The next time you fly British Airways, I wouldn't expect service with a smile. The member of the cabin crew pouring your drink may have just been asked to work for free and forgo his or her benefits. For last week, BA emerged as the latest company to try and weather the economic downturn by inviting staff to accept wage cuts. BA, its staff now say, stands for "Bugger All".
But the airline is not alone. According to campaigners from Keep Britain Working, almost half the workforce has had a pay cut, a reduction in working hours or worked for fewer benefits. It is tough out there. BA says it is only inviting its 40,000 staff to consider working for no pay for up to a month. CEO Willie Walsh is trying to lead by example, voluntarily surrendering his salary for July of £61,000.
Meanwhile, the airline pilots' union, Balpa, has negotiated a 3% salary cut for 3,200 BA pilots for 2009 and a wage freeze for 2010. General secretary Jim McAuslan declares that the company is not bluffing when it says its very survival is at stake - half of BA's revenue comes from the 14% of its business class passengers who have almost disappeared. The airline's cash is haemorrhaging.
Faced with the choice of no job or a job with a small wage cut, most workers will reluctantly go along with the latter. They have less industrial muscle and are readier to accept the laws of supply and demand. Lady Thatcher's strictures about not being able to buck the market have entered the nation's soul.
It is also rational for employers. Laying people off is expensive and demoralising for the survivors and when the business improves, it is doubly expensive to replace those who have gone. Newcomers have to be recruited, screened, inducted and trained; it can take years before they are as useful as the workers just laid off. BT, innovatively seeking to lease out some of its workforce to other companies in order to share up to half the wage cost, is thus husbanding good workers for the upturn and saving on redundancy. It all makes perfect sense - as long as it can be pulled off.
Economists have long argued for this flexibility in pay over the economic cycle - remuneration going down when times are hard and going up when times are good. Pay takes the strain rather than jobs. The difficulty has been persuading workers to accept that cuts in their pay are fair. Willie Walsh knows his only chance of getting voluntary pay holidays is if he leads by example; he hopes to persuade his entire board to follow suit. The pain must be spread fairly, even if it is obvious that a month's pay holiday for Walsh is far easier for him than for cabin crew on £30,000 a year.
Professor Daniel Kahneman won the 2002 Nobel Prize for economics for explaining why fairness counts for workers. We all use the past as a benchmark to what is reasonable, carrying an idea of a reference wage to which we compare our actual wage. If an employer tries to lower the wage below the reference wage, we think it unfair and resist. But a new company offering the lower wage would not be considered unfair; there is no reference wage established by custom and practice for comparison.
The only chance of winning acceptance is if the company can show that what it is doing is fair. That its own profits are diving below its reference level for profits, that everyone is in the same boat, that everyone will share the pain and that everyone will share in any future prosperity. British companies are suddenly discovering a truth that was buried in the New Labour boom years and which was cravenly neglected by New Labour's economic policy makers ... that fairness matters - and the structures through which to deliver it are very weak indeed.
There were two clinchers in the BA deal. The first was that when the union says the company is not bluffing, the pilots believe it. The union, far from an obstacle to management, offers something that money can't buy - trust. In a crisis which calls for wage cuts, the best chance is if the company can convince the union which, in turn, has the best chance of convincing workers.
The second clincher was that the pilots have long wanted respect from BA, to be regarded as important and as high status as any senior manager. The quid pro quo for their lost earnings is to be given £13m of BA shares that cannot be sold before 2014. This is not just a long-term incentive - it is turning the pilots into stakeholders who stand to benefit from their collective sacrifice.
Companies would have a much better chance of getting wage flexibility over the entire economic cycle if they committed to fairness. Over the last 30 years, the ratio of average CEO pay to average pay has trebled for no discernible improvement in corporate performance. Workers are suspicious of their boss's intentions and how the gains will be shared. Directors stand to make millions; the ordinary worker may or may not keep their job.
After all, if a predator takes over the company, the new owner can declare that all the promises guaranteeing jobs and sharing future profits are off. They were made by the old management. The new management is about to sack you.
Efficiency, fairness and committed ownership go hand in hand. British capitalism needs be organised around stable, long-term owners who commit to the company's purpose, managers with incentives to deliver long-term growth and workers represented by trade unions similarly committed to the long-term goals of the company - and at best have shares in it.
New Labour has dipped its toe in the water, offering tax incentives for companies to give shares to workers. A Treasury study last year showed that those who had worker shareholders performed noticeably better than those which did not. But no New Labour minister cared to spread the message; it may be construed as anti-business.
Work is where we spend much of our lives, a place where we not only earn our living, but gain meaning and satisfaction. People are now fearful and concerned about their job and their wage, but the best British companies are doing all they can to secure jobs with fair wage cuts. The problem is that they do it in a hostile climate, with too many ideological unions, companies in thrall to hungry, footloose shareholders and managers looking for City-style fast money. New Labour had its opportunity for reform. It did too little. Companies are now pioneering on their own.
BA should try offering shares to every worker who takes a pay holiday. The cabin crew too. Then the smiles we are offered as we step on board would be genuine.