The Economy

An Eroding Compact?

The slumping economy has accelerated the deterioration of the traditional employer-employee relationship.
Scott LeibsOctober 1, 2011

In his speech on jobs last month, President Obama pointed to a decades-long erosion of the “compact” between American workers, their companies, and, more implicitly, Washington. That compact, as he described it, amounted to employees being rewarded for hard work and loyalty with “a decent salary and good benefits [and] maybe a raise once in a while.”

It was an effective way to tee up his proposals to jump-start the economy, but he didn’t dwell too long on the idea that a once-robust compact has badly eroded, for two reasons: because it’s true, and thus unsuited for a rally-together speech, and because no federal program — or economic recovery, for that matter — is likely to restore it.

This is an issue for CFOs because, while they are not to blame for the erosion of that compact, they are very much involved in the changing nature of the employer-employee relationship. Charged with driving shareholder value, and able (most would say “required”) to leverage an expanding array of outsourcing, automation, and related efficiency options, CFOs have led the charge to “do more with less.” The recession simply fueled a process that has long been underway, and while a reviving economy will no doubt produce more jobs, it’s a very open question as to where the unemployment rate will settle. In our recent surveys of CFOs, a sizable percentage say their companies will never again employ as many people as they once did.

That may be why the President was quick to cite corporate tax breaks, patent reform, and other business-friendly ideas first in his litany of job-creation proposals. It was an honest attempt to foster job creation while keeping U.S. companies competitive. And yet, even if an improbable wave of bipartisanship leads to most of the American Jobs Act winning approval, however, and even if that, in turn, matches the rosiest of predictions for its impact, the employer-employee compact has been inexorably altered. If the world is now flat, has that inevitably forced certain expectations to be brought down to earth?

Should CFOs factor any notion of a “compact” into their decision-making? I would love to know what you think. Please drop me a note at [email protected].

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