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  8. I might ask the same question of you? What union do you belong to? The point made is that you don't.

    I belong to the American Federation of Teachers, a union of k-12, higher education, private and public, online and classroom, part-time and full-time, teachers. I confess that my knowledge of unions is parochial. I attend AFT national and regional conferences and the conventions at which we democratically elect our fellow members to be officers, and decide by delegate vote what issues we will tackle for the coming year to serve the membership.

    For those of us who work as officers and serve the members (who entrust us with the "good of all), the unions are the very flag of democracy. Perhaps you would like to attend an AFT convention as a guest; I am inviting you. It would change your mind.

    Then too, common sense makes me speak out. I think if you actually did research on the amounts of money "vested in union interests" (moneys which come solely from minimal dues extracted of the membership), you would be apprised of the facts and stop thinking as you are currently thinking.

    Unions are not run for $ profits for the owners and stockholders; they are run for the benefit and well being of the members. They are service organizations that go much farther than getting pay raises. They fight for worker's rights, for fair performance assessments, for accountability and safe work environments.

    Compare the billions and billions of profits banks make with the millions unions collect from the salaries of working members? In the AFT, the percent that we collect from our teachers (currently at .0185% for members and .0165 for non members, the same percent for and Einstein or a Joe Schmoe within our part time faculty local) cannot compete with the percent the banks collect on ATM withdrawals, not to mention all of the fees associated with the accounts, or the interest rates of charge accounts and mortgages in order to generate a profit for the owners of the banks (entitlement of management notwithstanding).

    You must have a great imagination to believe what you do. I have no more to add, except to repeat the invitation. You have my personal invitation to the next national convention, where you can hear our "big boss" Randy Weingarten deliberate and spend four days listening to the national delegates from every state in the union arguing and deliberating the issues and the directions we will take up for the next two years.

    This is far removed from Bernie's original purpose in his blog. So I will stop defending the unions hereafter and drop out of the discussion.



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  9. Nancy
    My experience is with industrial unions from the management perspective. They are supposedly not for profit except for the top guns, the ones who lead members out on strike but never lose a nickel of their own pay as they sit on their duffs encouraging the poor saps to burn wood in an old oil drum and walk about the gates of the facility in the freezing rain.
    I won’t win this argument with you but hear this. My wife, who had been HR manager in an industrial establishment, knew how to deal with the union. It wasn’t pretty but it worked. After retirement she got a part time job in a unionized grocery store getting maybe 15 hours a week at minimal wage. She had to do something with her time, a common problem with retirees these days. The union collected dues as if she was a full time employee working 40 hours and so at least two hours of her pay each week went to support some fat cat union boss whom she never even saw. A friend recently retired is doing the same thing experiencing the same union rip off.
    An employee in a union shop has two bosses, the foreman or manager and the union steward. A perfect situation to get nothing done.

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    Replies
    1. John; I hope that you will find time to accept Nancy's invitation, with one proviso, to shake hands and promise to just talk about writing novels. ;)

      Delete
  10. Hi again Nancy
    Meeting new people and hearing unusual or new ideas is something I enjoy. If time and circumstances permit it will be a pleasure to accept your invitation to attend a convention of the ATF.

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  11. Four Years Later

    It appears, even now, that although the Ontario government has increased the minimum wage, that there is still no appearance of the Percentage Formula. It seems a very good time to question the possibility of a wage maximum in percentage terms related to the cost of living.

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  12. I just read all the comments we made five years ago. We are older and more mature now, I hope. Is Nancy still treasurer of her Union local. I assume it is at the local and not the International level but it doesn't matter. Personally, I think a union at Tim's or say McDonalds, Walmart or where minimum wage workers are would solve the whole problem. It would relieve Management of having to make decisions at the workplace. Everyone could then work to make the operation better for management, employees and customers.
    Big business like the aforementioned organizations will resist unions with all their power and money for three reasons;
    1- They don't want to surrender power to an independent second party,
    2- They do not trust Union bosses recognizing the Union would be run from somewhere far away.
    3- The steward in a local Timmies would probably be a nuisance.
    It should be win-win but is usually lose-lose.

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  13. John Outram said:

    I just read all the comments we made five years ago. We are older and more mature now, I hope. Is Nancy still treasurer of her Union local. I assume it is at the local and not the International level but it doesn't matter. Personally, I think a union at Tim's or say McDonalds, Walmart or where minimum wage workers are would solve the whole problem. It would relieve Management of having to make decisions at the workplace. Everyone could then work to make the operation better for management, employees and customers.
    Big business like the aforementioned organizations will resist unions with all their power and money for three reasons;
    1- They don't want to surrender power to an independent second party,
    2- They do not trust Union bosses recognizing the Union would be run from somewhere far away.
    3- The steward in a local Timmies would probably be a nuisance.
    It should be win-win but is usually lose-lose.

    ReplyDelete