Tobacco Workers Not Likely to See Big Paychecks Again

Source from:  Journal Now 02/13/2012

The sun appears to be setting on the era of high-dollar tobacco manufacturing jobs in Winston-Salem. It shouldn't be shocking news to the community that R.J. Reynolds Tobacco Co.'s local workforce is shrinking yet again. The company has announced 19 job cuts since 1983 that have reduced the number of employees from 15,500 to 2,500. However, last week's start to the next round of workforce reductions appears to have struck more of a nerve than did major job cuts in 2003, 2008 and 2009. That's because, unlike previous job-cut announcements, Reynolds American Inc. specifically said pay rates are being evaluated. And they're more likely to fall rather than rise. The increasing presence of contract workers, which Reynolds has used for more than a decade, also has proved unnerving to employees who have contacted the Winston-Salem Journal. They declined to be identified out of fear of losing their jobs and/or severance package. There had been a sense - whether warranted or not by economic reality - that the high salaries for production jobs were untouchable despite the multiple job cuts. Driving that reasoning: Reynolds needed to keep production salaries at or near the rate paid to union workers at Lorillard Inc. and Philip Morris USA to make unions less enticing to its employees. Spokeswoman Maura Payne said that if the company does decide to change the rates it pays manufacturing employees, "it is likely the revised target rates would be more in line with average manufacturing salaries in the Southeast." "If the company sets new target pay rates for future hires, it will not reduce the salaries of the current employees," Payne said. According to Payne, the average compensation was $70,195 for the 1,320 Reynolds Tobacco production and maintenance employees who were eligible to vote on union representation in October. That number includes benefits and bonuses. Salaries on their own tend to be in the range of $55,000 to $65,000 for experienced workers. By comparison, the average annual salary for North Carolina manufacturing employees was $35,607 in December, according to the N.C. Commerce Department. If Reynolds targets that rate, new hires could be paid a salary that's 35 percent to 45 percent less than what veteran employees are making. The number of new hires also could be limited considering the company is expanding its outsourcing of production jobs to temporary agencies. Falling demand The main factor driving the downsizing is the continuing decline in demand for cigarettes nationwide. Reynolds is conducting its fourth business analysis in the past 3½ years, expected to be completed by the end of the first quarter. It deals with salaried and manufacturing workers at Reynolds American Inc., RAI Services and several departments of Reynolds Tobacco. The past three times the company did this type of analysis, a combined 2,715 local jobs were eliminated. The company has not said how many jobs might be cut this time. Payne declined to comment on whether part of the goal is to bring back production workers - whether those let go last Tuesday or those getting a severance package - as new hires with a lower wage and benefits. "Until the analysis and decisions are completed, we cannot speculate on what might or might not be decided upon," Payne said. Reynolds' decision to review its wage scale is not surprising, economists said. Pretty much every employer has been doing the same thing during the economic downturn - making a cost-benefit analysis on whether it can get the same bang for its labor buck if the buck is smaller, especially in an employer's job market. "If a firm wants to change the terms of its labor contracts, this is the time to do it while the job market is still challenged and millions are looking for work," said Michael Walden, an economics professor at N.C. State University. Role for union? Another key element of the latest job cuts is whether the downsizing will finally tip the scale toward production workers approving union representation. Reynolds Tobacco's production and maintenance employees rejected a union effort for the third time in 6½ years in October, but 45 percent of 1,320 eligible participants supported the union petition. John Price, an international representative of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, said he has received emails from Reynolds workers who are union supporters. "This decision by Reynolds to cut more manufacturing jobs is what we warned the workers about," Price said. "The union supporters are very, very frustrated with the plans, especially considering Reynolds is increasing the use of contract workers at lower salaries as replacements." Walden said a Reynolds production employee vote for a union could be a tipping point in North Carolina, "which by most measures has the least unionization of any state." Middle-class bastion The potential for a major wage reduction has significant meaning for a community in which production jobs at Reynolds Tobacco have served as a major part of the middle-class economic backbone for decades. Those jobs were considered as good as gold. Dozens of Reynolds workers have retired or taken severance packages in recent years with 30-plus years of service. Working at Reynolds had also been considered a good employment prospect for their children. "Clearly the Reynolds manufacturing jobs have been very important jobs for this community," said John Medlin, a former Reynolds board member and former Wachovia Corp. chairman and chief executive. "Until the cigarette volume decline began in the late 1970s, they seemed to be jobs for life. But the cigarette volume decline meant fewer production workers were needed. "As hard as it is to accept for those people being affected by job cuts now, it's the clear trend for tobacco manufacturing and most forms of manufacturing." Gayle Anderson, chief executive and president of the Winston-Salem Chamber of Commerce and a former Reynolds employee, said the major downsizings in the 1980s and 1990s "were the ones where people weren't prepared psychologically." "Now everyone knows that the company will continue to get smaller," Anderson said. "No one at any company, including Reynolds, thinks they have a job for life today. "If you look at our annual economic report, we added 800 manufacturing jobs from September 2010 to September 2011, and that is before Caterpillar" began its hiring push, which is at 103 full-time and 99 contract employees. That represents 40 percent of 510 jobs pledged by Caterpillar. "Manufacturing is 10.5 percent of our workforce, about 18,400, so Reynolds is just a small portion of that workforce today," Anderson said. "I don't know how many could be eligible to retire, but it is not correct to say that it would have a ripple effect on the community as a whole." Thinking long term Daniel Delen, the president and chief executive of Reynolds, told analysts Wednesday that the business analyses are part of a long-term program that began with Reynolds' 2004 purchase of Brown & Williamson Tobacco Co. "We have been consistently focused on our productivity and efficiency initiatives at the company," Delen said. "We're looking again and continue to look to see exactly how we should be allocating resources. "And by that, I mean, not just financial resources, but also the human resources we have as a company to make sure we're as efficient and effective as possible, and that we really have all those resources lined up to continue our growth trajectory." Enditem