Tuesday, June 01, 2004

Aerospace Firm Management (Geocities Rescue)

Two types of firms apply here, consortia of existing firms and start-up firms. Consortia of established firms find suggestions here on how to adapt their operations for life in the new century. Start-ups find suggestions on how to use the principles set out in this volume to create new capital, both human and physical.

Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.

Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.

Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.

New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.

21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.

Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.


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