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Are Top Employees Assets?

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Are Top Employees Assets? How firms treat their staff, particularly their best performers, in difficult times tells a lot about the value that they place upon them. Are top employees treated as important assets to be retained in anticipation of the next business upturn? Or, are they liabilities to be cut as a short-term cost-reduction measure? The answer also will indicate whether the firm is managed with a focus on long-term strategy or on short-term tactics.

Case Study #1: On November 17, 2008, The New York Times business section ran an article entitled "Jettisoning Top Talent to Cut Costs." The author, David Carr, wrote about Circuit City's decision in March 2007 to respond to declining sales and increased competition by laying off its most experienced and effective sales people in a drive to dump high-salaried staff. Now the company is bankrupt, largely because the resulting decline in the quality of customer service drove away yet more customers. Treating the best employees as liabilities rather than assets also killed morale among the remaining staff.

Case Study #2: As a consultant at Touche Ross (now Deloitte) in the late 1980s, I worked under an up or out policy. That is, if you did not advance up through the ranks (consultant to senior consultant to manager to partner) at a prescribed pace, you would be fired (or "counselled out," as the firm preferred to say) whenever the partners felt that you were unlikely ever to rise to join their ranks. Sometimes new hires were dismissed within days of their start if they made a major misstep right out of the blocks, or if the partners just did not like them after seeing them on the job.

For me, the harsh policy at Touche seemed to be a refreshing contrast to my previous employer, AT&T, where eager and ambitious young employees were hemmed in by the company's sluggish, bureaucratic ways. Promotion at AT&T was closely linked to seniority, and there were numerous disconnects between performance and reward. By contrast, the up-or-out system at Touche Ross seemed to promise advancement that was more closely tied to achievement and personal potential. What I found once at Touche Ross was that, to a large degree, up-or-out was used as a means to burn out staff members and replace them with lower-paid new hires. That Touche was a partnership had much to do with this, since the partners' take was directly related to the practice's profit. They had a financial incentive to keep turnover high, as a means to depress employee compensation.

Case Study #3: After years of deep job cuts, in 2012 UBS became especially notorious for locking out employees in London, deactivating their keycards without the courtesy of informing them in advance that their positions had been eliminated. These employees showed up for work one day, and found that they could not enter the building.

Lessons: How did Touche Ross avoid the fate of Circuit City? The partners at Touche had an almost limitless pool of eager young MBAs to draw upon, who would discharge their duties with sufficient competence that the loss of more experienced hands would be less problematic. These days, the leading public accounting firms make a big deal about their employee retention and satisfaction programs. Maybe this is indeed real, at least on the audit side. Maybe there has been a genuine change of attitude in this sector. Or maybe it's just public relations. Potential employees should be aware of this.

Regarding UBS, the lockout episode has gotten much play in the business press. How much it damages the firm's reputation in the long run, and whether the UBS management really cares, is yet to be seen.

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