Last fortnight, The Hartford Financial Services Group --America's seventh largest insurer -- decided to take steps to protect itself from the surge of asbestos litigation swamping the insurance industry in the US.
Girding itself against a potential barrage of claims for asbestos-related illnesses and deaths, the company announced on May 12, 2003 that it is nearly tripling its capital reserves to $5.96 billion.
Taking a massive hit of a $1.39-billion loss in the first quarter of 2003 due to the contingency fund, The Hartford also announced a huge layoff to cut operational costs. The company slashed 5 per cent of its workforce -- about 1,500 Hartford employees lost their jobs on a single day.
The top management, led by Ramani Ayer, The Hartford's chairman and CEO, gathered thousands of employees at the company's headquarters in Hartford, Connecticut, to share the news. The main auditorium soon filled up and hundreds of anxious employees spilled over into the central atrium where huge screens had been set up.
The mood was sombre. The company had been investigating it's exposure to the asbestos crisis for several months now and The Hartford's 29,000 employees had been expecting bad news for quite some time.
The management laid out the strategic road map, expressed the imperative to cut costs, expressed regret for having to let go of 'excellent'' employees and, finally, announced the number of people to be laid off.
Rick Dawson (not his real name), a senior manager who was in the atrium that day, says he will never forget the reaction of The Hartford employees. "There was almost a collective sigh of relief when the lay-offs were finally announced,'' said Dawson. "It's almost as if every one wanted to get over the bad news quickly and get back to work. Isn't that odd?''
Not really. A fundamental shift is taking place in the way employers manage and the way employees want to be managed. The social contract that governed the relationship between employees and employers for decades is being rewritten extensively.
Once based on notions such as trust, loyalty and life-long employment, the industrial era contract began disintegrating under the onslaught of re-engineering.
The dot-com bust and the sustained recession in the US, finally tore the old terms of employee engagement to shreds.
Now, increasingly, there are signs of a new social contract emerging. Going forward, successful human resource management will depend on recognising the new expectations that employers and employees have. For example, employees are willing to accept that job security is gone forever.
In return, though, employers now have to promise to invest in the 'employability' of their people. Companies like The Hartford offer employees extensive training and development opportunities to ensure that employees remain employable. (Even if it's not at The Hartford.)
Employees are also resigned to the idea that companies can no longer promise regular earnings growth -- or the consequent increments in salary. Instead, in the pay-for-performance schema, employers now offer the opportunity to earn bigger bonuses.
Finally, benefits, which used to be a cost borne by employers earlier, are now being shifted to employees. In return, employers are willing to be more flexible and understanding of the employee's needs to strike a work-life balance.
Says Pete Foley, principal at Mercer Human Resource Consulting's Strategy and Metrics Group: "These are profound shifts in the employer-employee contract. The challenge for companies is to manage the conundrum of the new social contract.''
Already, there are signs that negotiating the balance will be arduous. It's no coincidence that after years of harmony, General Electric's largest union went on strike in January 2003 -- and has warned that it will strike again next month -- if the GE management insists on passing on worker healthcare costs to employees.
The key to resolving such conflict fast will lie in recognising that this is a time of transition. And that the sensitive tools of transition management will need to be deployed until the parameters of the new relationship become clear to employer and employee.
The old staples of sharing and communicating, for example, are still handy. At The Hartford employees didn't go into shock, nor did morale plummet. One reason could be that the management began planning for bad news months in advance.
Copies of Jim Collin's Good To Great were distributed to many employees -- no doubt to underscore the book's stern message about the need to face brutal facts, take hard decisions, and be disciplined. On May 12, while breaking the bad news, excerpts from Good To Great was liberally quoted.
In a nutshell, employees were told that tough choices would have to be made if The Hartford was to grow from being a good company to a great one.
Didn't that make employees snigger cynically, I asked. "No,'' says Dawson. "The management did such a good job of making the case that there was relief that there were only 1,500 lay-offs. No one doubted the integrity of the management,'' says Dawson.
Perhaps, it's another defining clause in the new social contract: employers will be more willing to share bad news, and employees will be more willing to accept it.
The columnist is a Boston-based management writer.
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