The New Deal at Workby Peter Cappelli
In The New Deal at Work, Cappelli helps managers to understand the dynamics shaping today's market-driven workforce. According to Cappelli, the new employment contract creates pressing dilemmas for employers: How do you encourage commitment in your workforce when you can no longer promise long-term security? How can specialized skills be developed when training/i>… See more details below
In The New Deal at Work, Cappelli helps managers to understand the dynamics shaping today's market-driven workforce. According to Cappelli, the new employment contract creates pressing dilemmas for employers: How do you encourage commitment in your workforce when you can no longer promise long-term security? How can specialized skills be developed when training programs are being pared down or eliminated? The New Deal at Work reviews steps that managers can take to develop critical employee skills and maintain employee commitment - even in the context of a market-driven workforce. The New Deal at Work is at once a comprehensive chronicle of the chain of events that have changed the relationship between employers and employees, and a perceptive look at how many companies are already responding to the new trends. Cappelli's insights will help managers as well as those who study the changing nature of organizations to understand what employees are searching for in their careers, and how companies can adjust to meet these new expectations.
- Harvard Business Review Press
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The New Deal at Work
The old employment system of secure, lifetime jobs with predictable advancement and stable pay is dead. What killed it were changes in the way firms operate that brought markets inside the organization. In the process, labor markets were also brought inside the firm, and the pressures they create are systematically undermining the complex system of human resource practices that made long-term careers the staple of corporate life.
While employers have quite clearly broken the old deal and its long-term commitments, they do not control the new deal, which is fundamentally an agreement is negotiated between employer and employee. It is an open-ended relationship that is continually being redrafted. Which side gains and loses depends on bargaining power, which in turn stems from the state of the labor market.
The end of the old system created a crisis for the employees who were in it. The administrative arrangements that had buffered employees from the market came to an end and, with that, job security. But what about employers? How does it change the way they operate? What we see as the traditional model of employment, in which employees were developed inside the firm and managed according to principles internal to the company, was designed to solve many problems for employers. And as that traditional model erodes, those problems resurface, this time against the backdrop of new constraints in the form of the labor market.
The new deal at work, where the employment relationship is now an open-ended negotiationbased on market power, creates fundamental challenges for management. Addressing them begins with an understanding of the nature of the relationship between employers and employees in the workplace and how it serves the interests of employers.
The Psychological Contract
One aspect of employment that sets it apart from other economic transactions is the virtual impossibility of managing employees through explicit contracts. Most jobs are complex enough, especially inside organizations, that it is impossible to specify in advance all of the duties and performance levels that are required, and the cooperation of employees is needed to fill in the blanks. For example, one of the most effective techniques of industrial action that unionized employees use to punish management is the "work to rule," in which employees carry out their tasks precisely according to written employer instructions or union contracts, doing only what those contracts indicate. When they withdraw their cooperation and do only what they are told, the unique problems that occur daily in a workplace but cannot be specified in advance are left unaddressed, and the time-saving techniques that workers have developed themselves are put aside. The performance of the workplace comes to a halt.
Observers of society have long recognized the limits of coercion as the basis for compliance and the advantages of having individuals comply voluntarily with rules or expectations. In the workplace, what causes employees to cooperate with management in pursuit of the organization's goals? The answer turns on the nature of the deal, or contract, between employers and employees, an understanding about mutual obligations and responsibilities that is both explicit and implicit.
Individuals pursue the interests of their employer in part because they believe they will eventually be rewarded for doing so. The key element in this model is how long the period of reckoning is. The more immediate it is, the more time and effort are spent haggling over the terms. One of the problems that plagued the British economy through much of this century was the daily negotiating and recontracting involved in exchanging effort for reward. Every change in the workplace that affected the pace or nature of the tasks performed led to time-consuming negotiations between shop stewards and supervisors for additional compensation, negotiations that had to be completed before the work could progress because the parties did not trust each other.
When the period of reckoning increases, the nature of the exchange requires trust and the related concept of commitment. In the absence of an explicit contract, employees have to trust that their efforts will be rewarded in the longer term. That trust requires first that they believe there is a longer term, that the relationship will continue, and second that the employer has policies in place that will ensure the employee is properly compensated in the long run. In most corporations, these policies include income security in the form of stable careers and lucrative pensions. But the most important has been promotions. There is a long literature documenting both in theory and in practice how promotions are used to reward good performance. From the employer's point of view, promotions provide a very efficient means for rewarding and motivating superior performance. The reckoning period can be a long one, with the promotion typically given in return for many years of good performance. There's no need to specify exact performance targets, and because there are no targets, there's no need to constantly monitor performance. Promotions work well for employers. The employer relies on competition between candidates to drive performance levels higher and to push the employees to do whatever it takes to meet the employer's needs. For the employee, promotions are a very desirable prize in that they typically represent sizeable increases in compensation, increases that several studies have found more than compensate for the additional job demands.
What persuades workers that, years down the road, they will get the reward of promotion for good performance is that they have seen it happen before. At this point, the relationship goes beyond a simple economic contract to a process that psychologists refer to as modeling. The accomplished workers getting big rewards serve as role models for the employees they now supervise. Those employees subconsciously model the behaviors and job performance that their supervisors exhibit.
With modeling, the explanation as to why employees comply with the interests of the organization moves from the calculus of self-interest to more behaviorally based explanations. These focus on the concept of commitment, how employees come to see their own interests as being similar to those of the organization. The concept of reciprocity is central to understanding how employment relationships foster employee commitment. Reciprocity refers to the sense of obligation that one feels to repay gifts, a value that has been identified as underlying every culture on the planet.
A clever laboratory experiment illustrates the power of reciprocity. In the control group, a student is assigned to a room and given some menial task to perform. Another student is sent into the room to work on the same task. The new student then strikes up a conversation and mentions that she is selling lottery tickets to benefit a college organization. In a typical case, the first student agrees to buy some tickets, although generally a small number. In the experimental group, when the new student enters the room, she comes in with two bottles of coke--both opened--and says, "I got one of these for myself and thought you might like one as well." A gift. This time, when the pitch to buy lottery tickets comes, the first student buys four times as many as the student in the control setting.
Imagine how new employees experienced that reciprocity norm under the traditional corporate model. Right after leaving college, where they paid large amounts of tuition, they enter a training program that seems a lot like college and may go on for more than a year. Unlike college, they don't have to pay anything. In fact, they are being paid a salary even though they don't have to do anything for the organization, and they would not know how to do it even if they had to. Surely this experience must feel like a gift to the new employees, and it creates a sense of obligation to reciprocate. They reciprocate with commitment to serve the goals of the employer.
Studies that follow employees in such circumstances over time have found that new entrants believe that they owe their employer a great deal and that the company owes them relatively little. As time goes on, their view of the relationship changes. The longer they are with the company, the more they believe the company owes them. Perhaps this reflects their own investments in the organization. The longer they stay and the more they have contributed, the more they believe the company owes them in return. Most companies do act like they owe long-service employees more by giving them special benefits that are at least implicitly linked to seniority. Studies find that, as long as they continue to meet acceptable performance levels, employees tend to get more rights and privileges in organizations the longer they stay.
Psychologist Denise Rousseau has described in detail how these assumptions about obligations come to create psychological contracts. Contracts are voluntary agreements based on promises about the future behavior of the parties. What differentiates psychological contracts from legal contracts is that they are based on an individual's perception of the appropriate obligations and generally are not tied to any formal or written documents. Long-standing practices create expectations among workers that are incorporated into their psychological contracts. For example, the fact that large companies in particular generally gave workers job security created a sense that companies were obligated to do so. A survey of employees in the mid-1980s documented this perception in finding that a majority believed employers could not fire workers without just cause, that is, unless the individual workers were in some way poor performers. In fact, employers had the legal right to dismiss workers virtually at will.
The psychological contract that accompanied the lifetime corporate employment model represented an exchange of job security and predictable advancement for loyalty and good performance. And employees complied voluntarily with the goals of the company not only because they saw it as being in their long-term interests but also because of a perceived obligation to the organization. That contract was important, especially for managerial jobs, because so much of the work done in large corporations involved discretion, making it virtually impossible to set explicit performance requirements in advance. Employers had to find some way to secure the cooperation of employees because explicit contracts and compulsion would not work. Managers were committed to the organization not only because they thought they would be rewarded for their loyalty but also because they could not leave. Freedom to move to other companies, especially for middle managers, was generally quite limited. The lifetime employment model helped produce desirable behaviors and attitudes on the part of employees, such as low turnover, the development of organization-specific skills, and commitment. Long-term job tenure complemented the company's need for a predictable set of skills and for the development of the relationships and knowledge needed to coordinate its increasingly complex organization.
It is worth pointing out that the deal for blue-collar workers was never quite like the one for managerial employees. In unionized settings, the deal was a hard-fought contract, a legal document, around which both sides were constantly seeking an advantage. The deal required employers to provide much more job security than employees would have on their own, and it certainly helped encourage long-term relationships with employees. But it did not develop what we generally think of as commitment on the part of the workforce in the same way as did the deal for white-collar workers. That is, blue-collar workers did not necessarily identify with the goals of the organization. In many workplaces, the goals of the employees as represented by their union were explicitly in conflict with those of the company. As a result, any violation of this relationship meant something quite different for these workers from what it meant for the management workforce.
As described in Chapter 3, the advantages of the old relationship essentially evaporated when the competitive environment changed. Long-term investments and obligations became burdens as it became difficult to predict what skills would be needed in the future. Loyalty became dependence on employers who could no longer deliver on their side of the deal.
The New Deals
A great many employers have attempted to articulate a new relationship, a new contract with their employees. What this new deal really means, however, may not bear much resemblance to the carefully crafted language coming from human resource departments. And its effect on employers is likely to be just as profound as it is on employees--and much less appreciated.
The changes in the employment relationship that have occurred since the early 1980s that represent a break from the old deal include reductions in employment security, declines in internal development, and increases in the risks that must employees bear. They represent the backdrop against which employers are attempting to rewrite their deal with the workforce. Most employers understand the profound way in which they have unilaterally broken the old deal: two-thirds report that they have ended policies of job security, as indicated in Figure 1-1.
Just as employers did not broker the old deal out of altruism, they did not break it out of spite. Harsh economic realities made it necessary. But within companies, human resource departments in particular began to worry about the long-term consequences of this broken contract. In particular, they were shocked by the collapse of employee morale. Many HR executives believed that its collapse would cost their organizations in terms of employee performance. (Whether or not they were right in this belief is another matter, as noted later in this chapter.) Figure 1-2 suggests the extent to which those companies which eventually redrafted the deals with their employees perceived various problems with their workforce, strongly suggesting that these morale and trust issues were the motivating force.
These HR executives found a receptive ear among the cadre of senior executives who had ordered the downsizings and restructurings that broke the old deal. Dennis Sullivan, vice president of organizational development at GTE, noted that one of the motivating factors behind the old deal was to make senior management feel good about the way it was treating their workers: "I think a lot of corporate executives during that period really had a need to feel loved by their employees." They were being made to feel pretty guilty about breaking the old deal by their communities and the press. "Corporate killers" was a commonly used epigram for these executives. Their concern about the negative effects of morale and their own guilt led them to articulate new deals for their workers.
Employers are generally extremely reluctant to put anything in writing about employment, even abandoning established employee handbooks, as they were counseled by their lawyers that written statements can tie their hands and create legal liabilities. Given this, the fact that almost half of U.S. employers in 1996-1997 produced written material outlining new deals for their employees is astonishing; it suggests how important the employers believed this effort to be. The vast majority, 84 percent, reported that their policies and actions conveyed the essence of a new contract to the workforce.
What does the new deal say? Many of the first attempts to outline it were driven simply by the interest on the part of top management to limit employee expectations, to make certain that they understood that the old deal was dead. Here is a typical example of such a presentation:
You have to accept responsibility for your own personal excellence, be accountable for your commitments, and understand that the customer is the most important factor in our business life. We cannot guarantee you job security any more than we can guarantee our success in the marketplace. Job security is earned by market success. Each of us must keep the company alive, vibrant, competitive, and growing. You can expect us to trust you, and you need to have trust in management. You can expect us to respect you and create a positive work environment.
What is particularly notable in this description of the new deal is that it demands a lot from employees but offers little in return. And what it does offer employees is platitudinous and vague: trust and respect. In its initial restructuring in the mid-1980s, General Electric issued similar statements to its employees that were designed to break the old deal:
On Job Security: "The only job security is a successful business."
On Loyalty: "If loyalty means that this company will ignore poor performance, then loyalty is off the table."
On Values: "Performance without values will not be rewarded. Values without performance earn a second chance."
The General Electric statement goes further in managing expectations by making it clear that loyalty per se is not that valuable in the new deal, but it also differs from the preceding statement in that it is clear about what the company expects from employees: behavior consistent with company values is the key outcome.
Apple Computer "Apple Deal," a written contract between the company and every full-time employee initiated in the 1980s, reflects an approach to employee relationships that is common in Silicon Valley and predates most of the other new deals. While equally blunt in limiting employee expectations of the company's obligations, it offers more from the company in return:
Here's the deal Apple will give you; here's what we want from you. We're going to give you a really neat trip while you're here. We're going to teach you stuff you couldn't learn anywhere else. In return ... we expect you to work like hell, buy the vision as long as you're here.... We're not interested in employing you for a lifetime, but that's not the way we are thinking about this. It's a good opportunity for both of us that is probably finite.
AT&T has experienced one of the most dramatic changes in its employee relationships and has introduced a series of new policies to help define the new deal. AT&T executives described the old deal as one in which "the employee provided a fair day's work and a tremendous sense of loyalty, commitment, and dependability. For its part, AT&T rewarded most employees with a fair day's pay, a secure future, and an opportunity to rise through the ranks. Managers and professionals were virtually assured of lifetime employment." With the breakup of the Bell System and the competition of deregulation, an AT&T executive noted, "the company moved to encourage entrepreneurship, individual responsibility, and accountability. Rewards were more closely tied to performance and, most dramatically, surplus employees were let go. Thus, AT&T's psychological contract died in the 1980s." When security ended, loyalty and commitment became casualties as well.
AT&Ts effort to draft a new deal began with pressure from unions. Mary Anne Walk, the company's vice president for labor relations, observed that "Both sides agreed that we needed to prepare our employees for the future--either with AT&T or another company." Several new programs contribute to the new deal:
* The Alliance for Employee Growth and Development is a company-funded subsidiary operated jointly by the company and its unions. Its goal is to identify trends in workplace demands and skill needs, pass the information onto employees, and provide them with help in making themselves marketable both within AT&T and to outside employers.
* Resource Link (for managers) and Skills Match Center (for union employees) are programs that place surplus employees in an internal pool that the company draws on for temporary assignments. While the initial interest in these programs grew out of a desire to reduce the churning of the workforce--firing and then hiring from the outside market--40 percent of the participants in the Resource Link program have joined voluntarily, not as a result of being declared redundant. They do so to broaden their skills. Half of these volunteers are in information systems and technical positions where skills deteriorate quickly and the need to update them is more intense. Particularly for these workers, the internal temping programs may also create some stability by offering a buffer against changes in the business.
* Workplace of the Future is a series of representative councils with union representatives intended to allow for participation in more business decisions affecting employees.
* Changes in management compensation link it to employee satisfaction levels, helping to create a sense of accountability among top managers to the concerns of lower-level employees.
As with most companies, GTE's effort to redraft its relationship with employees began with evidence of sharp declines in morale following corporate restructuring and layoffs. The company began discussions with employees in 1993 with a frank description of the old deal: the company provided paternalistic management, promotion from within, seniority-based pay, training, and job security. In return, employees offered compliance, loyalty, willingness to be directed (to relocate or change careers), and a lifetime of service. GTE then put forward a new deal that promised some key differences:
* The employer will provide candid leadership, pay linked to performance, a learning climate, the offer (my emphasis) of training, opportunity for development, and information on where the business is headed.
* In return, employees will provide superior performance, initiative and opportunism, commitment to business success (not loyalty), and readiness to change.
Not all of the new deals had the same features, of course, because not all companies had the same set of problems. But the central components of virtually all of them include the following:
* At least an implicit acknowledgment that the employer can no longer offer job security. Not even career security, a long-term relationship in which jobs might change, can be guaranteed. The most honest of the contracts go further and offer the obvious caveat emptor: Because we cannot guarantee your future, you have to start taking charge of it yourself.
* The most important thing the company needs from you is your skills. But the company can no longer be responsible for identifying and developing those skills. You, the employee, have to take on that responsibility. Some of the deals go on to argue that the company also expects employees to follow the values of the organization, to embrace them as long as they are in the company's employ.
* In return, the company offers several things. Implicit is that it will try to keep employees with the company as long as the economic environment makes that possible. Virtually all of the deals go on to say that the company will also provide employees with the means and opportunity to develop their skills in ways that will help ensure that they can have career advancement, even if it takes them away from their current employer. Most of the deals add that the company will also offer the employees more challenging and exciting work than they have had in the past and reward them for good performance.
These contracts reflect genuine concern for the human problems caused by the enormous changes in the way employers now must operate and acknowledge the need to talk straight about the changes that have taken place. And they reflect the main human resources problem facing companies through the mid 1990s, the need to shed workers. The documents themselves, however, are problematic along several dimensions. While they are quite honest about what the employer can and will no longer do for employees, they cannot deliver on the promise of reconnecting the workforce to the employer. What they end up reinforcing is a vision of a highly contingent deal at work that causes some significant problems for companies. Here is what these deals really say--and don't say--about the new relationship.
They outline a new set of obligations that employees must now bear, such as managing their own careers and developing their own skills. They make it clear that the company will keep them in jobs only as long as the relationship works for the company. No matter how these new deals are sliced, they make the employee feel like an independent contractor who has a very contingent relationship with his current employer.
Employees are encouraged to direct their attention for career management outside the firm, to the market, where they are frequently told that their long-term prospects lie. Some of the contracts explicitly say that employees should be benchmarking their skills against the demands of the market and thinking about careers that will eventually move them to better positions at other companies. A positive spin on this message is that employees need to think more like professionals whose ultimate allegiance is to their skills and their careers. The negative but equally appropriate implication is that employees have little reason to identify with their current, no doubt only temporary, employer.
At the same time, the contracts explicitly require that employees "live our values," which implies something much deeper than a professional relationship. It strongly suggests commitment. This statement generally comes right after one telling the employees to identify with their own careers and look to the market for career guidance. It also comes after the mention of how company offerings such as job security. which helped create employee commitment in the first place, will be no more.
The new deals say little about how the employer might help employees reconnect with the workforce at large. The economic commentator Robert Kuttner observed that "without a reciprocal commitment by management to a long-term relationship, the employee who buys into the partnership model is being romanced for a one-night stand." The offer of more challenging work and greater pay for performance is always phrased as "in return, we will offer ..." to suggest that these changes are a quid pro quo for employees taking on the greater risks and responsibilities of managing their own career. In fact, the changes in these practices are not really a quid pro quo but something that the employers would do in any case, simply reflecting new ways of work that increase performance. As outlined in Chapter 3, systems of empowerment and increased responsibility have gained tenure because they cut costs. Greater rewards for organizational performance create incentives for individual effort and also shift risk onto employees. While these changes may benefit employees, the companies have made them not because they benefit the employees but because they increase organizational performance. They would make them even if the employees would not buy the new deal.
The most crucial part of the deal--and the one apparent element of reciprocity--is the promise on the employer's side to help support the development of employee skills. This does seem like an explicit quid pro quo for the charge that employees take on the responsibility for managing their careers and developing their own skills. If the new deal has any real meat to it, any reciprocity, it turns on this offer of help with skill development. Most of the new deals refer to this as the "employability" concept: We cannot offer you security with our company, but we can help you to secure skills that will keep you employable, that will lead to some security in the labor market by helping you find other jobs.
But can the employers actually deliver on this? It depends on what is meant by "developing employee skills." To the extent that it means making investments in employees, it confronts serious obstacles. The chapters that follow articulate how the pace of change has made it much more difficult for companies to make any long-term investments in employee skills pay off, even when the company is directing those skills. As described more fully later in this chapter, other aspects of the new deal will make it even more difficult for employers to overcome those problems than it has been in the past. To put it bluntly, will companies really be willing to make investments in skills that they know will walk out the door? The new deal has internal contradictions that result from companies' efforts to be honest about what they need from their employees and will be able to offer in return while at the same time trying to give employees some grounds for optimism. But there is a bigger and much more fundamental problem that undercuts the whole notion of a new deal with the workforce. The problem is that a deal or contract cannot be set unilaterally by one party. It takes two to make a deal.
What companies have done with their new deals is to make an offer to employees: This is what we want the deal to look like. How closely their offer resembles the deal that ultimately results depends on bargaining, negotiations, and the relative power of the parties. Think about some analogies. You post a help-wanted ad that lists what you want in an applicant: someone who is smart, qualified, responsible, hardworking, committed to your organization, and, oh yes, willing to work cheap. There is a very good chance that you will not find anyone who fits that description. What you might find is someone who meets many of those characteristics but is not willing to work cheap. And so you bargain and compromise. The deal you end up with is very different from the deal you propose.
It may seem obvious that management cannot impose a deal unilaterally on new applicants, but what about current employees, especially those with long service who may find it difficult to leave? Consider another analogy. You have a long-term relationship with a friend or a spouse that you would like to change. You put forward a new deal: From now on, I'm expecting you to take more responsibility for our relationship, to pay for more of our entertainment, to go to more of the places I like. If your friend or spouse is really committed to the relationship, he or she might try to accommodate your needs. But you might also find the person changing the deal in other ways. He or she might come back at you with his or her own set of demands. Or you might find the person telling you to take a hike--relationship over.
So, for companies, announcing the new deal is only the beginning of a process of arriving at a new employment relationship. One of the characteristics of the deal is that it is difficult to tell in the short run whether employees have bought it. There may be many aspects of employee behavior associated with the new deal that are difficult to monitor, such as "living our values." Other aspects may take a long time to observe, such as whether employees develop the skills that are useful to the employer (as opposed, say, to some future employer) or whether they leave as soon as a good option appears. As a result, it is very possible that employees have not bought the new deal and that their employer just doesn't know it yet.
The extent to which employers will be able to implement their version of the new deal and to which employees will force drastic revisions depends on power. And power in a negotiation depends almost entirely on one thing: options. The most crucial principle in the science of negotiations is what many observers refer to as the best alternative to a negotiated agreement, or BATNA. If I do not accept your deal, what are my options? If I have only one job offer and really need to work, I have little power, and the employer making that offer, with other candidates waiting in the wings, has lots of it as we negotiate a final deal. Once I start receiving other offers that I like just as well or better, the power in the negotiation process shifts to me. If I seem to be the only really qualified applicant for a given position (that is, the employer has no real options) and I have lots of other offers, then I am in a position to dictate the terms of the deal.
Consider the recent experience that employers have had in recontracting employment relationships. The most straightforward of these has been the collective bargaining experience in securing concessions from trade unions beginning in the early 1980s. I described the process at the time as one in which management found itself under extraordinary pressure to cut costs and approached unions with its version of the new deal: Take lower compensation and reform work rules or watch jobs disappear. Unions generally took that deal because they had no option. If they resisted with a strike, then the company would likely fail altogether. Later on, however, the unions realized that the companies had no option, either: If the unions did not agree, then the companies would fail and their managers would be out of work. Then the unions were able to negotiate changes to the deals that were more beneficial to the unions.
During the period from 1981 through the mid 1990s, described in more detail in Chapter 3, when companies were unilaterally changing the terms and conditions of employment with downsizing and other restructuring trends, employees bought it because they had no choice. Because all companies were going through roughly the same trend, there were few other job options. Companies may well have been able to recontract the employment deal unilaterally for managerial employees, especially middle managers who had worked their way up the ranks in the same company. Where could they go when their knowledge base no longer had value in that company? Unionized employees wanted to stay largely because they would lose crucial seniority benefits by moving.
But that world is long gone now. And one of the factors that changed it has been these efforts by employers to communicate the new deal to their employees. Now the incredible contradiction of the new deal in the workplace is clear. At the same time that employers are seeking to impose a new deal on their employees unilaterally, they are actively encouraging those employees to get the kind of information and skills that will allow them to pursue better options in the market. It is difficult to imagine an equivalent analogy. Suppose a car dealer gave you a price that was much worse than you wanted and at the same time gave you information and training on how to get competitive bids from other dealers. Or your lover told you that while he or she was hoping to stay with you, more would be expected from you from now on. What's more, your lover was going to help you become more attractive to other partners and help you figure out who else might like you. It is hard to imagine anyone staying with either deal.
The most important aspect of the new deal, in fact, is not the new obligations demanded of employees or any of the implied quid pro quos. It is the message conveyed indirectly by every aspect of the deal that employees are now operating in the market. The suggestions that employees think of their career as going beyond their current employer, that they benchmark their skills against the changing requirements of their field, that their current position may be at risk for a variety of reasons all send the message that the most important connection they have is not to their current employer but to the market. No doubt a great many employees got that message, even before these efforts at drafting a new deal, from the waves of downsizings, the outside hiring, the market-tested compensation systems, and the other changes in practice that effectively unraveled the old system.
To recap, the new deal that employers have presented to their workforce represents an honest effort to limit the expectations of their workforce and articulate what management currently believes it can provide and what it needs from employees. But that is simply an opening bargaining position in the negotiation over what ultimately becomes the real deal. The fundamental characteristic of the real deal between employees and employers is that the relationship is no longer defined inside the company or described by internal development policies such as training, compensation, and promotion practices. It is now much closer to a market relationship in which the governance is outside the firm, in the market. That does not mean that the relationship has to be short term. We are not all temps. Long-term relationships can also be governed by the market. Suppliers and customers can and often do have lifelong relationships with each other. But even in these relationships, the prices charged and the characteristics of the deals change depending on relative bargaining power, which is ultimately determined by the market.
Perhaps the most immediate and powerful evidence that the market is now in charge of employment even in large corporations is the relatively short lifespan various new deals are having. Leading companies like GTE, GE, Xerox, Merck, Pitney Bowes, AT&T, and others began thinking intensely about redefining their deal with employees in the early 1990s, when it became clear that the churning of their workforces was not a temporary phenomenon and that the old arrangements were gone for good. By 1994, they were beginning to talk through new deals in their workplaces. By 1995, the efforts went public. By 1996, the discussion was full-blown, with conferences and consultants weighing in on how to draft a new deal.
By the end of 1996, however, the labor market began to tighten, especially for technical skills. And by 1997, while companies were still interested in the issue, the attention of these leading companies had shifted to new policies designed to make them "employers of choice." What "employer of choice" means is simply that its policies and practices, the terms and conditions of employment in its workplace, are at a high-enough standard to attract employees away from competitors and to keep their own employees from leaving. "Employer of choice" is simply a way of saying that the employment relationship is market based, the labor market is tight, and we have to respond--by benchmarking to learn about and then match compensation packages, offers of training, work, and family accommodations, whatever it takes to recruit and retain employees. The "new deals" as articulated in company pronouncements just months earlier are essentially dead. The real new deal is whatever it takes to get and hold the skills we need in the market. This kind of deal making is on the rise.
GTE was one company ahead of the pack in understanding this change. By 1996, it had essentially put its "new deal" on hold, recognizing that its main problem had already shifted from the need to get rid of employees to that of attracting highly skilled new ones and retaining those it already had. Even at the middle-management level, where most companies were cutting, GTE anticipated skill shortages because of the rising job requirements created by flatter organizations and more specialist knowledge. GTE's "new" new deal accommodates a larger role for the human resource function as an advocate for employee concerns as a way of recruiting and retaining the talent needed to run the organization and as a way of trying to reconnect employee loyalty. Career development, for example, is no longer seen as an employee responsibility but as a shared responsibility between employee and employer.
So the real new deal is simply the market. What employers have to offer in order to recruit, retain, and ensure adequate levels of performance from employees will change based on the relative bargaining power of the parties. That power, in turn, is shaped by their options, by the relative pull of supply and demand.
It may be tempting to think of the new relationship as something like free agency as in professional sports or the workings of temporary help agencies, where employees hop from employer to employer, doing essentially the same work at each stop and moving whenever they receive a better offer. There are some jobs--in which the tasks are self-contained, short term, and common across organizations--that fit this model. But they are few and far between. Management positions in particular do not fit this model. A manager's tasks are by definition interdependent with others in the organization, are relatively specific to each organization, and take some considerable period to complete. These jobs do not lend themselves easily to free agency or contract-style relationships. They are much more suited to open-ended relationships in which the obligations and tasks need to be adjusted as situations change. Performance can then be observed, and rewards allocated accordingly. Some level of mutual commitment and trust is needed to facilitate changing needs, as are some skills that are unique to the organization.
At the same time, the pressures from markets and the need to restructure organizations and competencies mean that truly long-term employment relationships are largely dead. The pressures to shed obsolete skills (compounded by the uncertainty of knowing which ones will be obsolete) and the problem of poaching skills from other employers make it difficult to maintain commitment and trust, develop skills internally, and retain important skills. The defining problem of the new relationship, therefore, is how to graft the model of the market onto those occupations for which it is poorly suited.
So the new employment relationship represents an uneasy balance between a long-term relationship and a spot market, an open-ended relationship that is shaped by pull of the market. As explained in the introduction, it is less like marriage or dating than serial monogomy--several long-term relationships that either party can end unilaterally, each shaped by possibilities. The parties are constantly negotiating their commitments in light of uncertain future needs and opportunities. Pressures from outside the relationship, from the labor market in particular, are now the important forces shaping the nature of the relationship. When labor markets are slack and jobs are difficult to find, employees become more loyal to their employer and bear most of the costs of restructuring; when labor markets tighten, employee commitment falls and employers become more willing to make investments in their employees. The relationship may well turn out to last a long time, but it is continually being redefined by the power of the market.
Analogies with marriage in particular and personal relationships more generally make many people nervous because in those cases a temporary relationship suggests a failed relationship. But consider the relationship that alumni have with their schools, a relationship that is clearly temporary in that students leave--one way or the other--in short order. Yet many alumni have a deep commitment to their alma mater, often much stronger than to their current employer, despite the fact that their experience with their school was only temporary, often long ago, and they had to pay to for it. Temporary relationships are not necessarily bad relationships. The commitment and loyalty seems to be driven by
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