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Friday, 12 January 2018

"Show us the kwan!" In 2018 it is time to radically kick the wage restraint and excess taxation for lower and middle class workers out of the door and stop the canonization of the executive management

The sheer canonization of the executive management in Dutch (multinational) companies has reached a level, in which the executive managers think they all did everything by themselves. They speak in singular, first person about the achievements of the company, as if they were their own achievements. On top of that, they think they have to earn more than 150 times the median wage of their common employees to make a lasting impression upon the world. At the same time their lowest paid workers see their income security, as well as their purchase power erode.  

This erosion happens as a consequence of the mounting tax pressure and the fact that the salaries and hourly fees of lower and middle class workers not really grow, due to the enduring wage restraint. 

Flexibilization of labour, outsourcing of whole departments to Eastern Europe or the Far East and the emerging robotization of their workspace are the other issues haunting lower and middle class workers in 2018.

It were three articles in the newspapers of the last few days that all three described different sides of the same problem: the circumstance that the income gap between the highest and lowest paid workers is getting out of hand.

This problem is caused by both the (yet unstoppably growing) excessive payment for executives and (at the other side of the spectrum) the excess taxation of especially the lower incomes in The Netherlands. This all is turning into a real problem, as the economy is becoming a two-track road:
  • one fast track with enduring economic success and unstoppable profit growth and a group of companies and people that can litterally afford themselves everything that they want;
  • one slow track in which the rest of the population and the less fortunate (i.e. smaller and more local oriented) companies are trapped. This is a track with no tax-breaks at all, hampered growth and enduring economic difficulties, due to salaries and annual income that are hardly enough to pay for housing and food.The latter is not only among contract workers and freelancers, but also among small and medium entrepreneurs, who see their income erode as a consequence of to their customers staying where they are. 

This two-track road is dangerous for the stability in the country, as the group of people that has to work really hard in order to earn their necessary monthly income, sees how the “fat cat” executives and wealthy investors don’t know where to put their nearly unlimited investment money, that they can acquire against nearly free interest rates.

The first article that I want to share is a letter by a reader, André Rapati from Rotterdam, sent to Het Financieele Dagblad, of which the cynisism is dripping out of every pore:

When the ABN AMRO has a good PR Manager – I have no reason to doubt that – then I presume that he had his annual holiday at the time that CEO Kees van Dijkhuizen was interviewed. When one reads the interview, he sees that the words ‘I’, ‘my’ and ‘mine’ appear very often (29 times), while the words ‘we’ and ‘our’ score not more than 8 times. This paints an image of someone who is rather busy with himself than with the team he is supposed to lead. History teaches that companies led by presumptuous people very often underachieve in the end.    

The original article that provoked this letter by a reader probably said it all. “I am the leader of ABN AMRO. I am the single source of its success, as I decide the strategy and the modus operandi. The 21,000 people who form this bank must be glad that I offer them the opportunity to work for me and share in my success and glory!”.

And who can blame him?!

Forgotten are the enormous blunders that the bank made in the prelude to the economic crisis, when the cockiness, ignorance and bad business / investment decisions – partially under pressure of aggressive shareholders – almost led to the downfall of this once proud bank, together with the other large, Dutch bank ‘Fortis Bank’: the profits were privatized and the losses were socialized.

Forgotten is the fact that the Dutch people kept the bank upright with their tax money and saved the bacon of the Dutch executive management! The current success is his achievement and his success story. He is the king on his throne and he needs to be rewarded like a king.

And Kees Dijkhuizen is not the only one who is canonized by the general public, as the winners of the 21st Century. Almost all CEO’s of large companies think they are indispensable nowadays and deserve to be rewarded like kings and queens. Hence the following article in Het Financieele Dagblad:

Dutch CEO earns 171 times

Dutch chief executive officers of companies with a quotation at the stock markets earn generally 171 times the median salary of an employee of their company. Only in the United States, India, the UK and South Africa the salary gap between the executive wage and the median wage is larger. This was disclosed by an investigation performed by press agency Bloomberg. On average the CEO’s of the 25 largest quoted, Dutch companies, among which Akzo Nobel and Shell, earn €6.9 million per annum, including bonuses and pension payments. With that, the Dutch CEO’s are at a global third place, after Switzerland and the United States.

That the salary gap is so large in The Netherlands, is conspicuous, as the average income is already quite high in The Netherlands. An explanation is that large, international companies as Shell, Unilever and Relx have a quotation in Amsterdam.

This last paragraph is only part of the explanation, in my humble opinion... 

The Netherlands has always been a country that looked at the United States – and to a lesser degree the United Kingdom – as both the promised land and the favourite role model. Especially the executives, who were often responsible for writing their own paychecks, have traditionally looked at these countries and especially to the executive paychecks, as an inspiration for their own salary demands.

Their – long worn out – argument was always: “When I move to the United States I can easily earn a seven figure salary, so I want to earn the same amount of money in The Netherlands! Good executives are very scarce, so deal with my demands!”. 

And the boards of directors, that in many consisted of the same group of old boys, swallowed such arguments; often out of self-interest or under peer pressure.

The same executives did their best to keep the salaries and wages of their normal workers relatively low, in order to save costs and look good towards the shareholders.

They did so by:
  • Enforcing wage restraint among their fixed personnel, in order to let them keep their job;
  • By selling less profitable parts of the company and making their company lean and mean, under fierce pressure of assertive (or aggressive) shareholders;
     
  • By outsourcing work and complete departments to Eastern Europe and India or China;
  • By hiring foreign workers from Eastern Europe and India, who would do “the same work” for a fraction of the wages that Dutch workers earned;
  • By flexibilizing the work force via temporary contracts and massive hiring of freelance workers, that could be hired and fired at the spot.

The results of all this was that the salary gap between executives and common workers grew and grew until the current, excessive levels. The salaries of especially the lower and middle class workers stayed at roughly the same levels for many years (i.e. roughly fifteen years) in a row, only rising with percentages that were at par with or even well below the annual inflation rate. This led to loss of purchase power for the lower and middle class workers, in spite of the steady productivity increases.

And so the situation has emerged that the Dutch economy is seemingly in a period of steady growth with truly excellent growth figures, but the lower and middle class workers are still cautiously spending their money, as they don't feel the improved economy in their wallets yet.

This effect is dramatically reinforced by the strongly increased tax pressure as a consequence of government policy. The subsequent governments had to earn back the money, that had been spent on saving the banks and other large Dutch companies. To do so, they strongly increased the wage and income taxes.

This policy of increasing almost all direct and indirect taxes (except for wealth taxes) has endured until this very day, in spite of all the (empty) promises of PM Mark Rutte that he would increase the purchase power of the middle class workers in The Netherlands.

Also for 2018, Mark Rutte made the same promise regarding the purchase power, but actually the opposite happened. The consequence of the increased taxes and levies for the lowest paid workers is that their salary will actually drop in 2018, just like in the years before. All other workers – except of course for the highest paid workers – get ‘pennies’ in salary increases.

This is disclosed by the third article, that was printed in het Algemeen Dagblad:

Salary slip for 2018 assessed: lowest incomes lose money

Most employees find hardly extra money on their salary slip of January 2018. The highest incomes gain most, but lower class workers with a minimum wage even lose money. This is disclosed by calculations of ADP, the financial data processing company. Workers with an average salary (i.e. €2,894 gross salary per month) earn net €7 more per month. People earning 1.5 times average get one extra Euro on top of that. However, people that earn a minimum (part time) wage between €1000 - €1500 per month get the shortest straw, with €4 less(!) per month.

The calculations of ADP are based upon all changes in a.o. the new fiscal regulations, employee charges and pensions. These are separated from wage increases that people get, due to collective labour agreements (i.e. CAO in Dutch) or payment rises. The CAO wages rose by 1.5% last year, according to the Dutch Central Bureau of Statistics.

The factual decrease in wages for the lowest incomes is caused by the fact that the labour charge deduction cannot be fully used by these workers. This is true for all incomes until €1,750 per month, according to ADP salary specialist Dik van Leeuwerden. “These workers have to take care that they demand the full labour charge deduction in their income tax statement for 2018. This could yield them €250 in extra income for 2018”.

A factor that suppresses the wage increases is the repair arrangements for the (lost) third year of Unemployment Benefit (UB). The Cabinet has decided that employees, who lose their job, are entitled to receive UB for only two years. 

With the Social Partners (employers’ associations and labour unions) it is arranged that a third year of UB remains possible, as long as this is paid by the employees.

The whole article can be roughly summarized with the statement that most of the workers go up in salary a few bucks and some workers even lose a little of their purchase power. However, virtually nobody among the lower and middle classes sees a substantial wage increase, as both company policy and national politics prevent that from happening.

The fact that remains is that most people wonder when for themselves the economy really starts to grow and when the wage restraint policy comes to a definitive end. 

Even the most profitable multinationals and successful national companies s still scare away from paying their loyal personnel 5+% wage rises. They look instead to freelancers and people from India and East-Europe, as a solace for their increasing need for qualified staff.

The bottomline is that the most profitable firms don’t want to pay the high payment increases for their personnel and the less profitable firms simply can’t pay these wage increases.

And so the personnel is trapped in an economic crisis that does not seem to end, as wage restraint was the message for the last fifteen years and will remain the message for the years to come.

As it is a trap indeed: the lower and middle classes keep their wallets firmly in their pockets and don’t spend much more money in the Dutch economy, except for mobile phones, cheap electronic gadgets and cheap holidays. 

The SME companies (small and medium enterprise)  have to deal with yet disappointing sales figures as a consequence of this and therefore can’t pay their personnel much more than the current salary. This explains why the cheap discount stores and thrift stores are blooming in The Netherlands, while the middle class store chains are still suffering from disappointing sales.

Or do you think that it is a coincidence that Primark (selling the cheapest clothes of all department stores) is so successful, while Hudson’s Bay is threatening to become a trainwreck in “Holland”.

So please, politicians and successful multinationals, please throw the excess taxation of middle class workers and frugal remuneration policy overboard. And please stop with your cheapskate personnel policy, that offers a little or no job security to your very loyal personnel.

Let’s show that the economy is indeed doing fine and give your personnel a substantial payment rise. The government, at the same time, should stop with giving tsmall ax breaks with one hand, while grabbing more money back with the other hand.

The Dutch lower and middle classes need a reward for their very hard work of the last fifteen years; perhaps in the form of a fifteen(!) per cent higher wage! Yeah, I said fifteen per cent, as I think that this is very well possible for quite a lot of companies.


So please don’t tell us that that is impossible. We see the hysteria with the Bitcoin and other crypto currencies and the massive amounts of money invested in those. We see the money splashing at the ceiling of the multinationals and we see the gargantuous amounts of investment money floating all over the world.

And a company that can pay its CEO a multi-million reward has enough money to pay all personnel higher wages.

So stop saying that you can't afford it. We (i.e. the Dutch lower and middle class workers) simply don’t believe you anymore. So show us the kwan! Show us the money!

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