Workers Rolling the Dice
Greg Blankinship seems a world apart from the computer whiz kids who have become the icons of the New Economy. He works in a factory that stretches across 100 acres of rural Georgia and makes soap powder.
But when he and co-workers discovered that the air compressors they run for consumer products giant Unilever were devouring too much electricity, they jumped on the problem with all the enterprising zeal of software wizards on the trail of a programming glitch.
And for much the same reason: money. Savings from their effort went into quarterly “goal-sharing” payments that accounted for more than 12% of the plant workers’ pay, or almost $5,000 a person, last year.
“When I figure something out, I like to get paid,” said Blankinship, a 36-year-old former Army sergeant who has worked at the plant for nearly a decade.
Though Silicon Valley may have garnered most of the attention for economic creativity and risk-taking, the era’s most remarkable transformation may be occurring in places like Cartersville and among workers like Blankinship. Suddenly, everyone is an entrepreneur.
In hundreds of ways, Americans right down to the factory floor are embracing the ethos of the pluck-and-luck society and taking on risks that would have been inconceivable to most of them even a generation ago.
“People aren’t coming to work as factory workers, but business owners,” said Unilever plant manager Michael Stipicevic. “They’re saying, ‘This is my machine, my plant.’ ”
“Increasingly it’s the employees, not the employers, who are the real capitalists,” said Steven A. Sass, an economist with the Federal Reserve Bank of Boston. “They’re the ones who’ve made the big investment--in their skills--and are taking the big risks.”
Some of the flashier manifestations of the new, make-it-on-your-own outlook--like the rapid rise of business start-ups and the wildfire spread of stock ownership--have already prompted talk of what one think-tank commentator recently labeled “history’s first mass class of worker capitalists.”
Business incorporations are up 22% during the decade to more than 750,000 this year, according to Dun & Bradstreet, the business data firm. Almost one in every two American households owns stock or mutual funds, more than twice that of only 15 years ago, according to a new financial industry study.
But the truest measure of how thoroughly the new entrepreneurialism has permeated the nation may be the changing ways in which people like Blankinship are being paid for their work.
For generations, most working people sought a fixed wage, predictable raises, health benefits and a company pension. But increasingly such stable arrangements are giving way to ones that are more flexible, less certain, often riskier and sometimes more rewarding: in short, more entrepreneurial.
* Instead of straight wages, workers are agreeing to be paid in ways that vary with their performance or their company’s. Almost two-thirds of 2,800 companies surveyed annually by the American Compensation Assn.--a veritable Who’s Who of corporate America--use bonuses, incentives and goal-sharing arrangements to adjust what some or all of their workers make depending on performance. That’s up dramatically from the start of the decade, when less than 15% relied on such schemes.
* Instead of avoiding business risk, many people are embracing it by accepting various forms of company stock as part of compensation. Fully one-third of firms recently surveyed by the Federal Reserve offer stock options--the right to buy shares at a fixed price--to at least some employees below executive rank. Private surveys indicate the number could be even higher.
* Instead of relying on employers to offer and manage their retirement benefits, millions are taking on the task themselves. Individuals, rather than employers, now make the basic investment decisions--and bear the investment risks--for almost half the nation’s non-Social Security retirement savings, up from a little more than one-third 15 years ago.
To be sure, the most lucrative opportunities still go to those on top. Stock options and bonus packages have helped drive CEO pay at 365 of the nation’s biggest companies up a staggering 442% during the decade to a 1998 average of $10.6 million, according to a recent Business Week survey.
Nevertheless, the evidence that “take-a-shot” pay practices have escaped the narrow orbit of Silicon Valley and the executive suite is growing. So are the signs that such arrangements are being snapped up by ordinary Americans with increasing regularity.
Mystery of Wage Slowdown Explained
A recent Federal Reserve study concluded that the use of options and bonuses has grown so extensive it helps explain one of the great economic mysteries of the decade: why regular wages haven’t exploded in the face of unemployment at a 29-year low.
Government statistics don’t fully capture these kinds of pay, according to the study, and so make it appear that wages are growing more slowly than they may in fact be. Including the value of options alone, the authors estimated, could boost what the average worker made last year $659.
Private-sector studies reach even more striking conclusions. By now, almost 40% of large American companies issue stock options to half or more of their employees, according to a study by the consulting firm of William M. Mercer Inc. For the 500 companies in the Standard & Poor’s stock index, a recent Deutsche Bank study found, the market value of vested, unexercised options totaled more than half a trillion dollars at mid-year, or the equivalent of $17,000 a worker at the 500 companies.
“We’re seeing tremendous growth in variable pay in the form of bonuses and incentives, a large increase in the use of across-the-board options and a very dramatic broadening in employer-sponsored stock purchase plans,” said Dallas Salisbury, executive director of the Washington-based Employee Benefit Research Institute.
“People are so confident the ball is going to keep rolling,” Salisbury said, “they’re treating these payments as if they are as certain as fixed wages.”
Nowhere is that confidence greater or entrepreneurial pay practices more widely embraced than in Silicon Valley.
Indeed, stock options and grants have become a sort of New Economy badge of honor among high-tech companies and their workers. Valley insiders such as Matt Ward, chief executive of San Francisco-based Westward Pay Strategies, a leading tech industry compensation consultant, divide the world into firms that use options as part of their pay (“growthcos”) and those that do not (“stodgecos”) and dismiss the latter as doomed to fail.
“They don’t have the mentality to understand stock-driven compensation,” Ward said. “They offer excessive benefits, and their pensions are rampant.”
Perhaps. But consider the following firms, which would seem to fall into Ward’s “stodgeco” category, but definitely do not.
Diesel-engine maker Cummins Engine Co. Inc. of Columbus, Ind., is 80 years old and by many measures a paragon of the Old Economy. But even its $30,000-a-year assembly line workers are paid in ways that vary 10% or more depending on how they, their plant and the company do, according to Jean Blackwell, the company’s human resources vice president.
Northwest Natural Gas is Oregon’s major gas distributor and a member of what was, until recently, the nation’s sleepy energy utility industry. But the lowest-paid hourly workers have 5% of their pay riding on how they and the company do, said compensation manager Philip J. Griffin. In the case of mid-level managers, that share goes up to almost 25%.
Fifty-year-old Lifetouch Inc. of Minneapolis is a leader in school photography and church directory publishing--a pair of businesses few consider cutting edge. But it partially pays even its part-timers in stock, according to human resources director Ronald D. Lindberg.
At Unilever’s Cartersville plant, it was fear--the opposite of “stodgeco” complacency--that persuaded workers to accept a goal-sharing pay plan two years ago. The powdered versions of Wisk, All and Surf that the plant produces were losing market share to liquid detergents, and workers figured the best way to protect their jobs was to operate more efficiently.
As hoped, the scheme produced a torrent of cost-savings and money-making ideas, including Blankinship’s. He and a group of co-workers concluded that the plant’s three power-hungry compressors could be run at lower settings and still produce the air pulses needed to open and shut valves and clear filters. The result: One of the compressors was turned off, saving $75,000 a year in energy costs. Half the first-year savings went to plant workers as goal-sharing payments.
Sea Change in Worker Attitudes
But goal-sharing produced some unexpected effects as well. Having gotten a taste of a direct connection between their effort and a payoff, some workers are thinking of striking off on their own. “I’d like to run my own business,” said Ella J. Iott, a chemical engineer and the plant’s safety manager. Iott is training to be a certified safety consultant and also thinks of opening a quilt shop.
Having seen how much their idea saved the company, other workers are pushing to put a larger portion of their pay at risk--the limit is 15%--in return for a shot at a larger reward.
“If I save you $1 million this year, I’m [also] saving you a million next year and the year after that, but I only get paid once. I don’t like that,” Blankinship said. “I don’t think it should be limited.”
The rewards of no-limits pay have become increasingly apparent as the economic expansion of the decade has proceeded. Options, bonuses, incentives and stock have improved the living standards and heightened the cockiness of millions of Americans, many in California. State finance officials estimate that stock option cash-ins alone accounted for almost 3% of the state’s personal income in 1998 or about $25 billion.
Much less apparent have been the new risks that Americans are bearing as they forsake their old social compacts with employers--a comfortable living in return for a career of loyalty--for new, entrepreneurial arrangements.
That’s because the economy and the stock market have done so spectacularly well that they have masked many of the risks. It is also because the experts who are pushing the new arrangements have played down their dangers.
As the boom has continued and consumers have purchased with growing abandon, workers have found it increasingly easy to hit the targets needed to collect their bonuses and goal-sharing payments. And for those worried about what would happen if the growth stops, economists such as Harvard’s Martin Weitzman argue that giving companies the right to cut pay in downturns is good for workers because it means that fewer are likely to be laid off.
The Cartersville workers’ early experience with goal-sharing fit the pattern. With business improving and savings rolling in, they saw goal-sharing payments jump from $3,800 a worker in 1997 to $4,900 last year.
But things have not gone quite as well since. Because of missed targets, plant management expects payments for this year to fall to as low as $4,000 a worker. And a bigger danger lurks around the corner: running out of cost-saving improvements needed to earn the payments.
“There’s only so much blood you can squeeze from a turnip,” said Larry Grescoviak, human resources director at coffee-urn maker West Bend Corp. in Racine, Wis.
The new pension arrangements may be even more vulnerable to setbacks than the variable pay schemes.
The rise of self-directed retirement plans such as 401(k)s at the expense of more traditional company-controlled pensions has come in an era of sustained growth. It has been accompanied by a significant decline in employer contributions to all types of plans (down 15% after inflation since the mid-1980s) and a big jump in stock investment of retirement money (up from less than one-third in the mid-1980s to well over half last year.)
As a result, a major market tumble could substantially shrink what millions of Americans have set aside for retirement. “This is not your parents’ retirement system,” said Sass, the Boston Fed economist. “The risks are very different and much more beyond your control.”
How far beyond awaits the next recession. Only then will it become clear whether the go-for-it pay plans and make-your-own-way pensions represent passing fads or fundamental changes in the way the nation works.
“It’s easy to make change when things are going well,” said Michael Leone, a Cartersville manager. “We’ve yet to really experience a downturn at this plant.”
Neither have most of America’s new entrepreneurs.
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Middle Americans as Entrepreneurs
For generations, most working people sought security in fixed wages, predictable raises, health benefits and a company-managed pension. But in growing numbers, workers down to the factory floor are looking like the risk-taking entrepreneurs of Silicon Valley.
