More Firms Look
At Two-Tier Plans
For Compensation

Companies, looking to cut labor costs without direct layoffs, increasingly are adopting a second compensation system for new workers to give them lower pay and benefits.

The so-called two-tier pay system, which effectively creates two levels of compensation for the same work, is being pushed not only by hard-hit industries, such as auto-parts suppliers, but also by those with strong earnings. Unlike in the past, some companies see the two-tier structure as a permanent shift, rather than a temporary reprieve to get them through a tough stretch.

"It's important to emphasize that this is not necessarily a function of profits getting squeezed, but of corporate management taking advantage of a relatively weak situation that labor finds itself in," says Roland Zullo, assistant research scientist at the Institute of Labor and Industrial Relations at the University of Michigan in Ann Arbor. Waves of plant closures in the last few years have made workers, including many protected by union contracts, more willing to make concessions to preserve jobs, he says….

It is a troubling development for unions, because it undermines the tenet of equal pay for equal work. Executives, too, recognize that such a structure can cause division. Indeed, two-tier systems that emerged in the 1980s were pushed aside when the economy rebounded, in part because they caused so much friction in the workplace. Many workers balk at having to do the same work as a colleague for less pay. Companies found workers on the lower tier took the attitude that they didn't need to work as hard as their higher-paid counterparts.

"The downside of a [permanent] two-tier wage system is that it creates, in essence, two separate work forces," says Jim Micali, chairman and president of Michelin North America Inc., of Greenville, S.C., which is part of France's Michelin SA….

Report Slams Hollinger's Black
For a 'Corporate Kleptocracy'

Some parts of the Fourth Estate are comfier than others. Outlays at Hollinger International Inc., which publishes the Chicago Sun-Times and other newspapers, included $24,950 for "summer drinks" and $3,530 for a corporate jet's silverware.

Those are among the findings of an investigation commissioned by a special Hollinger board committee.

Former company officials Conrad Black and David Radler siphoned off more than $400 million in the course of seven years through "aggressive looting" of the publishing concern in what amounted to a "corporate kleptocracy," according to the committee's report, released yesterday. The report says the total cash taken by Lord Black, Mr. Radler and their associates represents 95.2% of Hollinger's entire adjusted net income during the period 1997-2003.

Lord Black and Mr. Radler "made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise," said the 513-page report, which was filed in a federal court Monday and with the Securities and Exchange Commission. The investigation was headed by former SEC chairman Richard C. Breeden….

The scandal at the trans-Atlantic publishing company is among the first in the recent wave of U.S.-centered corporate-governance scandals to wash into Canada and Britain. It underscores the potential pitfalls for public shareholders in a company whose board fails to adequately scrutinize the behavior of a controlling shareholder….

Clock Ticks on Germany's 35-Hour Week

Seeking Flexible Conditions,
Employers Are Threatening
Labor Unions' Proudest Feat

…Germany's short work week and generally restrictive labor policies are often cited by economists as the main factors crippling its economy. Squeezing more flexible conditions out of workers would provide cost relief for many companies and benefit the economy as a whole. Germany's economy has been stagnating for the better part of the past decade….

As West Germany went through its "economic miracle" in the decades after World War II, unions managed to win ever more generous terms for workers across whole industries. The 35-hour work week, first introduced in 1995, counts as a crowning achievement.

Companies went along as long as they could compensate for the higher costs by improving productivity through automation. More recently, however, price pressure from foreign competitors has increased to such a degree that many German companies are giving their workers a simple option—work longer for the same pay or lose your job. Many German manufacturers already have operations in Eastern Europe and Asia, lending such threats enough credibility to make workers buckle….

"The threat is real and has to be taken seriously," says Heinz Cholewa, an IG Metall official who helped negotiate the Siemens deal. "The ability of companies to blackmail employees has increased."

Union officials and economists alike say Germany's flagging economy and globalization are giving companies the ammunition they need to chip away at the "social contract" between employers and workers that has made direct confrontations rare in the past.

"I think you're going to see these deals spread out, the worse the economy gets," says Mr. Fahrinkrug, the economist. "Perhaps we've passed a pain threshold where the social-contract model is becoming less meaningful."

Siemens Chief Executive Heinrich von Pierer, recently referred to as "Rambo" by an IG Metall official for his hard stance on working hours, says companies like his are only doing what is necessary to remain competitive….