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No Savings in Unethical Cost-Cutting

By David E. Gumpert When does legitimate cost-cutting degenerate into ethically questionable rip-offs of employees and vendors? I found myself asking that question recently, after encountering two small-business scenarios that seemed to blur that all-important line.

In the first situation, the owner of a fast-growing concern hired a new salesman and tied most of his compensation to incentives, thus reducing the outfit's fixed expenses. At the end of the first year, the salesman hit one of his key goals -- selling the business' main product to a highly valued customer -- which would trigger a $10,000 bonus. Or so the salesman thought.

MISUNDERSTOOD "POLICY". When his paycheck arrived, the bonus had been mysteriously reduced to $5,000. The owner explained that he had needed to provide the salesman with more support than expected -- executive assistance in revising two proposals, along with the cost of extra long-distance travel to the prospect's headquarters. The salesman is still employed there, but these days, he's spending much less time at work seeking out high-value customers -- and much more time searching online for a new job.

In the second situation, the owner of a well-established small business decided to replace a highly paid computer programmer with a less experienced one at half the existing worker's salary. The information technology manager negotiated with the experienced programmer an amicable departure that included 20 weeks of severance pay -- two weeks for each of the 10 years the programmer had been with the company.

Nothing was put into writing, though, and as the programmer's departure day drew near, the owner decided that the 20 weeks of pay -- equal to $40,000 -- could be cut in half by making the severance package 10 weeks.

The owner explained that the corporate "policy" was misunderstood and that it really calls for one week of pay for each year. He then wrote up an agreement to that effect for the employee to sign. The employee obliged after being told he would otherwise receive no severance pay. One of his first stops after departing the company was the office of a top employment lawyer.

ALL KINDS OF EXCUSES. Evidence is accumulating that these kinds of practices aren't unusual. The New York Times recently documented the cases of dozens of workers, from both small and large businesses, being forced to work "off the clock" -- extra hours for no pay. Their employers save money, and the staff hope for some consideration when promotions are made or bonuses paid. Most of the time, of course, the workers receive nothing in return. And the practice appears to be growing.

Creative cost-cutting continues to be the rage in companies of all sizes. On golf courses and in health-club locker rooms, business owners like to play "can you top this" in bragging about their slashing tactics, which include everything from buying computers at auction, to sub-leasing long-empty office space at bargain rates, to sending work overseas in low-wage countries.

What appears to be happening, though, is that more businesses are testing the boundaries that separate legitimate aggressive savings and unethical business practices. When it comes to unethical practices, owners have all kinds of excuses -- tough competition, rising costs, and other empty refrains.

MOST IMPORTANT ASSET. To me, these excuses are simply rationalizations for immoral behavior. Beyond what I think is right and wrong, though, such unethical practices are simply bad business. Yes, there may be a short-term improvement in the bottom line. But long-term, the practices are debilitating.

For one, it's difficult for a business to contain these tactics once they've been used successfully, so the bad policies continue to spread. These moves are risky and can lead to negative publicity -- as the companies the Labor Dept. is targeting in the "off the clock" cases have discovered. And more significantly, these practices demoralize employees, often making them less productive. They rationalize their own "get-even" tactics of recreational Web surfing and theft by saying, "The owners screwed us, so we're screwing them back."

Ask any business owner, and he or she will tell you that "our employees are our most important asset." They're speaking the truth. So why mess with workers? Particularly in a small company, being honest and above-board is one of the most effective tactics for ensuring top performance from those human assets. David E. Gumpert is author of Burn Your Business Plan! What Investors Really Want from Entrepreneurs and How to Really Start Your Own Business. Most recently, he's the co-author of Inge: A Girl's Journey Through Nazi Europe

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