The great thing about this this blog is that I have the luxury and pleasure of taking a longer view in one of the most turbulent economic times since World War II over fifty years ago, as I’ll be doing over the next few weeks.

Globally, we are seeing seismic shifts in trade flows, financial relationships, business fundamentals, and the balances between people, governments, and business. In many ways we are corks bobbing about in these economic tidal waves.

However, we are corks with intelligence and capability. While we cannot change the tidal waves, we can and should understand them in order to improve our own lives and the lives or our co-workers and friends.

A long view can provide understanding and perhaps some enjoyment in the understanding. But  it is also valuable to connect that long view back to the here and now, to address the question “What do I do about it?”

In this article I address the fundamental shifts occurring in employment models in the United States, tracing the roots of the “lifetime” employment model that emerged in the aftermath of World War II. That model has crumbled and the new models are only now appearing.

Tying this long-term trend back to today, we look at two companies pioneering new employment models.

The Old Model—Lifetime Guarantees

Since World War II large US companies offered an amazing, lifetime employment agreement to their workers. This lifetime agreement had three planks:

• Lifetime employment at the same company
• Lifetime health care
• Lifetime retirement

Following World War II, the United States represented only about 5% of the world’s population, but controlled over 95% of the world’s economic activity. The economic infrastructures of Europe, Russia, and Japan had been destroyed. These countries had also lost almost an entire generation of young men, further crippling their economic activity and recovery.

American companies competed only with each other, and completely dominated the global economic landscape. Several factors—tax structures, unions, and a very limited government—led companies to take over the responsibility for health care and worker retirement planning. Since American companies competed primarily with each other only, they could offer the “lifetime employment” agreement mentioned above.

Today the world has changed. The United States still represents about 5% of the world’s population, but controls only about 25% of the global GDP. American companies compete with the

• EU, where governments have taken over the responsibility for health care and retirement, and
• emerging countries, where no one takes responsibility for the workers’ health care and retirement.

American companies can simply no longer afford to offer the three benefits of lifetime employment – job, health care. Some new models are emerging, but they themselves will change as the global economy continues to shift.

The New Model—Just-in-Time Workers, Do-it-Yourself Benefits

The new employment model is just-in-time, do-it-yourself. Companies now acquire workers just-in-time, shifting their employment burden to independent contractors and outsource service providers. Workers, even the direct employees,  are responsible for their own healthcare and retirement planning. Indirect payroll costs for direct employees will climb significantly in the next ten years, so companies will continue to reduce their direct employee base and increase their use of contractors and outsource providers.

Example—Building Contractor Restructures for Cash Flow

A Texas building contractor I’ll call TexHomes provides a good example of a “new model” small business. In this post we will focus on his employment model, saving the business model for later discussion.

TexHomes sharpened the company’s focus on restoring foreclosed houses—traditional single family residences, typically restoring about 50 homes each month.

With the sharpened focus, TexHomes needed fewer subcontractors, primarily painters, carpet layers, and maintenance people. With the steady volume and a smaller number of subcontractors he experimented with direct employees, planning for improved control.

But the costs and paperwork escalated rapidly, and the company lost considerable freedom in other areas (retirement contributions, health plans, vacations, etc.). So the company switched back to a subcontractor model for almost all of its workers, even though it provides them with full-time work. Currently the company has a very tight work team:

• Employees – 3 people. CEO/owner, Business Manager/co-owner, Accountant (CEO’s wife)
• Independent Subcontractors – 12 people. All the trade workers are independent subcontractors.
• Outsourced Services – every other function. The company uses an independent accounting service, an independent HR service, and independent maintenance service for all company equipment.

With only three direct employees, this company qualifies as a small business, thus reducing its regulatory compliance burden. In addition, the company operates from a home office, further reducing its operational expenses. Since the three direct employees are also owners, the company can coordinate employee benefits to maximize total cash flow to the owner/employees.

The company generates over $20 million in annual revenue with a pre-tax profit margin exceeding 35%. While it may be a small business, it generates considerable cash for its owners and workers.

Unlike the construction industry, many businesses do not have a long tradition of independent subcontractors. However, you may want to consider how you can apply some of these lessons to your business.

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You remember the old joke about the farmer using a 2×4 to get the donkey’s attention. It looks as if the economy is the current 2×4 that is getting the attention of shareholders on golden coffins.

Golden coffins are exactly like golden parachutes, only instead of walking out the door you have to die in office to collect them.

I mentioned them last summer, but now change is in the air according to a notice in Risk Metrics.

“In the first vote of its kind, a shareholder proposal seeking a vote on executive death benefits received 42 percent support at Johnson Controls, according to preliminary results released by the proponent, the labor-affiliated Amalgamated Bank.

Scott Zdrazil, a vice president with Amalgamated, said the vote is a “strong sign of shareholder concern.” The bank’s LongView funds, the AFL-CIO, and other labor investors have filed similar proposals targeting “golden coffin” arrangements at 13 other firms, including Shaw Group, which holds its annual meeting on Jan. 28.”

While amusing, it’s not surprising that it’s “labor investors” who are pushing for change.

The only people I can see agreeing with the practice are those who are, or believe they one day will be, a recipient of such largesse.

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What a joke. Bloomberg offers up information on which bankers are foregoing salaries and how bonuses are being set up.

For example, Steve Black and William Winters, who head up JPMorgan Chase’s investment banking unit, will forgo cash and stock bonuses in 2008, accepting only 700,000 stock options each.

“The stock will be awarded based on future company performance and must be held for five years, the bank said. The JPMorgan stock appreciation awards were priced at $19.49, the average of the high and low price of trading on Jan. 20, according to Bloomberg data. Shares of JPMorgan fell 21 percent that day and have since climbed to $24.28.”

I love the ‘only’. I just checked and the stock is up another 22 cents.

That means that even if the stock is no higher in 5 years they would still reap a little more than 3.5 million dollars.

Let’s not all cry at once.

There’s a reason that all those hotshot MBAs want to work on Wall Street. It’s because they believe, with reason, that they’ll make low seven figures within a year, two if they’re slow.

The attitude is blamed on Wall Street culture, but it goes further than that.

It goes back to their individual MAP and the deeply seated belief that they deserve it—they are entitled to that compensation; and that MAP certainly isn’t reserved for the new grads, it permeates all levels.

It’s not that they call themselves ‘Masters of the Universe’—it’s that they believe it.

Big problem since MAP is only changeable from the inside out. MAP is also sneaky and will pretend to change and then revert to its normal pattern when no one’s looking.

That means that we, the people, and we, the politicians, better have longer memories going forward than we’ve had in the past.

(Richard is traveling and will return next week.)

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David Zinger writes about employee engagement; Phil Gerbyshak at Slacker Manager today posted a link to a new ebook that David facilitated from the Employee Engagement Network. All good stuff.

According to Wikipedia, “An engaged employee is a person who is fully involved in, and enthusiastic about, his or her work.”

What I have for you today is employee engagement on steroids, in action at a place called Nucor Steel.

Way back in May 2006, Business Week wrote, “In an industry as Rust Belt as they come, Nucor has nurtured one of the most dynamic and engaged workforces around.”

I’ve written more about Nucor and its culture several times, but it’s come to the fore again.

On January 2, 2009, the Charlotte Business Journal named Nucor CEO Dan DiMicco Business Person of the Year for 2008.

First, a bit of history,

“Ken Iverson, Nucor’s pioneer and guiding spirit, stepped down as chief executive in 1996… Earnings remained flat through 1998, when board dissidents forced Iverson out of the chairman position and off the board. Nine months later, they ousted John Correnti, Iverson’s handpicked successor as CEO.

The board made DiMicco CEO in September 2000. Nucor’s four other executive vice presidents and CFO Terry Lisenby, were candidates for the top job that went to DiMicco. But all stayed, sharing his basic vision for a bigger Nucor built on reinvestment in mills, exploring new technology and market niches, strategic acquisitions and international growth through joint ventures.”

And a pay system that many (most?) companies should adopt, “…it’s not only the workers who get paid mostly on performance. Managers all the way up to the top executives have a relatively low base pay supplemented by specific performance goals.” But they won’t, because most management, as well as the rank and file, believe they should be protected from the results of their actions—unless, of course, they’re positive.

The team took over in 2000 just as the dot com bomb blew up the economy and now, just eight years later Nucor is the largest steel maker in the US.

It’s another economic meltdown; Nucor has $2 billion in cash, so I expect it will emerge even stronger.

All of this is still more impressive when you consider that Nucor actually makes something—as opposed to pushing money around—and their product contains neither chips nor software.

If you want to know more about what truly engaged employees do, how real leadagers act and what a culture should be. Take the time to read the articles—then tweak as much as possible to use in your company.

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There’s not a lot of funny stuff out there today, but if you have a slightly twisted sense of humor you can find more funny stuff than you would think.

First up is compensation at AIG. In October the company spent just shy of a half a million dollars on a weekend meeting at a resort; when people got annoyed they canceled another 160 events valued around $8 million. A month later, in return for their bailout the top seven execs in the ‘Leadership Group’ (isn’t that a laugh) agreed to skip bonuses this year or salary increases through 2009 and CEO is taking an annual salary of $1.00. Whoo hoo. Of course, nothing I looked at mentioned a ban on stock options.

Next is a topic close to my heart. I love seeing common knowledge written up, especially when it’s common knowledge that the pundits keep refuting. BNET’s Dog and Pony spells out ten reasons that middle managers are more valuable than CEOs. Why? Because they’re the folks who drive customer retention.

Finally, I found a report entitled Executive Excess 2008 from the Institute for Policy Studies and United for a Fair Economy. “S&P 500 CEOs last year averaged $10.5 million, 344 times the pay of typical American workers. Compensation levels for private investment fund managers soared even further out into the pay stratosphere. Last year, the top 50 hedge and private equity fund managers averaged $588 million each, more than 19,000 times as much as typical U.S. workers earned.” I’m not saying that they’re completely impartial, but then, who is? Every group that publishes a study has its own ax to grind. It’s your responsibility to sort it out.

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The markets are in turmoil, the economy sucks, so what kind of corporate culture makes your small business, company or startup an attractive place to work?

Short answer: a culture of fiscal intelligence.

Long answer: a culture that spends its money wisely, eliminating low ROI frills and cuts without selling the company’s future down the drain.

This doesn’t mean substituting crappy coffee for the good stuff and eliminating free soda.

It does mean listing all the frills—executive and worker alike—and polling your people to find which are really paying off and which can be scrapped—not a decision made by management, but one that your people hash out and agree to before it’s a done deal.

Sometimes good coffee and soda have a higher ROI morale-wise than you would think.

All this should be doubly true for startups, but it often isn’t. Yes, your money is banked and if you’re VC funded, as opposed to angel or bootstrapping, chances are you’re pretty flush. But having it doesn’t mean you need to spend it.

If any company thinks that cushy perks are attractive in this economy think again. Think just how naïve/ignorant/arrogant a candidate must be to expect a large sign-on bonus or fancy perks given current economic conditions. Not to mention how financially stupid any company still offering them appears to a candidate.

The smartest companies build fiscally intelligent corporate cultures from the beginning, so that when they have to tighten down no one is surprised.

Throwing money around is always stupid, whether in business or personally.

I’ve heard from companies of all sizes and managers at all levels why this one candidate was worth X more than anyone else walking and how not getting her could deal a crippling, or even lethal, blow to the company.

If you ever feel that way, remember two inimitable truths.

• If that not having that one specific person could bring down the company it’s unlikely to succeed anyway.

• The candidate who joins you for money will always leave for more money.

Remember, the goal is a lean, mean, innovative, motivated machine—not a lean, mean, depressed one.

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Today is a very special day. I’m pleased and proud to introduce Richard Barrett, who will be writing every Tuesday from now on.

Richard is the creator of One-to-One: Business Relationships and has over 20 years experience in technology development, sales, and marketing. He served as President of Mobileforce Technologies, Vice President of Sales and Marketing for two start-up companies, Vinca and Nucleus, and co-founded Adaptive Data Systems, which pioneered the Small Computer Systems Interface (SCSI) standard.
Richard holds an MEE and BSEE from Rice University and has published five books, many professional papers in technical journals, and numerous articles in trade magazines.

Richard brings a new dimension of business information to both stimulate your MAP and help your business thrive.

The first few years of this new century were only the warm-up! Business change continues to accelerate. If your business is not actively planning for major changes, then it may already be falling behind the curve!

Consider these changes already reshaping the global business landscape:

1.    Inflation is coming. China and India are driving raw materials prices. The weak dollar policy by Fed has contributed up to 7% in the increasing price of oil, which ripples throughout every consumer good in the economy. The Consumer Price Index (CPI) increased by 1.1% in June, which is the largest monthly increase since June, 1982 (Wall Street Journal). Annual inflation will almost certainly exceed 10% in 2009, and likely go higher in 2010.

2.    The price of gasoline is already shifting the workplace. Who can afford to commute, much less fly? With airlines reducing service across the board, how will you deal with remote workers and even more remote customers?

3.    GM Introduces New Line of Layoffs for 2008 – 30,000 this year, more coming next year. The US manufacturing sector will continue to shrink, with massive restructuring yet to unfold. Count on the federal government to use your tax dollars bail out GM and other automakers.

4.    Coming soon, the new US Workforce: Older and wiser and ready to retire. These workers have irreplaceable institutional knowledge, often unique and usually undocumented. How will your company retain these workers, find new workers and deal with the loss of critical knowledge as the older workers retire?

5.    Healthcare, the line item that ate Detroit. Is your business next on the menu?

6.    The new world – online communities. What is a wiki? What is UGC? How will these new online trends affect your business? What opportunities do they present for your business?

7.    Climate change – it’s real, but what does it mean for your business? Green is good. But, can you paste it on? Don’t be distracted by long-term global change. Identify immediate, local changes that may be opportunities for your business.

a.     Water will move. Drought, fire, floods will follow.

b.     Coastal insurance will skyrocket even as coastlines move and shrink.

c.     More erratic weather will increase production risks, disruptions, and costs.

d.     Food production areas will shift. Disruptions in food supplies will become common.

8.    Remember the mortgage crisis? It will continue to restructure the financial industry of the world through 2010. The credit crisis will consume weaker companies throughout the next year. After the US government nationalizes Fannie Mae and Freddie Mac, US taxpayers will pay the bill in higher interest rates and increased taxation. Brace for tighter credit and further pressure on the US housing market. How strong is your balance sheet? Clean-up will exceed $2 trillion, or 15% of the entire US GDP.

9.    The world is not flat. The economy is shifting, sliding far eastward toward Asia. How will you extend your business into Asia?

10. The world is not flat on the other side, either. Cash is sliding near eastward to Oil. Is your new banker (or owner) Middle Eastern?

11. US Presidential Election – Lawmakers will create confusion and uncertainty. OK, there is nothing new here.  The next President and Congress will have a full plate of problems. Regardless of any candidate’s agenda, the problems are already in place and restricting a President’s range of action. Congress and the President will likely continue to dally and kowtow to lobbyists, creating even more damaging incentives like the mandates and subsidies for ethanol. Don’t expect any help from your elected officials.

How mobile is your business? Can you move portions of your business to regions with lower taxation, better labor, and more flexibility for your business?

Your business will change in 2009. If you stand still, external forces will drive the changes. Take time now to understand how these changes will impact your business.

How will you reshape your business before these external forces do it for you?

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Oh goody. More support for my decades of harping on the importance of corporate culture. I’ve been preaching that corporate culture was number one on candidates’ list of “wants” since the late Seventies (Good grief, where did the time go?)—long before most companies would listen.

Hollister, a Massachusetts staffing firm, just published a survey confirming this. And although it was done strictly in Massachusetts, it’s representative—more so because these are hardheaded Yankees, not touchy-feely Californians. Nor was it a survey of Millennials or moms, just a cross section of people.

“The Workforce Survey polled over 1,000 people throughout the Commonwealth, both employed and unemployed. When asked to rank which factors contribute most to their job satisfaction, the majority of people polled ranked Company Culture first followed by Opportunities for Growth, Employee Appreciation, Work/Life Balance, and a good Benefits Package. Listed last was Competitive Salary/Pay.”

As I’ve always said, “The person who joins for money will leave for more money.”

Amusingly, opportunities for growth, employee appreciation and work/life balance are either part of, or the results from, a good culture—even a good benefits package reflects a company’s culture.

Click the link, download the survey and then give some thought to your culture and how it performs in these areas.

What’s in your culture?

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Do you consider an offer of help charity?

Here’s the background for my question.

Yes, I earn my living as a coach. But on both of the blogs I write I have a standing offer to my readers for free coaching assistance. Not only has no one taken advantage of me, no one has taken advantage of the offer.

I often help to friends and associates when they hit a snag and my expertise can ease the problem. Again, none have taken advantage of me.

I can afford to do this because what’s often a challenge to one person is easy to another with that particular expertise, so it’s not like I’m offering up the next X years of my life.

That’s the background, here’s what happened.

A guy, call him Jim, and I are volunteers for the same professional organization and have gotten to know each other over the last few years. Jim is CEO of a small, privately-owned company.

To make this short, we were talking on the phone and Jim mentioned that he had to replace a person on his staff and it was critical to make the right choice.

So I offered him some coaching, he said “great,” and I said that I’d send some written material that I used in my practice and then we cold talk.

When I didn’t hear back in a couple of days, I resent the files thinking that they hadn’t gone through (happens all the time).

Jim replied as follows, “I will not waste / take your time without compensation. Perhaps calling it charity is a poor choice, but if I am not paying I will not waste / take your expertise.”

I wasn’t looking for compensation—of course, I wouldn’t have turned it down if it was offered, but in companies such as Jim’s I know that it can be a difficult sell to the owners—but it annoyed me no end that Jim made the decision based on his assumptions.

Didn’t ask/discuss/mention, just decided.

Do you agree with Jim’s actions?  Am I annoyed for no reason?

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Nerys Wadham, in commenting on the changes in the corner offices at BP and GlaxoSmithKline, says, “…culture perhaps being less about ‘the people’ collectively than the CEO individually. The tone, look and feel of a firm are to a great extent set from the mindset and world view at the top.”

I can’t stress enough how true this is.

It’s the boss’ MAP (mindset, attitude, philosophy™) that creates the form and shape of the corporate culture.

It doesn’t matter if it’s a mom and pop operation, startup or global giant; whether the company has two, two thousand or twenty thousand employees; whether the boss is called owner, founder, president or CEO.

Best Buy’s vaunted ROWE could not have taken root, nor would it have spread throughout the company, without a top boss who enabled the bottom-up culture in the first place, as well as providing the fertilizer that allows ideas to bloom.

It’s not enough to announce the cultural attributes in which you believe, such as no politics, and then ignore political actions because you believe that your senior staff are adults and won’t engage in behavior that goes unrewarded.

Even if you want to manage your culture by benign neglect, people need to know that there are repercussions for actions that flaunt the corporate culture just as there are for actions that violate legal issues such as harassment.

All this is just as true for the individual subcultures that establish themselves around every manager in the company.

Creating and caring for the culture around you should be written into every manager’s job description at every level.

If that bothers you, just remember that culture affects productivity, engagement, innovation and retention.

And if that’s not enough motivation for you to pay attention then stay focused on the MY-CCF mantra—my compensation, my career path, my future.

What do you do abut culture?

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