The current strike by the Vons employees has sparked many great conversations of late. At first blush the striking employees seem to want some very obvious, and understandable benefits. Ostensibly, the strike is about health benefits. But that is really only part of the story.
The bigger part of the story, though quite hidden, and never to be discussed by union representatives, is the fact that the union is in serious risk of dying. In fact, many unions are in serious trouble. No intelligent employer ever wants a union in their shop, and lately, fewer and fewer employees want to be in the union.
That’s because as the pool of employees becomes more intelligent, they are less likely to want to be in a collective bargaining agreement. The benefits of collective bargaining have rarely been clear, and frequently the only ones who really benefit are the union leaders.
Why should an employee who has better skills or talent be limited in their compensation to what someone else can negotiate? Alternatively, why should an employee who is of lesser value and talent be paid the same as one who is better suited to the particular task? Actually that sounds much more like communism to me, and we know how well that worked — even the Chinese are abandoning it, in their own unique Chinese way.
There was a time in America when unions had a role, and a good one at that. And likely, in some industries, they still have a minor role, but I’d be hard pressed to find one industry that has actually benefited from unions in the past 20 years. Certainly, in the beginning of the last century there was a role for them in the protection of the worker. There were many abuses in terms of wages, hours, treatment and working conditions in the steel mills, coal mines and automobile factories. The unions caused many of the necessary improvements, and the value of that is not to be minimized. However, the future of many of those industries has been jeopardized as a result of current union overreaching.
Therefore, the question is, what good do they do now? In today’s world the types and number of abuses seen 100 years ago would not be tolerated by the most docile of employees, (well except for the illegal immigrants who are so vilified these days, but no one seems to care about them.) I realize I’m writing about unions in what is essentially a union town. Whether we call them guilds, or unions, it is the same thing really. The point is, that in a town where talent is the currency of the business, why does it so often go unrecognized and how do we fix that?
The answer is that talent can get trapped in golden handcuffs. That term usually means the way in which a company ties an employee down and keeps them working for the company, and not the competition. It is frequently done in the form of stock options, pension plans, perks and deferred compensation. It is the bait that companies use to keep key personnel and assure performance for the stockholders.
So what does a cashier in Vons have in common with a wall street CEO? The pension plan. The ultimate in golden handcuffs. Don’t get me wrong, the CEO has a much fatter and more lucrative pension plan, and he or she gets to play with it a great deal more, but the effect is the same.
It all depends on what is called “vesting.” When an employee contributes money to a pension plan, the company usually matches it, either dollar for dollar or by some other formula. The employees’ money is always theirs. They get to take that with them should they leave the company, but the company’s contribution — the money they put in — is not guaranteed to the employee until they have worked for the company for a certain amount of years. Until the employee has worked all those years, the contributions are not vested, meaning if the employee leaves the company, for any reason, the company gets its money back. By the way, this is where the corporate raiders make a lot of their profits when they buy a company, and fire the newly hired employees. All the money that was tied up in unvested employee retirements comes back to the company coffers and suddenly the company is much richer.
After an employee has worked the required amount of years to reach the “fully vested” point, it means that the pension money the company has contributed, is now the employee’s, and it would go with him if they he was to leave the company.
This applies to the union workers who have worked for years and contributed to their union pension funds. If they leave their unions too early, they will lose their benefits. Of course, what happens to them is that they are now artificially kept subservient and in place. A union member who has worked his way into being qualified or vested, has usually acquired more than enough skill, knowledge, and experience to easily move into a management position or to take the next logical career move. But usually that next logical career move would mean changing unions or guilds, and that means starting over in a new pension fund.
From an economic standpoint, the unions need a percentage of their members to not qualify for their pensions. It is those contributions that are the profit in the union pensions. It is the slush that allows the contributions of the others to be kept lower. Because the leaders know that a certain percentage of people will either quit their jobs, lose their jobs and not keep their union status, or fail to qualify for some other reason, they can keep the contributions low. It is just like the health and life insurance industries. They spread the total amount needed over a larger population, a population that they know will not all receive the benefits, and that allows the contributions to stay low.
In the movie industry this works to keep people from leaving below the line jobs, into above the line positions based on their skills and knowledge. Those who could contribute more and achieve greater success, are wont to leave the decades of contributions and start over, so they stay where they are.
In today’s employee driven marketplace, the future of unions is bleak. This is only the opening volleys in what will soon become an all out battle for the survival of the unions. The topic may be health benefits, but the underlying subtext for the union leaders is where is the pension money going to come from?
It’s in the golden handcuffs they use to keep their unions alive. (David Pisarra is a partner in the Santa Monica law firm of Pisarra & Grist, he welcomes questions, and (310) 664-9969 or e-mailed at DPISAR-).
Originally published in the Santa Monica Daily Press print edition on November 4, 2003. Read the original PDF.