Week 13

“Dealing with Employees

Employees and managers have a right to expect equitable rewards for their
performance, as well as honesty and integrity from their employers. Yet cultivating
an internal atmosphere of trust can be difficult as companies struggle with
shareholders’ demands for immediate financial performance, among other
pressures. Seeking to cut labor costs and boost financial results, many U.S. airlines
laid off employees and pushed hard for union give-backs during the yearlong travel
slump that followed the terrorist attacks on New York City and Washington D.C.
in 2001. An overall economic slowdown during the same period prompted other
companies to lay off workers and search for other ways to slash costs.

On the one hand, how can companies continue operating with the same costs when
revenues drop and remain low for many months? On the other hand, how can
employees keep believing in employers who may eliminate their jobs with little or
no advance warning? As one WorldCom employee said after the company’s
bankruptcy “we worked and gave the company everything. I don’t think anyone
personally feels guilty, but there’s a sense of disappointment. It impacts everyone.
Morale suffers when these kinds of things happen.

Among the numerous ethical issues that concern employees are compensation,
benefits and retirement programs, the growing disparity between management and
employee pay packages; and severance pay and job security. Consider the situation
at Electronic Data Systems (EDS) which acquired the travel technology firm Sabre
along with the employees of all its units. EDS promised that if it laid off any Sabre
workers within a year of initiating a severance agreement after the acquisition, it
would pay them one month’s salary plus up to one month’s pay for each year they
had been with Sabre. During that year EDS saw one of its largest customers and
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suppliers (WorldCom) go bankrupt and learned it would have to conduct an
expensive round of extra testing for a giant government project it was handling.

Just one day after the agreement expired, EDS laid off 300 of the former Sabre
employees as well as 1,700 non-Sabre employees. That single day made a huge
difference in severance pay. An account manager who had worked for Sabre for
nine years expected to receive only $3,000 in severance pay compared with
$68,000 he would have received if laid off a day earlier. The laid-off employees
protested and some joined class-action lawsuits against EDS. An EDS
spokesperson said “The former Sabre employees were treated the same way as the
1,700 other EDS’ers that were affected; there’s a personal story behind each of
those 2,000 EDS employees. The Sabre employees were not targeted.” Was this
decision ethical?

Another issue is protecting the assets held in employees’ pension funds and 401(k)
retirement plans. Often companies use stock rather than cash to fund their
employees’ pensions and retirement plans—and force employees to retain the
contributed stock for an extended period. (At Enron, for example, employees could
not sell company-contributed stock until they turned 50 years old). Over time,
company stock may account for half or more of the retirement plan’s assets—
creating a huge risk for employees if the stock value drops. Risk became reality at
Lucent Technologies and other companies, where a sharp decrease in share price
hurt the retirement holdings of thousands of workers. Were the companies acting
ethically when they chose to contribute stock rather than cash and prevented
employees from selling their shares until it was too late to prevent devastating
losses?

Employees who lose their jobs when scandal-ridden companies go bust also worry
about being stigmatized for having worked there. “If you’ve been at a WorldCom

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or Enron or any other company that’s imploded, there’s a mark against you,”
observes an executive recruiter in Cleveland. “You can very easily get to a position
of no hope.” A consultant who formerly worked for Enron confirms “There are
some people who refuse to hire anyone with Enron on their résumé. People have
put ‘major energy company’ on their profiles so they can get past that hurdle and in
the door.” Laid-off employees are reacting by commiserating on Web sites, filing
lawsuits and pushing for legislative reform to prevent recurrences. From the
employee’s perspective, what are the ethics of eliminating a job candidate from
consideration simply because he or she worked for a company embroiled in
scandal?

To avoid allowing ill-will to poison relations between employers and employees,

human resources experts recommend conducting a periodic climate survey to
gauge employee morale and attitudes. This not only demonstrates empathy, it
keeps communication lines open and—if management acts on the results—offers
opportunities for strengthening ties with the entire workforce. Stratus
Technologies, a high-tech firm based in Massachusetts, uses a 50-question climate
survey to find out more about its employees’ concerns. One year, “we discovered
that there was considerable dissatisfaction within one functional area around our
stock option program,” remembers the company’s top human resources executive.
“When we looked again at how they were being granted to those employees, we
found some inequities, which we then corrected.”

Surveys can also bring out concerns about certain managers and work groups. At
the same time, Stratus and other companies can build trust by letting employees
know that management will review and weigh every comment on the surveys, then
decide on what action to take after considering the potential consequences for all
stakeholders. However, is it ethical for a company to conduct a climate survey with

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no intention of responding to employees’ concerns or implementing changes?”
(Wood, 2004: 18-21).

Discussion:

“On the one hand, how can companies continue operating with the same costs
when revenues drop and remain low for many months? On the other hand, how can
employees keep believing in employers who may eliminate their jobs with little or
no advance warning? As one WorldCom employee said after the company’s
bankruptcy, “we worked and gave the company everything. I don’t think anyone
personally feels guilty, but there’s a sense of disappointment. It impacts everyone.
Morale suffers when these kinds of things happen.” (Wood, 2004: 18).

Suggest ways of promoting an ethical culture that would in turn minimize injustice
and enhance employee welfare.