A Tip for Joe the Machinist: Watch Your Back

A Labor Day reflection: Corporate America no longer even pays lip service to the importance of encouraging hard work and skill.

You work hard. You do good work. You loyally stick with your employer through good times and bad. Do you have a right to a paycheck that rises over time?

On any Labor Day over the last 50 years, the answer -- from labor and management alike -- would be obvious: Of course!

But that answer doesn't seem to hold any more. Earlier this year, a trio of top business consultants openly challenged the notion that good employees doing valuable work deserve to see their paychecks steadily increase. This past July, the Harvard Business School circulated their challenge throughout corporate America's upper echelons.

This remarkably brazen assault on core American workplace values originated at Booz & Co., one of the nation's most prestigious corporate consulting firms. America's corporations, Booz analysts advised earlier this year, need to start attacking the "exorbitant" paychecks now going to their most prized, "steady and reliable" veteran workers.

The Booz analysts offer an example of the "significantly overpaid" worker they have in mind. They call him Joe the machinist, "a stellar employee who knows the ins and outs of the organization, the result of his many years on the job."

Joe's "wealth of institutional knowledge" has become a valued corporate asset. But Joe, after over two decades on the job, is making a lot more than he used to make, especially "compared with co-workers who have been doing the same job for just two years."

Corporate America, the Booz & Co. advice continues, now needs to "address these kinds of wage disparities." Companies need to start "retooling labor costs" to narrow "the gap between high wages and market value."

This retooling, the Booz analysts gush, could net U.S. corporations "labor savings of 15 to 20 percent." Of course, the analysts acknowledge, Joe the machinist "might have to take pay cuts" along the way.

But what a payoff these pay cuts would produce! Firms that seriously retool, the Booz consultants promise, "will end up with larger and more sustainable improvements in their [profit] margins."

Some business leaders are already cheering the Booz analysis.

"We infantilize workers like Joe," a former Bank of America executive charges at a Harvard Business School online discussion site, "by insulating them from the harsh economic realities by paying above market wages."

Corporate America, in fact, has been doing precious little "insulating" over recent years. Corporations have been depressing wages to fatten profit margins for decades now, and the pace of that depressing has only accelerated since the Great Recession hit, as new research from Northeastern University's Center for Labor Market Studies details.

Corporate profits from mid-2009 through 2011's first quarter, this research notes, increased 39.6 percent. Over that same span, typical full-time U.S. workers have watched their paychecks drop 1 percent.

The Booz analysts want America's Joe the machinists to swallow ever lower paychecks to help their U.S. corporate employers "keep up with intense competition" from elsewhere in the world. Yet they demand no similar sacrifice from U.S. corporate executives.

That makes no sense, particularly for analysts who are arguing we must "narrow the gap" between exorbitant pay and actual "market value." U.S. CEOs currently take home far more than the global "market" rate for executive talent.

CEOs at companies with over $10 billion in annual revenue, The Wall Street Journal reported back in 2008, make twice as much in the United States as they do in Europe -- and nine times more in the United States than they do in Japan.

Corporate America, in other words, needs some serious "labor cost retooling" at the top -- before gutting pay for its most experienced and skilled workers at the bottom.

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This column was distributed by OtherWords.