Europe: Taking The Padding Out Of Those Cushy Jobs

Deregulation means tougher times for civil servants

It was the dream job. That's what one manager at Deutsche Telekom remembers thinking when he joined the phone company almost 30 years ago. His position came with a lifetime guarantee of predictable work and predictable pay. Today, this executive feels the rug has been pulled out from under him. He can no longer refuse a job transfer. His pay now partly depends on his performance. And though he cannot be laid off, he sees others being essentially forced to take early retirement. Says this company man: "There are limits to pushing human beings around like parts in the machinery."

Yet hundreds of thousands of coddled employees are facing just such treatment. Deregulation, new competition, and new privatizations worth up to $300 billion are introducing uncertainty and anxiety at the Continent's state-owned companies. The pace of change is picking up. In June, unions at Italian flag carrier Alitalia finally gave in to a restructuring plan that will revolutionize their work life. In France, legislators have passed a telecom deregulation law and are debating plans to sell 49% of France Telecom.

These changes will have tremendous impact. Most important is the steady erosion of civil servant status, which guarantees a lifetime job at many of these companies. New hires at Deutsche Telekom, for example, do not have these protections. From 1998 on, the company can lay off non-civil service employees. By 2000, the phone company aims to cut the payrolls by 50,000, paring them down to 170,000 through layoffs, attrition, and buyouts. Insiders say that Telekom's civil servants already face the prospect of dead-end job assignments unless they voluntarily relinquish most of their privileges. France Telecom can start hiring new workers next year on private-company contracts, even though it will keep the option of hiring new civil servants through 2002.

Another threat to the old ways is for management to use a pattern of layoffs, new hires, and rehirings to lower costs. At Alitalia, where labor costs are 30% higher than at such competitors as British Airways and Lufthansa, workers are on edge. The airline has now negotiated the right to cut 3,000 employees over five years. But it will also hire 2,000 workers on contracts stipulating lower salaries and higher productivity. Employees who are not laid off will work longer hours and accept pared-back wage increases. It's about time, say many policymakers. "The inefficiency of the public sector is like a hidden tax on every Italian," says Sabino Cassese, the former Public Administration Minister who launched public sector reform in 1993.

MORALE PROBLEMS. The ultimate fear among state employees is that privatization will trigger mass layoffs far greater than anything managers will admit to. At France Telecom, 95% of the employees oppose privatization, even though they are guaranteed civil servant status. The belief is that France Telecom will be under such pressure from outside stockholders that management will find a way to subvert job protection pledges and fire thousands. "We will keep fighting [privatization]," says Jacques Gendre, national secretary for the CGT-PTT union and a technician at France Telecom.

The unions also fear the impact on morale, citing the example of companies that have gone through the upheaval of privatization. At British Telecom, the increasing use of contract labor has created "a massive sense of distrust," charges one Communications Workers Union official. A BT spokesperson acknowledges some morale problems but denies that contract labor is a major factor.

Faced with these problems, companies headed for privatization feel compelled to make concessions to keep workers loyal in tough times. In Italy, Alitalia employees will receive between 20% and 30% of the airline's stock before yearend. At Deutsche Telekom, employees who buy stock when the phone company lists shares in November will be protected from any drops in the share price for six years.

UNFAIR EDGE? Some monopolies, with the backing of their unions, are also still trying to tilt the market by imposing industrywide wage policies that will hurt new rivals. Italian phone giant Stet and Alitalia want new wage rules set in their industries. Stet contends that rival mobile phone operator Omnitel, for example, has the option of paying employees lower wages, giving the company an unfair edge. Proponents of reform argue against the proposed wage rules as a drag on competitiveness.

While the state-owned companies wrestle with workers, investors are watching for signs of backsliding. In Deutsche Telekom's case, fund managers want to understand how the company will lower wage costs, which are crucial to measuring future profitability. The Telekom flotation must work because further privatizations, including that of the railway system and the post office, will stall if Telekom stock fizzles. "One mistake, and we'll never see another international investor again," says a Finance Ministry official in Bonn.

The unions are feeling the pressure more and more. At Telekom, labor and management have kicked off talks on totally revamping the salary plan to a performance-based scheme. "Uncertainty is still very strong," says Gunter Heidorn, a managing director of the Post & Telecommunications Union. "But so is the excitement for everything that is new." At France Telecom, unions staged a June strike to protest a prospective sell-off, only 32% of the rank and file participated. It's sinking in: For Europe's most protected workers, the rules are changing.

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