Small Business Lessons from Boeing's Strike

It's easy to reward workers during good times. Bump up salaries, throw in bonuses and add perks like company cars or lavish holiday parties.

But when the economy tanks and every dollar counts, it's hard to justify spending money on anything other than payroll and basic benefits. How far can you cut before employees start making for the door?

It's a balance many companies are trying to navigate these days, from multinational corporations to mom-and-pop retail stores. As businesses try to get lean, cost-cutting is inevitable. It also can lead to sinking morale or outright rebellion.

That's the case at Boeing (STOCK QUOTE: BA), where more than 20,000 machinists went on strike for eight weeks. The strike ended Nov. 2. The machinists got to keep their jobs (and start collecting a regular paycheck again), while Boeing can assure customers they're back to filling orders.

Employee-employer negotiations tend to be tricky, and in the current economy, it would seem employers have the upper hand. If workers walk out, there are plenty of other people anxious for a job, right?

Maybe so. But losing experienced workers comes with its own, less obvious costs.

"For the average small business, it takes about 1 ½ to 2 ½ of a worker's salary to replace them," says compensation consultant Bob Cartwright, a member of the Society for Human Resource Management and president of Intelligent Compensation LLC.

For a company such as Boeing, replacing skilled machinists would have meant an enormous outlay of time and money. Clearly, it was in the company's best interest to make a good-faith offer by agreeing to a number of union demands. Boeing will give raises of 15% over four years, higher pension payments, and a promise to maintain the current employee health care coverage.