Is Sellita Hacking Payroll for Bathroom Breaks?

While listening to a recent episode of the A Blog to Watch Weekly podcast, a debate over strategy and pricing at the watch brand Oris caught my attention.

An Oris watch. The brand has used Sellita movements.

The issue at hand was this: do Oris Diver watches, featuring the in-house calibre 400 movement and priced just over $4,000, make any sense? This question is relevant because other, similar, Oris Divers with a Sellita-derived movement are available for under $3,000. At first blush, I understand and, to some extent, agree with those who question whether it makes sense for Oris to move "upmarket" and still offer lower-priced models. But I think some recent events in Switzerland suggest that buyers should strongly consider, or perhaps prefer, the newer references with in-house movements even though they may carry a premium.

When any brand sources materials from other companies, they face something the field of finance refers to as "counterparty risk." Your partner companies may have problems and, as a result, you may suffer. Rolex's move in the 1990s and 2000s (under then-CEO Patrick Heiniger) to acquire parts suppliers had an important benefit: it eliminated counterparty risk. What does this have to do with Oris? I'll explain.

Unia is the labor union representing many professions in Switzerland, including employees in the watch industry. A few weeks ago, they held a demonstration outside Sellita's factory in Crêt-du-Locle, Switzerland (Sellita manufactures and sells watch movements). Unia claims that Sellita was engaged in "a dehumanizing and humiliating practice," namely, that Sellita allegedly requires workers to "punch out" of the clock when taking a bathroom break. If this is true, Sellita's employees implicitly have to pay in order to use the restroom because they forgo some income during that time.

Apparently, Sellita and other companies can implement this policy now due to a recent legal decision made somewhere in Switzerland. I'm certain readers probably have a variety of opinions about this workplace practice.

The Sellita factory in Crêt-du-Locle.

Unia mentioned that the policy is probably quite unfair because certain employees, for reasons out of their control, need to use the bathroom more often (or for longer) than others. I personally think this is an important observation because it implies that factors unrelated to an employee's productivity may end up reducing their pay. Unia also points out that Sellita employees may end up dehydrating themselves in order to increase their earnings. That, too, seems not-so-great. And, honestly, as an economist I think bathroom break punishment is a really bad move by Sellita's management.

Economists George Akerloff and Janet Yellen published a model in 1990 which presented labor-management interactions as a "gift exchange." I should note that Akerloff earned the Nobel Prize in 2001 and Yellen is the first woman to serve as US Treasury Secretary and she also ran the Federal Reserve. These two are no slouches, intellectually.

The idea behind a "gift exchange" employer-employee relationship is as follows: under certain circumstances, employers have an incentive to pay a little extra than one might expect. Why? Because employee effort is unobservable. But, if you pay employees more than they might earn in alternative jobs, they have an incentive to return this "gift" with a gift of their own: extra effort and productivity.

A figure from the Akerlof-Yellen paper.

They will do this because they will lose their gift of slightly higher wages if they have to leave their job. The punchline here is that Sellita's practice of hacking payroll for bathroom breaks runs completely counter to this idea (I refer to this as hacking payroll as a nod to a movement's "hacking seconds" complication, in which the movement stops when you pull out the crown). Charging people to go to the bathroom is likely to demoralize employees and result in lower productivity. I very much doubt the cost savings from punching out are worth the lost productivity.

This is relevant for Oris (and others) for a number of reasons. First among them is the fact that Oris, and any brand using Sellita movements, runs the risk of bad publicity caused by choices attributable to Sellita's management (and out of Oris' control). The good news is that Oris has hedged itself from this risk with its in-house movement option. If collectors want to boycott Sellita, they don't have to boycott Oris (I'm assuming Oris doesn't hack bathroom breaks for their own movement manufacturing). So, from this perspective, Oris's offering of a higher-priced watch with an in-house movement does make sense. It provides an opportunity for collectors to "put their money where their mouth is" and financially back certain manufacturing practices they value, such as humane worker treatment and sustainability (I mention sustainability here because Oris seems earnestly committed to that practice).

More generally, the reported issues involving Sellita and its workplace practices highlights an important and under-discussed matter: the difference between marketing about the Swiss watch industry and actual practice. Many brands have cultivated the notion that watchmaking and the watch industry are a culturally important, "noble," pursuit. The reported concerns about Sellita certainly challenge these notions and raise all kinds of questions regarding how the watch industry treats its employees. I hope there will be more discussion of this question and real attempts to ensure that all participants in the watch industry are treated fairly.

Note to readers: I asked Sellita if they wanted to comment on this matter but they have not replied to my query as of today.

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