Productivity and its rewards: Toward a new work ethic

Employee Responsibilities and Rights Journal, Vol. 6, No. Z 1993

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Productivity and Its Rewards: Toward a New Work Ethic

Eli Bern iker ~

A new American work ethic, needed to effectively compete in global markets, might develop if the wealth created by increased productivity is invested in creating open-ended, mutual obligations withh7 organizations, and socially significant roles for employees beyond organizations. An anthropological perspective is applied to gain sharing to propose allocations that could engender job security, capital formation, enhanced social roles, higher productivity, and a new work ethic congruent with voluntaristic American culture. The proposed gain-sharing allocation supports participative work organization.

KEY WORDS: gain sharing; productivity; work ethic; capital formation self-management.

INTRODUCTION

A new work ethic, better labor-management cooperation, and higher produc- tivity are necessary if industry is to compete effectively in world markets. There now exists no direct, meaningful reward for American workers to expend the energy, to be concerned, and to think creatively about ways to become more productive. There are instead considerable economic and cultural disincentives for them to do so. This dilemma frames the focus of this article:

The issue for our industrial culture is to invent organizational relationships that will lead to sustained long-term productivity gains and a new American work ethic

The old engine of American productivity and enterprise, the Protestant work ethic, (Weber, 1958) was a means to manifest grace and self-respect in society. Although grace could not be gained by deeds, productive work separated one from the lazy, who were certainly damned. Economic success has eroded the Protestant work ethic. We live in a "bottom-line" society, with managers, corporations, invest- ment firms, and CEOs all responding to economic rewards. Workers, however, are still expected to prove their grace in the workplace.

1School of Business Administration, Pacific Lutheran University, Tacoma, Washington 98447.

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0892-7545/93/0600-0161507.00/0 �9 1993 Plenum Publishing Corporation

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THE EFFORT REWARD BARGAIN

Economists tell us that society benefits when each person acts to maximize his or her re turn- -except workers: A worker's wage increases are inflationary and are therefore detrimental. Employers have exclusive claim to all the fruits of em- ployee productivity. In the labor contract, a worker surrenders the product of his or her work activities in exchange for a wage. There is nothing that requires the application of creativity and imagination toward the employer's purposes. Under market conditions, workers need only produce that minimum required to compete in the market. The effort-equity bargain does not call for more. Extra productivity does not assure rewards. Wages, so unrelated to productivity, cannot be a stimulus for productivity.

Thus, the employer's right to all the value created by productivity is main- t a i n e d - at a price. That price is the absence of superior productivity, that is, the incremental increase in productivity that results from the greater investment by workers of intelligence and experience. It is better for employers to relinquish ex- clusive claim to all the benefits of superproductivity and to seek arrangements that produce a bountiful productivity for all stakeholders to share.

Economists also tell us that without productivity growth wages will fall and jobs will be lost. True, maybe, but this applies also to the converse, as the fruits of productivity are often drained away. The old steel plants languished as US Steel siphoned off past productivity on the way to becoming USX. The recent growth in CEO salaries (Gigot, 1992), even in firms in economic decline, undermines worker morale and performance. So why should workers work hard? Indisputably, these developments are disincentives to productivity. The academic answer has been to manipulate motivators (Alderfer, 1977), social information (Salancik & Pfeffer, 1978), culture (Frost et al., 1985), work design (Hackman & Oldham, 1980), im- prove quality of working life (Davis & Cherns, 1975); all means to increase the noneconomic rewards of work or modify the work setting.

ARE NONECONOMIC REWARDS ENOUGH?

Organizational scientists have long urged business and government to improve the motivational potential of work. They assume that the worker will be motivated to greater productivity for the company if the work is designed to intrinsically pro- vide satisfaction and self-respect for the contribution to the worker. Participation is seen as adding social dinlensions to work. All of these approaches have made a valuable contribution to performance improvement. But are they sufficient?

Workplace motivation, the organizational equivalent of grace, suffers two shortcomings. First, it seeks meaning in the workplace, in contrast to the Protestant Ethic, which anchored grace in society with much more powerful effect. We may hypothesize that the impact of workplace innovations will be significantly greater if there are direct effects on the employee's life beyond the workplace, if social roles, self-esteem, and dignity are enhanced. Furthermore, innovations suffer if there are insufficient economic payoffs for increased performance.

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This is clearly recognized in the evolution of a literature about gain sharing. Lawler (1986) points out the many positive effects of gain sharing including better quality, better methods, output increases, and increased financial decision and group process skills. In a study of employee ownership plans (ESOP), Rosen, Klein, and Young (1986) found the surprising result that the size of the company contri- butions had the strongest effects on employee attitudes strongly supporting their "extrinsic gratification" model of the effects of employee ownership. LaMer con- cludes that gain sharing should be a key component in all high-involvement man- agement systems.

THE CHALLENGE

The challenge is to design organizational work and reward systems that pro- duce long-term economic benefits for organizations and their employees and soci- ety. Present gain-sharing approaches suggest, but do not require, long-term mutual obligations. The organization is always free to abrogate such plans in response to market forces. What are the means, in a market economy, to achieve long-term mutual obligations between organizations and employees so that there is a common interest in increased productivity and few disincentives to improved performance? Long-term mutual obligations and a market economy are antithetical modes of or- ganizing economic activity. A key innovation of emerging capitalism was to remove the obligations that bound people to feudal lords allowing their free entry into the labor market and the removal of feudal obligations to such people forcing them to enter the market (Braudel, 1979).

The capital costs of jobs have increased dramatically in the last half century (Berniker, 1992). The average annual increase in petroleum refineries over 35 years is about 50%. Investments of over $1,000,000 in manufacturing jobs are common. At present rates of increase, we can expect many jobs with investments of over $2,000,000 by the year 2000. These investments imply long-term risks. To manage such risks, organizations will require the long-term commitment of their members.

The challenge, then, is to create organization bonds of mutual obligation for the benefit of both employees and employers. It is assumed that such bonds can result in organizational effectiveness and superproductivity.

SUPERPRODUCTIVITY

We define superproductivity as follows:

The increase in productivity, in weallh or value, due to investments by workers of extra efforts and intelligence over and above what is normally expected by the firm and beyond what is achieved through additional capital investment.

How can we reward such results? Or, in terms of the issues framed above, how can the fruits of superproductivity be allocated to produce long-term mutual bonds between employees, organizations, shareholders, and society that will support

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continually improving performance? Society is a stakeholder in any organizational reward system if only because of its powers of taxation. Whatever allocation of rewards is proposed must create support among all stakeholders.

Assume that we have removed many of the organizational impediments to improved performance, that we have an organization able to produce very com- petitively. We have work teams with sufficient autonomy and authority to become effective problem solvers and continuously improve operations. We have changed our relationships with unions so that the adversariai relationship is not a limitation on performance. An adversarial relationship is a luxury only a dominant and well- insulated economy can afford. Information flow is directed to supporting effective problem solving. A culture exists that supports creativity and innovation. In short, organizations will have achieved many of the changes we have been promoting for years. The result can be superproductivity if workers perceive the allocation of the rewards as an equitable exchange for their investment of intelligence and effort.

EXCHANGE THEORY: THE ANTHROPOLOGICAL PERSPECTIVE

The binding of people into effective social units is the core process of all human society (Levi-Strauss, 1969). Anthropologists distinguish between two kinds of exchanges: economic and moral. Economic exchanges, based on bargaining with- out obligations other than those imposed by market conditions, involve closed-end transactions that do not entail future obligations. They imply and preserve the free- dom of the transacting parties.

Moral exchanges are ceremonial and noneconomic and they create open- ended mutual obligations. Central among these was the exchange of women in mar- riage required by the incest taboo. In the path of these kinship exchanges flowed gift exchanges such as the Potlatch of the Northwest Indians. There is considerable evidence that economic exchange followed in the path of ceremonial and kinship exchanges (Maus, 1967). The greatest part of trade occurred between tribes related by such bonds. War was the primary relationship with tribes beyond the kinship network.

Maus (1967) in The Gift summarizes the characteristics of gift exchanges among archaic tribes. Reciprocation is obligatory but indefinite. Groups carry on the exchanges rather than individuals. Marriage bound groups into alliances. The moral obligations created and sustained by such exchanges are the cement from which stable social arrangements are constructed and maintained (Levi-Strauss, 1969). Moral exchanges are open-ended insofar as the obligations between groups continue long after the exchange itself.

The indefinite nature of the obligation to reciprocate gifts is critical. What and how much will be given often depends on the productivity of individuals and groups. Were it not indefinite, the exchange would not generate moral obligations (Levi-Strauss, 1969) and would become simple barter. In modern terms, there is an element of risk associated with moral exchanges that obligates the parties to trust and cooperation.

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What enters into these social exchanges is surplus productivity, outputs beyond what are needed to sustain the families of producers. An analysis of transactions discussed by Maus (1967) suggests that exchanges result in no net increase for any of the participants, In effect, gift exchanges are a form of taxation or contribution to social stakeholders in a group's productivity.

A GAIN-SHARING PROPOSAL

Exchange theory, from the anthropological perspective, suggests that long- term mutual obligations would be created if the fruits of superproductivity are al- located between closed-end economic exchanges and open-ended moral exchanges. The latter exchanges would have to involve indefinite or risky payoffs to stakehold- ers. There follows a proposal for such an allocation of wealth derived from super- productivity.

To illustrate the possibilities, return to the earlier assumption that we have removed organizational impediments to productivity and have functioning work teams in a culture that supports creativity and innovation. A particular work team of twenty members is able to produce increased value equivalent to $1,000,000 over and above the contribution of new:capital investment. That may appear great but it may represent only half of the annual capital cost of their jobs. In petrochemical plants, such increases might b e achieved with small increments of yield or utilization rates. A critical problem will be the measurement and attribution of this productivity increase. In addition, market forces or the financial condition of the firm may not permit the realization of this wealth in an available form. There are many obstacles to be overcome. Notwithstanding these difficulties, let us assume that this new wealth, $1,000,000, is available to benefit all the stakeholders of this productivity.

This wealth can be allocated between closed-end economic transactions and open-ended exchanges. Figuratively, let us divide the gain into four quarters, not necessarily equal. Their relative size is a design issue.

ECONOMIC EXCHANGES: CLOSED-END TRANSACTIONS

The first two quarters of the productivity gain are devoted to traditional re- wards, bonuses and profits. The first quarter goes to the workers as a bonus to be divided according to the contract, team design, or other gain-sharing principles (Bullock & Lawler, 1984). Unions may play a role in legitimizing whatever arrange- ments are made to divide this first quarter. The second quarter goes to the enter- prise as its reward for the opportunity it creates. Both of these quarters are distributed in arms-length, closed-end transactions. Neither firm nor workers incur any further obligations as a result of receiving these rewards. This is the essence of fairness in a market economy. Both firm and employees will pay their taxes and be free to use this wealth as they see fit.

We can expect so successful an economic outcome to strongly motivate both the organization and its employees to continue their productive relationship. In

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practice, the results may be much more problematic (Bullock & Lawler,1984). How- ever, from an anthropological perspective, there is nothing in this bargain to create social obligations or cohesion.

THE THIRD QUARTER: CAPITAL FORMATION AND JOB SECURITY

Open-ended and mutually obligating relationships can be created in commer- cial and industrial organizations by linking superproductivity, capital formation, and job security. The third quarter could become a capital fund invested, at the joint discretion of the work team and management, in the future viability of the work- place. As such, it is a gift of free capital to the firm. In exchange, the firm would be obligated to maintain team employment or to use the fund to provide severance pay.

The role of the third quarter fund as severance pay requires that its asset value be maintained. The investment would have to be repaid. Repayment would also support the relationships between stakeholders. If repayment is at the inflation rate, zero cost in constant dollars, the firm will have access to no-cost capital with- out dilution of stockholder equity. Repayment would be a charge against future productivity increases. In essence, three economic functions--increased productiv- ity, capital formation, and job securi ty--are bound together in an ongoing rela- tionship characterized by shared risk. Pooled with other productivity gains, the uncertain payoff stream creates an obligation to cooperate beyond contractual re- lationships.

We have spoken often about the need to infuse an entrepreneurial culture in our economic organizations. What better way than to give teams access to their own capital? Over time, the work team will develop two sources of increased pro- ductivity, its own work and the judicious investment of capital formed by its past efforts and accumulated in a growing fund. To the extent that it manages its own capital, the work team evolves into a minienterprise within the firm. The care with which the team relates to its own resources will spill over to the firm's equipment since it has a vested interested in reducing the costs of capital. The rate of obso- lescence of past investments will be slowed as workers find ways to preserve the competitiveness of equipment and facilities.

The third quarter would be about $250,000. Will the investment be effective? I know of no shop or operation that would not benefit from the judicious investment of small amounts of capital. It is easier for a General Motors, Boeing, or IBM to spend a million dollars than $25,000. A telecommunications manager could not get $20,000 to automate a simple function with PCs but she had no difficulty signing on the same amount in weekly overtime. Bureaucratic costs preclude useful small investments.

Teams could invest their capital, with management concurrence, very wisely. As they learn to manage their own capital, they will also learn to husband the capital resources of the firm becoming entrepreneurial in practice, not just spirit. These benefits will accrue to the firm at no shareholder cost since ownership is not being diluted and capital is available at no cost.

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As the process unfolds over the years and across many work teams, a large set of mutual interests and shared risks will have emerged between the firm and employees based on their shared capital. The value of the firm will be enhanced as will their competitive advantages.

The third quarter is intended to create long-term mutual obligations between firms and their employees by linking superproductivity to capital formation and job security in ways that create shared risk and incentives for cooperation. Yet, it is not within the power of such arrangements to generate a new work ethic. A work ethic must be based in society beyond the firm.

FOURTH QUARTER: SOCIETY'S STAKE

Three quarters of the productivity gain have been devoted to the organization and its internal stakeholders as rewards and investments. Society is also a stake- holder in work group productivity. Society sanctions the enterprise, enables it to gain resources, protects it, and provides it with infrastructure. The ability of an enterprise to command resources depends on its value to society. If for no other reason, society will have to tax this productivity. Were all of these gains to be dis- tributed as profits and bonuses the taxes might have consumed one third.

The taxing of productivity is seen as punishment of success. In all societies. the most productive elements of the economy carry most of the burdens of sup- porting social arrangements. We resent taxes because the public has so little influ- ence over their expenditure and waste. Let us accept the necessity of society's claims on superproductivity and inquire about means to meet those demands for the bene- fit of society, employees, and economic organizations.

Anthropologists provide us a view of the many ways that societies gain the resources needed to sustain themselves as social entities. A Gururumba native in New Guinea harvests an enormous yam and calls a party to enjoy it. The particularly bountiful yield is an occasion for sharing. The exchanges of Native American Pot- latch ceremonies resulted from accumulations of goods from smaller reciprocal ex- changes. The native celebrates his success with his contribution. Sharing expresses his virtue in the fullest meaning of that term: industry, diligence, manliness, and morality (Maus, 1967). Gift giving confers honor, authority, respect, and power to the donor.

Gift exchange emerges as social taxation of surplus productivity. Archaic so- cieties made a virtue of taxation. Latent in such tribal practices is a means to create a new American work ethic that would tap some of the same strengths of the origi- nal Protestant ethic.

QUALITY OF LIFE

The teams could allocate the fourth quarter towards improvements in the quality of life of their communities. These expenditures would link superproductivity with expanded and empowered roles as citizens and with social status in the com-

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munity. In addition, they would create a link between the success of the enterprise and society's benefit. It would establish a working elite who derive self-respect, es- teem, and influence from the ways the fruits of their superproductivity are applied for the community's benefit. The team would be able to celebrate its success in its community gaining that very dignity that Luther meant by a "calling."

The expenditure of this fourth quarter should be designed to fit the demo- cratic and voluntaristic nature of American culture. No prescriptions can be offered here. Each organization will have to invent its own future relationships with its community. However some scenarios can be envisioned.

The twenty-member work team would have approximately $250,000 to spend on their community. How significant can this be? A superintendent of a school district with a $15,000,000 budget is unlikely to have more than $25,000 in discre- tionary funds. Thus, the team can have a considerable influence on areas such as education. The budgetary crunch experienced by schools across the nation has led to the curtailment of many educational programs. The team might directly support a desired program. Grants, for learning materials and enhanced classroom experi- ences, or in support of the professional aspirations of teachers, would create a pro- fessional relationship between teachers and empowered parents.

Merit pay has been proposed as a fix for the educational system. It is neces- sarily an administrative and bureaucratic nightmare with little potential for useful outcomes. However, were several teams to independently decide to reward such teachers as they regarded as exceptional, bypassing contracts, administration, and the employment relationship, we should expect positive results including increased professional status for teachers.

The implementation of multiple, independent, and voluntary decisions by many teams would inject market mechanisms into public services. As schools, teach- ers, and other community services position themselves to gain such rewards, the teams will emerge as "clients" of public services with the attendant respect. Team members would gain significant community status and influence as paying clients of community services. The result would be status beyond any available from in- crements to salaries.

Community recognition of the fruits of workers' knowledge and skills can add external societal meaning to work that is the key to a successful work ethic. That meaning may be multiplied manifold within the family, when it also serves to convey the significance of the parents' work to their children. Few are the workers whose work can gain the respect of their children. Thus, this fourth quarter payoff offers rewards hitherto unavailable in the employment relationship and its contractual re- wards.

The major challenge of tile fourth quarter may be the preservation of team collaborative processes. The expansion of team concerns beyond the workplace brings with it potential for conflict and dissolution of teams. Care should be exer- cised in developing team processes capable of managing these new opportunities. One useful way to eliminate internal politics may be to require unanimous consent for any community expenditures (Wolf, 1976).

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ORGANIZATIONAL IMPACTS

Many ways can be invented to organize the allocation of superproductivity gains. Each organization will have to develop its own path. Over time, the work team will develop two sources of increased productivity, its own work and the in- vestment of capital formed by its past efforts and accumulated in a growing fund.

An important benefit to enterprises, unions, and society will be a self-sustain- ing work ethic. The competitive culture of the enterprise is enhanced. Corporate citizenship and union membership would be given significant and direct expression as employees become the best representatives of the company and the union in the community. If productivity rewards are granted quarterly or annually, the events can become occasions for community celebrations and the invention of rituals to add ceremony to working lives.

SUMMARY

In summary, principles derived from anthropology suggest that the fruits of superproductivity should be allocated between profits and bonuses in traditional closed-end transactions and open-end transactions that lead to long-term mutual obligations based on shared risks. By linking superproductivity to capital formation and job security, the basis for employee involvement, empowerment, and coopera- tion is enhanced while providing economic benefits to all stakeholders. By enabling teams to contribute part of the gains to society, the linkage between the community, the enterprise, and employees is strengthened and the resulting honor and status will sustain a new work ethic.

These are but rough notes intended to extend horizons in the public debate on the future of American industrial productivity and to challenge present under- standing of the potentials of gain sharing. It will take considerable innovation, ex- perimentation, and boldness to implement such reward systems. However, if a new engine for productivity increase emerges, the benefits will justify the endeavor.

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