Aubyn Hill
MOST ANY objective observer soon has to come to the conclusion that the redundancy pay requirement in Jamaica is a serious distortion in the economic arrangements at the workplace, and a really big disincentive to many prospective investors.
It is also a very weighty economic burden to current employers. Many employers put up with it, complain in private and feel quite impotent about being able to do anything about it. Employers see their objection as being futile and they believe that to expect change is to indulge in Pollyannaism.
They think the background to the establishment of the redundancy law and the body of 'rights' that have developed around this law over the years by unions and employees make it difficult for them to have hope.
IS REDUNDANCY PAY EVER EARNED?
The redundancy argument and law is built on the specious concept of the employee's "proprietary right to the job".
The reality of the job and workplace means that each employee gets a basic salary, often a travel allowance, sometimes uniform allowance, and this can include money for stockings (which absolutely surprised me when I returned home), shoes, as well as housing and rent allowances, other benefits and contributions by employers to pensions.
After all these weekly and monthly payments plus bonuses at the end of the year, what is the basis for redundancy payments, and how is it earned?
What special or extra work is done that is not covered in the string of payment and benefits - from salary through to uniform and stocking allowances up to bonus and pension payments - can be justified under a separate and very costly redundancy payment?
A STRONG INCENTIVE TO UNDERPERFORMERS
Many employees - especially more mature or older ones - view a redundancy payment as a right and hang around in organisations long after they should have left in order to secure the redundancy pay package.
I have seen employees who have come up against the Peter Principle (they have been promoted to their level of incompetence) in the organisation and are under-performing at this stage in their career.
The redundancy 'right' encourages an unfair dependency on the company and fosters the "I must get something for nothing or for just being employed by the company" attitude.
It seduces employees, especially older ones, into serious mediocrity, underperformance, a don't-care approach and rapidly reducing productivity as they openly wait, argue and even taunt their employers to "make me redundant."
PROTECTION FOR UNDERPERFORMERS
In such cases the redundancy law becomes protection for underperformers who are no longer useful to their employers, their employers' customers, and become a very bad influence and example to their peers and younger employees.
In circumstances like the one described above, and there are many cases which are not discussed in more than a few companies, the redundancy act becomes an impeding anachronism and a costly, outdated appendage.
Maybe an even more insidious if unexpected outcome is that the redundancy law encourages really bad behaviour in the workplace for people who should move on from a particular employer where they are performing well below their best, or well below expected targets, to a new work environment where they can better use their skills and experience.
The redundancy law becomes a real disincentive to employees to move along to somewhere where they are more suited to perform. It is also a promoter of labour market rigidity.
HURTING EMPLOYERS AND EMPLOYMENT
All employers fear the redundancy law, but possibly the most fearful group is the manufacturing sector.
Manufacturing at the best of times in a developing country like Jamaica that has to depend on a very expensive source of energy, such as imported oil, is a difficult proposition.
When the small size of our market and the need to import most of our raw materials are factored into the productive equation, manufacturing becomes a high risk endeavour.
Redundancy payment becomes a showstopper for many prospective investors in manufacturing because that payment often arrives at the time when the manufacturer can least afford it.
The redundancy payment therefore becomes a major disincentive for people to enter and stay in manufacturing, and many manufacturers are in fact moving into the distributive trade.
The redundancy payment is a cost over which our policy makers have control and steps should be taken to quickly remove it as a cost of doing business in Jamaica.
Labour and redundancy costs (and they are two separate and independent cost items!) are serious factor costs, which investors have to include in their calculations when considering whether to establish a business in Jamaica. We should bear in mind that investors - local and foreign - have approximately 150 international destinations in which they can put their investments.
Most do not have anything that resembles a redundancy law that loads on another set of expensive entitlements to the normal factor costs in running a business. Jamaica is fairly unique with this cost.
The employer has to bear all this redundancy that has nothing to do with the marketplace and everything to do with government fiat.
It is time to get rid of the redundancy law and this burdensome cost on Jamaican businesses.
Aubyn Hill is the CEO of Corporate Strategies Ltd., a restructuring and financial advisory firm. Respond to: writerhill@gmail.com
