A High-Profile Case of When Standing by your Budget Cuts is Worse than Paying Up

Imagine a massive corporation. Imagine something four to five times larger than even the world’s most valuable publicly traded conglomerates. It has hundreds of thousands of employees, a multi-trillion dollar valuation, and hundreds of billions of dollars in revenue.

This corporation has a small segment of its employees that are unhappy about their salaries. It could be anyone, but for the sake of the story, let’s call them business development people.

The biz dev people see employees in other departments—product managers, analysts, partnership strategists, etc.—with similar responsibilities and seniority, but making a little bit more money.

Now, the biz dev people are also in a union, so they’re not panicked. They trust that their interests will be represented at upcoming contract negotiations. Individually the demands aren’t too massive, though since there are a few thousand workers, the total impact of the salary adjustment would still be a multi-million dollar hit on the company’s budget.

Unfortunately for biz dev, the contract comes up right when the company is having a bit of financial difficulty. For the most part it’s not the company’s fault—the suppliers and customers it relies on are themselves working through some problems—but the trouble is still real.

So management makes a promise to shareholders that, after suffering through a few years in the red, change is in the air. Costs (and especially labor costs) are going to be cut. At the same time (because shareholders demand it), management promises that prices won’t be increasing.

We’re at a point now where management won’t budge, and the union won’t waver. This drags on for almost 2 years, even after the last contract has expired. Finally, the biz dev union calls for rotating strikes.

Now, remember: the union only represents a tiny portion of the labor force. This isn’t a cataclysmic event. It’s a tiny blip on the company’s radar. This is where things get interesting, though.

The biz dev people are in a unique position. Not only do they control all of management’s important partnership discussions, they also happen to be in charge of almost all international business for the company: hiring foreign interns, encouraging international buyers, helping expat employees relocate their families, and even recruiting overseas temps to fill company openings.

So now management can’t pursue some of the most important pieces of its agenda, important product segments aren’t getting enough business, departments are worried about filling their internships, and employees are getting to be very upset that they can’t be with their families.

This is the government of Canada right now.

The biz dev people are diplomats, management are politicians, the financial troubles are the global financial crisis, the shareholders are voters, and “biz dev’s” assortment of jobs includes all international political travel, treaty negotiations, and visa processing for students, immigrants, families, and temporary foreign workers.

Of course, even though this is a true story about one government, the scenario will be familiar to many others, and the lessons ultimately apply to businesses of all sizes, worldwide.

Basically, about 1,500 Canadian foreign affairs workers are upset that their colleagues in other internationally-oriented government departments (think Environment, Fisheries, Industry, Defence, etc.) are paid more than them. They want a 1.5% pay increase over the next few years. It’s a few million dollars in a 12-figure budget.

Since the government won’t accommodate it, the resulting foreign officer strike has effectively crippled much of the important business for the government of one of the world’s largest economies.

Now, I’m not saying the diplomats are right to call a strike. And I’m not saying that management should make compensation concessions when workers manage to embarrass them.

But when some of management’s top priorities (in this case post-secondary education, tourism revenue, and foreign affairs) are being ground to a halt over a tiny drop in the budget bucket, it’s time to reconsider.

Labor disputes are an interruption for HR, a pain for management, and a distraction for everyone. In a unionized environment, they’re also inevitable. The priority shouldn’t be “winning” the contract negotiation. It should be getting everyone back to work. Ultimately, employee performance is what really affects your bottom line.

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