No Gain, Know Pain

As corporate America carves more profit out of fewer employees, it relies on managers like Jaime Moncayo and Sean Reeves.

Thanks to new technology, the two supervisors at the Simi Valley customer service center of mortgage lender Countrywide Financial Corp. can, in effect, stare over the shoulders of their team members all day long.

Moncayo and Reeves know who is on track to answer the daily minimum of 68 calls and who is going to miss the quota of eight referrals to the sales department. If someone’s lagging, they encourage. If someone’s leading, they congratulate and reward.

At the end of every day, Moncayo passes out play money. The rep who answered the most calls gets $2. So does the one who made the most referrals. The dollars are redeemable for such trinkets as candy and candles.

A few aisles away, Reeves promises pizza if his 13 reps score more referrals than another team.

The cash the supervisors are spending is their own. And why not? They have their incentives: as much as $350 a month in bonuses.

By melding computer advances, updated management techniques and the sort of immediate reinforcement most people haven’t seen since kindergarten, Countrywide is a model of how American companies are boosting worker productivity.

As falling interest rates unleashed a massive demand for refinancings, Countrywide became more efficient. The Calabasas-based firm, one of the nation’s largest mortgage lenders, made 165 loans per employee last year, up from fewer than 100 five years ago. A 2-year-old program to seek out productivity improvements has yielded $200 million in savings, according to internal audits.

Among the other benefits: a near-tripling of earnings in 2003 and a stock price that doubled. The most determined and successful employees can share in the profit, with top sales agents earning six-figure incomes.

But the hard work comes at a price, and the company’s relentless efforts to cut costs hang over just about every worker.

Sales agents in Countrywide’s Rosemead office are suing the company, saying they regularly put in overtime without pay. Other Countrywide workers in California have been warned that their jobs are likely to be transferred to states with laws less favorable to employees.

Countrywide also is accelerating plans to move operations offshore. By the end of next year, it will have 250 employees at a call center in India, each of whom will represent a savings of $35,000 over a U.S. worker.

Multiply Countrywide’s example by thousands of hungry companies, and an explanation emerges for the nation’s tremendous productivity gains in the last two years -- as well as the toll on workers.

Employee productivity rose 4.2% in 2003, a jump Federal Reserve Chairman Alan Greenspan labeled “stunning.” That was on top of a 4.9% gain in 2002. Together they marked the best back-to-back growth in worker output in five decades. The gains stoked corporate profits, which rose 10.3% in the second quarter of 2003 and 9.9% in the third.

Yet average wages barely budged. Many workers say they’re pushed to put in additional hours without proper compensation. Some are retaliating in court.

In 2002, Starbucks Corp. agreed to pay $18 million and RadioShack Corp. said it would pay $29.9 million to settle overtime cases. T-Mobile USA Inc. said in November that it would pay $4.8 million as the result of a similar action. Last month, the closeout retailer Big Lots Ltd. said it would pay $10 million to settle claims.

The number of such overtime cases has nearly tripled over the last five years, to the point where they exceed employment discrimination cases.

Craig Strah, a former sales agent in Countrywide’s Rosemead office, wrote in a court declaration that “in order to meet production demands and pressures,” he usually worked “at least 10 hours per day, five days per week without any meal breaks. Approximately three times per month, I worked an additional nine-hour day without any meal breaks.”

Countrywide maintains that its sales agents are exempt from overtime laws because they are management. It is attempting to get the case dismissed. A trial is scheduled for September in Los Angeles County Superior Court.

Linda Dardarian, a lawyer with Goldstein, Demchak in Oakland who is representing the agents, said it was an increasingly common tactic to give rank-and-file workers fancy titles to lull them into thinking they were executives and thus not entitled to overtime.

“It’s a way to get more juice from the orange,” Dardarian said. “Companies are squeezing every drop they can.”

Although declining to discuss the specifics of the suit, Countrywide executives emphasized that there was no place for slackers to hide at the 34,000-employee company. Technology would root them out.

Countrywide’s 800 customer service reps, for example, are so closely tracked by computers that they generate a constant stream of data, which is analyzed and then used to upgrade their performance.

“We can reach down from the executive level to see that Billie Sue isn’t cutting it,” said Steve Bailey, Countrywide’s chief operations officer. “A poor performer can be more easily trapped and dealt with and trained or moved out. We pay for performance now.”

That training is often done by managers who have themselves been trained by a 70-person productivity department. Such departments have become standard at many companies. Bank of America Corp. has a “quality and productivity” unit; Washington Mutual Inc. has a technology solutions group.

Countrywide’s performance management group has trained a thousand midlevel managers in the last two years. Participation is voluntary, although some divisions now require attendance before a manager can be promoted.

The growing use of these techniques at service companies such as Countrywide is notable, because they have traditionally lagged behind other industries in productivity gains. Unlike factories, firms that deal directly with the consumer must depend on human beings, who tend to be a lot less malleable than a piece of equipment.

Countrywide executives say they are mindful of this distinction. “It’s more complicated than turning up the dial on a machine. People are not machines,” said John Ardy, the executive in charge of the performance management group.

Still, he calls Countrywide “a people factory” and says his work is made easier by the way there always has been “a sense of the factory floor” about the company. From its founding in 1969, the company has prided itself on using technology to seize market share. Agents talk about “manufacturing” a home loan.

Productivity improvements aren’t necessarily about going faster. One program tried to figure out why some of the salespeople in the Plano, Texas, office ended the day with more completed mortgage applications than others.

In analyzing the top 18 agents, the productivity experts discovered they actually proceeded more slowly than their colleagues. These agents talked longer with would-be borrowers, explaining the nature of the different loan packages, trying to find one that fit. Prospective customers were less likely to be confused or disappointed at the end of the call, and bail out.

After retraining, the number of completed applications rose an average of 14%, above the target.

Not all productivity enhancements result from big projects. Some steps are very simple: Give constant feedback. Make productivity into a game. Offer immediate rewards.

Just as electricity keeps a factory running, the Simi Valley customer service room runs on recognition. It’s practically instantaneous. It’s transparent too in the sense that everyone in the call center knows how everyone else is doing. There are so many balloons in the huge windowless office that it has the aura of a children’s birthday party. “Way to Go!” they exhort, and “Congratulations!”

“We spend quite a few thousand a month on Mylar balloons,” said Terry Tracy, first vice president of customer contact. “Every balloon means something.”

So do the awards. Some reps have so many of the paper proclamations that they’re running out of places to post them in their cubicles. Adrienne Teems has one Spotlight, two People’s Choice and nine Walk of Fame awards. Golden balloons in the shape of dollar signs float languidly overhead.

Two-thirds of the people who contact Countrywide each month do so online or through automated phone systems. That still leaves 900,000 callers who want a live human being.

Answering phones for Countrywide is “a hard job,” acknowledged Victoria Kelly, who runs the Simi Valley center.

And getting harder. The minimum number of calls to which the reps are supposed to respond each day has risen from 55 last summer to 62 in the fall to the current 68.

No wonder, Kelly said, “we try to keep it light and fun.”

Fun, in fact, is institutionalized. Everyone has pompoms on their desks, which they shake at celebratory moments. The workers get to vote on what clothes their supervisors wear. They recently competed to see who was best at rolling a frozen Cornish game hen down the aisles.

Not all employees have been having such a jolly time.

The lawsuit by three agents in the Rosemead office has mushroomed into a class-action case that includes 400 past and current agents in that call center.

The suit gives examples of e-mail messages from Rosemead managers: “If you want to make it here ... put in lots of extra hours.” Another says: “Work your tails off. That means 10 hour plus days.”

One reason for the heavy workload was the tremendous refinancing boom. But Countrywide wasn’t just keeping up with the competition; it was gobbling up more market share. It now makes one out of eight home loans in the country, and is gaining on leaders Wells Fargo & Co. and Washington Mutual. Countrywide’s goal: one in four.

Marlene Veal, a former Rosemead agent, says she worked as hard as she could, missing years of watching her children grow up. “In order to meet production demands and pressures, I worked approximately 50 to 55 hours per week,” Veal said in a court declaration. On the instructions of management, she regularly worked through lunch, eating the Chinese food or pizza the company supplied.

This was called a “lunch-in.” On lunch-in days, sales agents said they needed special permission to leave the office. According to court papers filed last June, lunch-ins were ordered nearly every day from 2000 to 2003, with the exception of a few months.

Veal, who now works in a Countrywide branch office in San Dimas, said she took off three months in late 1999 for stress-induced depression stemming from her job.

Another Countrywide employee said Rosemead management viewed agents in purely utilitarian terms.

“It’s like using a desk,” said the employee, who asked not to be named because the company has recently warned workers against talking to the press. “When the desk isn’t good anymore, they get a new desk. And when the human isn’t good anymore, they get a new human.”

Agents who have worked in Rosemead said every completed loan earned them a credit of about $100 to $150. But “dings” would subtract from that fee.

A ding was an infraction of the rules. “Not reading a wrap-up script verbatim, that was a ding,” the agent said. “There was an actual chart of dings -- they cost anywhere from an eighth of a credit up to a whole credit. People viewed the dings with resentment, as the company trying to chip away at what they made.”

One way to get dinged was to close fewer loans than your colleagues. It was yet another way the company kept up the pressure.

If a Rosemead worker could avoid too many dings, and keep up with the rising pace of work, he or she could make more than $100,000. But the hours were so long that it was like working two jobs.

“Weren’t computers supposed to allow us to work less?” asked the agent, who said he was now much happier in a Countrywide branch office. “Instead, they’re being used to make us work harder.”

A Countrywide spokeswoman, noting the company was “vigorously defending this case,” said the company was lobbying to have the national overtime laws changed. Advocates for labor say the proposed revisions will greatly reduce overtime protection.

When productivity levels first rose in the late ‘90s, economists attributed it to the hundreds of billions that had been invested in technology. But when they increased again in 2002 and 2003, some moved beyond amazement into disbelief.

“Something looks fishy,” Richard Freeman, director of the Labor Studies Program at the National Bureau of Economic Research, said after the third-quarter 2003 rate jumped 9.5%. It was the second-highest quarter since 1971.

“Maybe white-collar workers are being squeezed,” Freeman said. “Maybe their hours are being understated.”

Other economists wonder whether the sharp rise in productivity is sparked not so much by new technology as new attitudes. Corporate America lost its last shreds of paternalism in the 1990s and introduced something more ferocious, they say.

According to this theory, competition for market share was intense, so companies couldn’t raise prices. The only alternative was to cut costs. Bonus plans tied to performance became widespread.

“These incentives caused executives and lower-level managers to take risks, to work harder and to engage in the unpleasant personnel tasks associated with reorganization and staff reductions,” Martin Feldstein, the president of the National Bureau of Economic Research, wrote in a paper he delivered last year.

These “unpleasant personnel tasks” can sometimes encompass uprooting entire divisions. In an August interview with CNBC, Countrywide Chief Executive Angelo Mozilo complained about the high cost of doing business in California.

“Anything over eight hours a day, you have to pay overtime, even though it’s less than 40 hours a week,” Mozilo said.

Fewer than half of Countrywide’s employees remain in California. “Because we have to remain competitive, we continue to move them out of the state, principally into Texas and Arizona,” Mozilo said.

But Texas is not entirely problem-free for Countrywide. The company is facing two suits in federal court in Dallas for alleged overtime violations. Attorney Caryl Boies of Boies, Schiller & Flexner, who is representing both groups of plaintiffs, declined to comment. So did Countrywide.

Perhaps this is why the company is looking farther afield and planning to rapidly expand its staff in India. Mozilo made clear in comments a month ago to the Mortgage Bankers Assn. that offshoring “will be a very important factor” in Countrywide’s continued efforts to lower costs.

One of the agents represented in the California suit acknowledged that any victory in the courts might come at a great cost.

“The price we pay,” he said, “is to potentially lose our jobs.”