The Real Bonus for Workers Is in Being Treated Properly

Posted: 19 March 2010, in Press Release

Just when you thought “bonus” was a dirty word, along comes the John Lewis Partnership to remind us that it ain’t necessarily so.

We’d barely recovered from the apoplexy brought on by the news that 100 investment bankers at loss-making, taxpayer-owned Royal Bank of Scotland would be loading their barrows with £1m bonuses.

It was set off again by the revelation that, not content with £263,000 a year from the public purse, the chief executive of Scottish Water, Richard Ackroyd, is in line to receive more than £100,000 in bonuses on top. Bully for him, putting £25,000 towards WaterAid. How about giving the rest back to his long-suffering customers or sharing it with the woman who cleans his office?

So why is it quite different when Craig Robb rips open an envelope, beams broadly and triumphantly shouts “15%!” while his colleagues crowd around cheering? As Craig is not exactly a household name, you should know that he works as a systems support technician in John Lewis and was chosen to make the announcement in the Glasgow store of the percentage of annual pay each company employee – sorry, “partner” – will receive as an annual bonus after a recession-busting performance. Unlike the banks, where already highly-paid employees can more than double their salaries while those at the bottom get nothing or next to nothing, at John Lewis every member of staff receives a proportionate share of the £151m bonus pot. This year it amounted to eight weeks’ pay.

It is no coincidence that while most of the rest of the retail sector has been contracting or flatlining, operating profits at John Lewis are up 20%. No wonder staff stack the shelves with noticeable zeal and stop at nothing to connect shoppers with exactly what they’re looking for.

“The present state of affairs is a perversion of the proper workings of capitalism,” declared John Spedan Lewis, son of the store’s founder more than a century ago in what sounds like a critique of the banking crisis. He had calculated that between them, his father, himself and his brother were earning as much as the combined salaries of everyone who worked for them. What did he do? Defend it and harp on about “the importance of encouraging wealth creation”? No.

Following his father’s death, he transferred ownership to the staff and for 80 years John Lewis has operated happily on that basis. Happily? Staff don’t only enjoy excellent bonuses when profits are good but are entitled to a range of perks, including subsidised away-breaks, a sailing club and art courses. The company’s constitution even talks of “the happiness of all its members (employees) through their worthwhile and satisfying employment in a successful business”. One can quibble about how to define “a successful business” but the facts speak for themselves: the average length of employment at John Lewis is twice as long as its rivals.

At the core of the business is a largely elected partnership council with the power to sack the executive chairman. Here is a group of highly motivated employees, prepared to go the extra mile, creating the ethos of shared success.

Though none is as big as John Lewis with its 69,000 partners, Scotland now boasts a number of successful employee-owned businesses, including the Fife-based papermaker Tullis Russell, Edinburgh investment management business Martin Currie and Loch Fyne Oysters. Across the UK, such businesses now contribute £25bn a year to the economy.

Recent research from the Cass Business School suggests they are better at weathering recession, boosting added value per employee, delivering customer satisfaction and generating profits. And, come the upturn, they are better at holding on to skilled staff because of their stronger sense of loyalty. It’s an interesting window on what non-quoted companies can do, freed of the tyranny of producing quarter on quarter growth to maintain the share price.

Before we get too damp-eyed about the partnership model, it’s important to recognise that they are not a cure-all. United Airlines in the US was a very sick company with huge pension liabilities when it attempted the employee ownership model and nearly ended up with a strike.

At present, politicians of all stripes are lining up to praise the mutual model, and Labour and Conservatives are both interested in the notion of workers and users part-owning public bodies. However, hospitals and schools cannot be compared to department stores. There are concerns that mutualisation would turn out to be cost-cutting in disguise and public sector organisations could end up being run by quangos or even private companies unaccountable to their real owner: the taxpayer.

Nevertheless, the John Lewis model invites us to question the notion that a company’s prime purpose is to maximise shareholder value. In his Demos pamphlet, Reinventing the Firm, Will Davies asks how we can use the uncertainty generated by the economic crisis to look at how companies can meet social and political as well as economic goals. This is not just about mutuals and co-ops. We are already seeing a gulf opening. On one side are old-style, top-down companies that can only cut and cut in response to the downturn, piling more work and resentment on to those remaining, Then there is a new breed of company that operates on the premise that if it puts its “internal customers” (ie, the employees) first, they will motivate themselves to perform.

Companies who look after their people don’t always pay the best wages but they inspire intense loyalty by making them feel wanted. My older daughter is lucky enough to work for a company (advertising agency DDB) that appears among Britain’s top 100 employers. On “perk-up Fridays”, the company lays on surprise treats that have ranged from Indian head massage sessions to fairy cakes.

When the MD got tickets for the England v Egypt football friendly, he offered them to whichever employee came up with the weirdest fact about Egypt. When it snowed, everyone was ordered outside to make snowmen. They treat my girl like a priceless asset and she responds by willingly doing many hours of unpaid overtime. How many companies can boast such a virtuous circle?