Jason Rippon saw the help-wanted ad for an airlines ticket agent and, experienced job-seeker that he is, tried to beat the rush by showing up early.
"But when I got there, there were about 300 people milling around. It was unnerving," says Rippon, 23. "And it was all ages - from as young as 18 or 19, all the way up to people in their 50s."
This story, and ones like it, seem to be everywhere. I'm sure everyone has heard of situations where a small number of job openings are met by a crush of hundreds of people. Maybe you have been involved in such a situation. What makes this story different is the time it took place. This wasn't something that took place recently, this is from a newspaper article I have kept since 1994. March 6, 1994 to be exact.
How is it possible, in less than twenty years, for us to come full circle in the job market? How can it be that our unemployment rate, the real rate, is between twleve and fourteen percent with another several percentage points of people underemployed?1 Before that question is answered, let's take a step back to the year 1993.
At their annual conference, the Society for Human Resource Management had as their speaker, Joseph F. Coates. Mr. Coates is a futurist. What's a futurist? Simply put, someone who attempts to predict how things will be a some point in the future.
Mr. Coates presented a list of twelve issues that business will stumble through (his words) during the dawn of the 21st century. Some items on his list were remarkably prescient. For example, in 1993 he predicted the rise of distributed work. Specifically, more employees working off-site, away from the traditional office.
He also predicted the rise of business alliances where companies establish ties among themselves either for specific projects, or for long-term exchanges of ideas and people.
Another prediction was contingent workers. The part-time, temporary or contract workforce would grow, he predicted, to fifty percent of the work force. While that number has not been achieved, it has remained relatively the same as it was in 1993, twenty-five percent of the overall workforce, there is no doubt that employers are using more and more contingent workers as evidenced by the rise in the number of consultants wandering the cubicle hallways.
However, one prediction he made was so remarkably perfect, it should be emblazoned in every boardroom, every country club and every corporate retreat. Executive leadership, Mr. Coates said, is sorely lacking in this country. CEOs are insulated by their top managers and pressured to beef up the bottom line. "They have no clue to the issues of everday life."
Read that last sentence again. "They have no clue to the issues of everyday life." I'm sure some of you are laughing your heads off because of the obviousness of this statement. I am also sure most of you have to suffer through the nonsensical ramblings of executives on a weekly, possibly daily, basis so this statement comes as no surprise.
As Mr. Coates further said, when asked how businesses would handle his list of Twelve, "Almost all of these things will be bungled." The short-term, bottom-line vision is deadly and needs reform. Corporations, he said, need to consider the human side - not only the bottom line - of the business equation. They need to adopt "the idea of doing good by the whole organization."
This comment is emphasized by what else Mr. Coates said. U.S. companies have managed by firing, downsizing, and outsourcing. "All those things are driven by a passion for cost-cutting." Sound familiar?
In the wake of the depression which started in 2007, companies did exactly what Coates said about companies in 1993. They fired people, en masse, downsized their overall structures and outsourced much of their work to overseas firms. So where does this leave the average worker? Coates had an answer for this as well.
It [firings, downsizing and outsourcing] amounts to a dig at the worker. And those workers - like dogs kicked one too many times - will snap back. The current manifestation of that snap back is Occupy Wall Street. The overall concept of OWS is that corporations have focused too much on the bottom line at the expense of the average worker, while at the same time rewarding the failure and incompetence of people who "have no clue to the issue of everyday life."
Examples of the heads of corporations being rewarded for failure and incompetence are numerous. One of my favorites is Carly Fiorina. Appointed as CEO of Hewlett Packard in 1999, during her tenure she bought what was arguably the worst PC company in existence at that time, Compaq, laid off 18,000 workers and fought hard to expand the H-1B Visa program.2
So with all the merging, layoffs and outsourcing, how did the stock price of Hewlett Packard perform during her time running the company? It fell by over half, from $52 per share to $21 per share. After she was fired, it was noted that she received $21 million in stock and severance pay. Wouldn't it be nice to lose a company billions in market value and be rewarded for it?
As a side note, in an effort to keep its tax rate low, Hewlett Packard, under Fiorina's leadership, kept $14 billion in foreign profits overseas, rather than bring that money back to the U.S. for use in such mundane tasks as research and development or to keep some of the 18,000 people she laid off on the company payroll. As Mr. Coates, said, the short-term, bottom-line visision is deadly and needs reform.
HP recently paid Leo Apotheker a $13.2 million severance package after serving only 11 months as head of the company, during which time, in a déjà vu moment, the price of HP's stock was cut in half. That severance package was composed of $7.2 million in cash, the ability to sell $3.6 million of restricted stock and a $2.4 million bonus. This was in addition to the $2.9 million that HP paid to relocate Mr. Apotheker to California and the amount the company will pay to move him to Belgium or France as well as cover up losses of up to $300,000 on the sale of his house. This was all in addition to the $10 million sign-on package he received when he took the reins of the company. 3 To quote Yakov Smirnoff, "What a country."
As if those two pay-for-failure examples aren't enough (trust me, one could write a book about this subject), there is the infamous $210 million severance package for Bob Nardelli, former head of Home Depot. During his nearly seven years at the head of the company, the stock price of Home Depot fell by 7.9 percent while its competitor, Lowe's, tripled in value.
A final, sterling example of failure and incompetence being rewarded is Henry McKinnell, former head of Pfizer, who was awarded $200 million, which included $82.3 million in pension benefits, $77.9 million in deferred compensation, $18.3 million in performance-based shares, $12 million in severance, $5.8 million in vested stock grants and $2.15 [sic] in bonuses. As if that wasn't enough, McKinnell received $305,644 for his unused vacation days. This massive pay-for-failure was awarded to McKinnell despite the stock losing 35.5 percent of its value, with an overall loss of market value of $108 billion.4
You may be asking yourself the (obvious) question: why are these people being rewarded for failure? How can a company whose stock price falls by half or loses billions in market vaule, pay such egregious amounts to people who apparently couldn't boil water? Part of the answer goes back to what Mr. Coates said: executive leadership is lacking in this country due to [them] having no clue to the issues of everyday life. Their only goal is the bottom line, the maximization of shareholder value and hitting performance targets (which seems odd considering how poorly so many perform at hitting those targets). The attainment of these goals has been accomplished, as Mr. Coates also, correctly, pointed out, through firing, downsizing and outsourcing. Fire a few people, close down a product line and voila! You met your profit goal for that quarter.
The other part of the answer comes from the way corporate boards hire chief executives. From the New York Times article previously mentioned:... corporate boards hire superstar chief executives, rather than groom strong managers inside the company for the top job.
Since shareholder value is the driving force behind business decisions, boards go after people who have, or appear to have, the ability to increase profits which in turn increases shareholder value. How that goal is met is up the superstar to determine (which usually follows the tried-and-true, fire, downsize and outsource route).
Don't get me wrong. Increasing shareholder value is a good thing. That is part of the way a capitalistic-based society operates. After all, shareholders are part owners of the company. They want shares of the company they have invested money in to rise.
The problem, as Mr. Coates also pointed out, is that cutting costs comes at the expense of the average worker. Rather than lead by example and cut their salaries and forgo bonuses, corporate leaders continue to proclaim they are worth their multi-million dollar salaries and bonuses because of the "experience" they bring to the position. I guess it takes a lot of experience to tell 18,000 people they are being fired so the CEO can get their year-end bonus.
Still another area where companies can goose their earnings is through stock buybacks. The principle behind buybacks is simple. With fewer shares in circulation, earnings per share can rise smartly even if the company's underlying growth is lackluster.5 Since many CEO bonuses are tied to stock performance, using company money to reduce the number of available shares is an easy way to make sure you get your bonus.
Which poses an interesting conflict of interest. If you know your bonus is based on the performance of the company stock, why wouldn't you use company money to reduce the number of available shares, and thus inflate the stock price, rather than use that money to research new products, expand current product lines or acquisitions? To quote from The New York Times article:"If we're not investing in research, innovation and entrepreneurship, we're going to be a slow-growth contry for a decade."6
Or, as Mr. Coates said, the short-term, bottom-line vision is deadly and needs reform.
So, to answer the original question, how is it possible, in less than twenty years, for us to come full circle in the job market, from the preceding examples we can clearly and unequivocally see how we have come full circle. The very issues Mr. Coates identified in 1993 are the same ones that exist today: lack of executive leadership and an emphasis on the bottom line. When you add in the penultimate quote from Mr. Coates, "They have no clue to the issues of everyday life," it is easy to understand why things are the way they are.
Again, do not mistake what I am saying. I am not suggesting that people should never be laid off. I work under the assumption everyday that I could be fired from my job. It's part of corporate life. However, when the sole purpose of firing people is so the folks at the top can meet their quarterly goals, it's time to take a hard look at their compensation packages and how "experienced" they really are. Let's be honest, it doesn't take a Ph.D. to fire someone.
This notion that people who are paid large sums because of their "experience" falls apart when one looks closely at their performance. One can use the banking crisis as a prime example of this fallacious argument. From the head of the Federal Reserve, Ben Bernanke, who admitted neither he nor his department did their job as oversight authority and in fact said that subprime mortgage woes do not present a serious problem to the US economy, to people such as Lloyd Blankfein, head of Goldman Sachs, whose company received $10 billion in taxpayer money to stay alive despite the "experience" of its people then turned around the next month and gave out $6.8 billion in bonuses because of the great job the people at GS had done. To use Ben Bernanke's own words:... many large complex companies really didn't understand the full range of risks that they were facing, and as a result they found themselves exposed in ways they didn't anticipate."7
So the idea is that despite not knowing what you're doing, despite not doing your job, you can still be rewarded because of your "experience". Got it.
This is the crux of the matter and why we have come full circle in the job market. We are rewarding failure and incompetence rather than those who do their job. The lack of leadership, the insistence on hitting quarterly goals, the lack of overall corporate vision, are why we are in the employment mess we are. It's not because there are no qualified people to fill positions (despite what HR departments claim), it's not because people are unwilling to work (ask anyone who has been out of a job for a year), it's not because people don't have the education or years of experience, it's because companies, and those who head those companies, "have no clue to issues of everyday life."
Companies are their own worst enemy. They want people with experience but are unwilling to train from within. Rather than training someone in the ways of the company, you, as a prospective employee, are expected to already know how to do things. You must, according to HR departments and recruiters everywhere, have the exact, cross the 'T', dot the 'I' experience or you won't be considered. Instead of being a diligent employee who does their job, you need to show that you increased company value (aside from doing your job well?). Which is rather odd considering how little those at the top increase company value, with many substantially decreasing the value of a company through their incompetence.
Firing, downsizing and outsourcing, that's the name of the game. Joseph Coates predicted it and companies live it. Rewarding failure is the new benchmark. The more you fail, the greater your reward. If it costs thousands of people their jobs, so be it. That's just the cost of doing business. And that is why, in less than twenty years, we have come full circle in the job market.1As rule, add three perecent to whatever figure the government says is the unemployment rate. The government figure does not include people who have stopped looking for work, people who have not looked for work in the four weeks prior to the survey, or people who no longer receive unemployment compensation even though they are not working.
Underemployment is a situation in which a worker is employed, but not in the desired capacity, whether in terms of compensation, hours, or level of skill and experience. For example, if someone was a chemical engineer but are now delivering pizzas, they are underemployed. A more descriptive definition would be those workers that are highly skilled but working in low paying jobs, workers that are highly skilled but work in low skill jobs and part-time workers that would prefer to be full-time.
Read more: Investopedia
2An H-1B visa allows U.S. employers to temporarily employ foreign workers in specialty occupations. These specialty occupations must include both theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor including but not limited to architecture, engineering, mathematics, physical sciences, social sciences, biotechnology, medicine and health, education, law, accounting, business specialties, theology, and the arts, and requiring the attainment of a bachelor’s degree or its equivalent as a minimum.
There is much debate as to the effectiveness of this program. Some critics claim that outsourcing firms use the H-1B program to train foreign workers in the U.S. to facilitate moving jobs offshore. Proponents claim that there is a lack of qualified candidates in the U.S. and that they must look overseas to fill positions.
When one considers the current (real) unemployment rate of over twelve percent, it is hard to reconcile the perceived lack of potential candidates to fill all but the most highly skilled and technically advanced positions with the number of people who are seeking work, particularly those with advanced degrees and years of experience.
For reference: H-1B Visa - Wikipedia
6William W. George, Harvard Business School professor and former chief executive of Medtronic