Sunday, March 14, 2010

Objective of the firm and the result of an employment bond

The basic objective of an organisation is to ensure that employees work for the maximum benefit of the organisation. Every action of the company should be congruent to this objective. Let’s examine employment bond in the light of this objective.
Firstly, I would like mention that there are two types of companies:
1. Those where employees acquire skills that are uniform across the industry to which the company belongs. This means that the training across all the companies in the industry is same or almost same. This category covers all technical jobs. It also includes jobs where skill/knowledge is more important than the experience the person has in the industry.
2. Those where employees acquire experience more than skills. This category includes jobs which involve more decision making (than just implementation of decisions). For example all managerial jobs.
Clearly, in the first case employment contracts tend to recover the training cost that was incurred and are generally of lower duration and have been discussed in detail by my fellow colleagues.
I would like to focus on the second category. This category includes all managerial jobs and all the jobs that involve decision making on a daily basis. My previous job, of a commodities derivatives trader, falls into this category. My job involved little or very basic skills of trading like how to buy/sell an instrument in the stock exchange. No or almost negligible cost is incurred by the company in giving this training. Now let’s look at the employment bond in this case.
As a famous saying goes “Good judgement comes from experience. Well, experience comes from bad judgement.” Much of the training in this category involves building this “good judgment making” capability. And clearly, after getting trained an employee becomes a much more valuable asset for a company. This translates into an even more need for the company to retain the employee. Also, there is no as such fixed cost but this does not mean there are no costs. The cost clearly is the cost of “bad judgement”. And in my profession this always means tangible losses. And hence there is a greater urge in the company to enforce an employment bond on the employee. But, are employment bonds successful in meeting the overall organisation’s goals? The answer is NO. Because of the very nature of these jobs. These jobs are qualitative in nature. Employment bonds (as has been correctly pointed by my fellow colleagues) tend to create the feeling of a “Bonded labour”. A bonded labour translates itself into the feeling of a being a machine, that is, when employment bonds are enforced (or rather imposed) upon an employee, he/she feels that the company is treating him/her like a machine. This is in direct conflict with the nature of the job. And if unfortunately, the person does not like the job or the culture of the company as such then the employee becomes a liability rather than an asset as conceived earlier. This is because if the employee does not like the job or the company’s culture, his/her performance falls. His/her concentration on the work also falls drastically. In our profession again losing concentration means huge losses as decisions are to be made within seconds. So, in effect the employment bond which was intended to retain an asset resulted in retaining a liability. It fails to achieve the goal of the organisation. In such cases, employment bond should not be enforced. Instead, various motivational practices should be followed to ensure employee loyalty and low attrition rate. But, unfortunately this is not the case.

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