The trade union Solidarity — which predicted this week that 310 000 people could lose their jobs because of retrenchment as a result of economic slowdown — has suggested ‘social contracts” between employees, companies and shareholders as a way of minimising the impact of job cuts.
The proposal makes sense in the context of South Africa’s unique job market, in which the average income-earner supports between eight and 10 people and a quarter of the adult population is already jobless.
To offset the potentially devastating knock-on effects of retrenchments, Solidarity suggests ‘social contracts” in which workers and managers would agree to wage cuts rather than retrenchments, as a temporary measure, which would be reversed once economic conditions stabilised.
In addition, forfeited wages could be restored to workers in better times.
Rather than cutting 1 000 jobs, for example, all those employed in a company could opt to accept a 10% salary cut.
As an alternative, employees could agree to no wage increases, which at current inflation rates would effectively amount to a 12% cut in pay.
To ensure perceptions of fairness, cuts would take place at all levels, from the CEO downwards, while shareholders would agree to a similar cut in dividends.
Although lower dividends would have a negative impact on share prices and investment, Solidarity points out, a substantial rise in unemployment and poverty will also scare foreign investors.
Highly skilled workers who know their jobs are not at risk would also need to accept such an arrangement because it makes sense for the economy.
Some companies abroad are already going this route. Employees at a London law firm, for example recently took a 10% wage cut rather than see colleagues lose their jobs.
Observers point out that American unions refused to accept wage cuts during the Great Depression, and that in consequence, companies retrenched en masse.
In an interview, Solidarity’s deputy general secretary, Dirk Hermann, said pay cuts were an option the union might consider. However, it would first have to be convinced that the decision was made for the right reasons.
‘The company must be in survival mode; the aim must be to survive and not just keep dividends high for shareholders,” said Hermann, adding that the union would first work with the company and employees to explore alternative cost-cutting measures.
Solidarity has already started internal discussions with an eye to putting a proposal to the mining industry in order to save jobs.
Hermann said the idea would be to place wages forgone by workers in ‘a virtual trust”, so that they could be repaid once commodity prices recover, and before dividends and bonuses were paid.
He said this would be, in effect a loan by employees to the company to ensure its survival and to secure employment.
Solidarity had not yet raised the idea with companies, as most retrenchment notices have been issued in the past two or three weeks and consultation takes up to 90 days.
The union would first establish the financial performance of the company to ascertain whether the retrenchments are for motives of survival or to maintain profits.
‘Everyone must realise we are in a survival mode and shareholders must also share the pain,” Hermann said.
Shaun Oelschig, general secretary of financial services union Sasbo, said the banking sector is not yet considering retrenchments, as the banks remain reasonably profitable.
However, the sector has applied job freezes and is not replacing staff.
But Oelschig added: ‘If it gets to a dire situation and members are facing having no job, we would look at the idea [of pay cuts].”
Such an option would only be accepted by employees facing the reality of retrenchments and members would need to be polled on the proposal.