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HUMAN RESOURCES

As Gas Prices Rise, So Do Demands On Employers

Manufacturer Bill Lathem knew that higher gas prices would affect his business--he just didn't expect to have to shut it down one day a week.
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Bill Lathem's family has run Lathem Time, an Atlanta manufacturer of time clocks, since 1919, and it's the kind of company where workers stay for decades. "That family feeling around here is what keeps our tenure up," says Lathem, who employs 150 workers, "and a lot of the skills that these guys have are not easily trained."

So when his human resources director began to field a series of complaints about commuting costs, Lathem listened. What he heard was troubling. Nila Rose, an inventory-control manager who's been working at Lathem for 20 years and has a 30-mile commute, had seen her gas bill rise from $25 a week to $60 a week. And hers is one of the reasonable commutes: Lathem's secretary, who assisted his father and grandfather before him, drives 78 miles to work each way from the Georgia mountains. Another factory worker drives 58 miles each way from Alabama. "I had several employees mention to me that they were using one week's paycheck per month to get to work," says Grace Perry, Lathem Time's HR director.

As gas approached $3 a gallon in Atlanta last fall, Lathem responded--and in a pretty radical way. Today two white vans rented by the company bring 22 employees to work each day. About 30 additional employees are carpooling in their own vehicles, and a third of the office staff telecommutes at least one day a week.

The most stark difference, however, can be seen on Fridays, when most machines in Lathem's 115,000-square-foot factory stand idle and plant workers have the day (and the commute) off. Lathem was apprehensive about making these moves, and he's not sure they'll last. But he felt he had to act before high prices at the pump persuaded some workers to look for new jobs closer to their homes.

Commuting From the Exurbs in an SUV

When energy costs spike, businesses face a host of problems. It costs more to run a factory, more to ship, more to keep the lights on and the servers humming. The effects can be particularly severe for small companies, which often have less leverage with vendors and worry more about passing along higher costs to customers.

Then there's the tension that high energy costs can create between a company and its workers, which is often overlooked. Because real wages have remained flat for years, commuting costs are rising at a time when workers have less disposable income to spend at the pump. The consumer-price index took an unexpectedly big jump in May, raising concerns about inflation.

Social trends are making the problems worse. In many major metropolitan areas, workers are moving to the fast-growing exurbs that lie beyond what were once considered the suburban fringes. The average commute is almost 25 minutes, according to the Census Bureau, and 78 percent of Americans are alone during their drive to work. Nor are they giving up their SUVs. In the first quarter of 2006, even as gas prices have shot up, vehicles with six- and eight-cylinder engines have accounted for about two-thirds of new-car sales, according to J.D. Power & Associates.

Where We Are, Where We're Headed

Energy prices will likely remain high for the next couple of years. At this point, the reasons are well known. Most producers are processing at capacity, and not all U.S. producers have recovered from Hurricane Katrina. China, India, and the U.S. continue to consume more energy. Instability in oil-rich Nigeria and Iraq, and global tension regarding Iran, complicate matters.

Every one of my suppliers is putting a surcharge on delivery of product to us. I can't see any way we can avoid a price hike. " --Arthur Pascuzzi, Milwaukee Crane

Alternative energy may add a little to the supply over the next year or two, but not a lot. The one bright spot is that the oil companies will reinvest some of their lush profits in new exploration projects, but this won't result in an increase in supply for a while.

Adjusting to higher prices, many suppliers and transporters are adding surcharges. Most small businesses, however, are reluctant to raise prices for their customers; fewer than a third of them have done so, according to a survey released by American Express Open in May.

Arthur Pascuzzi, the CEO of Milwaukee Crane, based in Tigard, Oregon, is caught in this bind. "Every one of my suppliers is putting a surcharge on deliveries of product to us," he says. A recent quote for an electrical component used in his cranes, for example, jumped from $4.40 a foot on a Friday to $5.80 a foot the following Monday, thanks to a fuel surcharge. Rather than passing along costs to customers, Pascuzzi has turned down employees' requests for raises and told his salespeople to set up phone calls instead of driving to visit clients. Even so, he thinks he'll resort to a price hike soon. "I can't see any way that we can avoid it," he says.

Meanwhile, about 28 percent of employers are helping employees with gas prices, according to a recent study by the Society for Human Resource Management. Many of them are taking modest steps like increasing their mileage reimbursement rates to the maximums established by the Internal Revenue Service, but others are proving both generous and inventive, handing out gift certificates for gas stations, offering cash toward the purchase of bicycles, and awarding bonuses to employees who walk to work.

Allowing more employees to telecommute is another common response: 9.1 million people worked from home at least three days per month last year, according to research firm IDC. Their ranks will swell to at least 10.2 million by 2009, says Merle Sandler, a senior analyst at IDC, owing in part to fuel prices.

Coping Mechanisms

What else can companies do? Large corporations can work with energy consultants, who hedge energy, negotiate rates, and coordinate state rebates and credits. But these agents typically serve only companies that spend a million dollars or more a year on natural gas and electricity, says Frederick Pickel, president of Wilshire Energy Consulting Group in Los Angeles.

For smaller companies, he suggests directing expansion plans to states with cheap electricity, such as Kentucky, Missouri, and West Virginia. A short-term solution this isn't, but then again, energy costs are a long-term problem. In the meantime, Pickel encourages companies to take care of the basics, such as improving insulation, installing energy-efficient lights, and regularly cleaning or replacing old equipment.

At Lathem Time, the vanpools have been a hit. Perry, Lathem's HR director, plotted where employees lived on a map and created two routes. She appointed a driver for each route--the worker who lived farthest away and had access to parking--and rewarded them with weekend custody of the vans. Each vehicle stops at two or three park-and-ride lots. A nonprofit called the Clean Air Campaign pays a stipend of $425 per van per month, the rental-car company covers maintenance costs, and each rider chips in $14 a month, which the company deducts from their paychecks.

Nila Rose, the inventory-control manager, is putting the $180 a month or so she saves by vanpooling toward retirement. Many of the other workers in the vanpool use the savings "just to pay the bills each week," she says. Sharing a ride, she adds, has been surprisingly fun--one co-worker brings McDonald's biscuits on some mornings.

The telecommuting policy has gone smoothly too. Fourteen of Lathem's 50 office employees work from home at least once a week. Calls are forwarded to their home phones.

It's the Fridays-off policy that worries Lathem. Plant workers come in early four days a week to complete a week's production. By adding the extra time in the morning, Lathem figures, workers are less likely to get tired and make mistakes or suffer injury. He also extended break times to 15 minutes from 10.

Still, when a stamping machine operator caught his finger in a press recently, Lathem suspected that the new 10-hour schedule was to blame. The worker is back on the job after three months on short-term disability, but the episode was unsettling. "If gas prices went back down, we would be very encouraged to go back to the five-day week," Lathem says. "It's gas prices that're holding me to it right now." They may be holding him there for a while.

Stephanie Clifford can be reached at sclifford@inc.com.

Last updated: Jul 1, 2006




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