In this blog there will be a new term introduced called ‘Reciprocal Trust’ (“RT”). In particular, during the process of an employer hiring new employees, and prospective new employees seeking work — there is a major need to build RT. Some companies give extra weight to referrals from their current employees due to this issue. Of course, there will almost always be a need for employers to seek new employees from various pools of strangers. Prospective employees can usually determine whether an established company has a ‘decent’ reputation across multiple dimensions. However, there are now almost no companies that will hire an employee with any sort of expectation that their job will last very long.
Description of the ‘Problem’ with US Employee-Employer Relationships
Specifically, there is a problem for both prospective new employees and employers — namely, there is insufficient trust in each other. The interests of the two ‘generalized’ parties are not aligned. AccuChain will be addressing the lack of trust that a prospective employer will have regarding ‘strangers’ applying for jobs.
In this ‘monograph’ employers will be the term referring to individuals with control of a business (e.g., “management”). Employees will be primarily the bulk of all individuals working at a company that have very little or insignificant management authority.
When an employer seeks to hire a new employee in the United States there are rarely any requirement that a formal ‘Employment Agreement’ be signed. Despite the receipt of a written ‘Offer Letter’, most new employees receive very little contractual guarantee of any future remuneration, or continued employment. The employee can be fired “at will” for any reason — the same as any supplier or vendor doing business with the company. This lack of commitment on the part of the employer will certainly not increase the level of RT between the parties.
What about the situation from the employer’s point of view?
The company and its management do not want to take on the liability of a stream of salary and benefit payments upon the hiring of one or more new employee(s). In fact, generally accepted accounting standards do not require any entry in the books be made when an employee is hired. That “at will” feature for most US hiring is part of the reason why no liability is occurring upon the hiring of a new employee.
It is interesting that even after many years of faithful effort on the part of a loyal employee, employers find no need to remove the “at will” provision in the implicit or informal agreement between the parties. Even though many companies brag that their employees are their most valuable asset, accounting rules do not allow companies to put their employees on their balance sheet as assets.
At nearly all companies, there is a need to increase the trust level (“RT”) on the part of both parties. AccuChain’s platform provides a way for a prospective new employer to have multiple validated achievements and references organized around the prospect’s professional and personal background (and at a very low cost!). In effect, a thorough ‘background proof’ is available to any potential employer.
The next step, is to have our AccuChain users negotiate with their prospective new employer to enter into an Employment Agreement that is fair, and can be handled well in terms of existing accounting rules.
Here is a summary of several guidelines for the customizable employment agreements:
· If corporate entities, stock options should be offered to all employees if their stock’s price is likely to appreciate in the future (why would a prospect want to join a company that did not meet that expectation?). For non-corporate business, a profit sharing alternative should be considered.
· The Employment Agreements need to specifically spell out initial salary and benefit details, but also include the way future salary increases and benefit upgrades will be determined, and their timing;
· Regarding changing the employment ‘status’ of the employee: the “at will” clause is troubling. The bottom line is that the employees must be treated the same as any other creditor to the company, and they must be provided fair compensation if their income stream is reduced. There should be a clause that describes how severance compensation will be computed based on years of service, and salary history.
· Every Employment Agreement should incorporate insurance ‘protection’ covering:
1) Employee and dependent health
2) Life insurance
3) Disability and long term care insurance
4) Personal performance liability (equivalent to Director’s ‘errors & omissions’ insurance)
5) Loss of income due to job elimination (e.g., lay-off) — until new job is found
Future Issues and Wrap Up
Currently, individual employees are at a major negotiating disadvantage compared to most employers. The stagnation of wages in real dollars is clear evidence of a severe problem in the relationship between employers and employees. In fact, there are many large businesses that would rather not have many employees at all — they would like all their ‘workers’ to be contractors. The value that an individual employee brings to any business is a combination of their innate ability and their current knowledge. Let’s hope hiring practices lean towards fair and creates ‘Reciprocal Trust’.