Employment relationship ( ER) has been systematically studied by man-agement scholars for many decades. Integrating many models, we have pro-posed a framework (see Figure 5.1 on p. 46) that juxtaposes two key considerations in the ER (Tsui, Pearce, Porter, and Tripoli, 1997; Tsui and Wang, 2002). One consideration is the contributions that an employer may expect from the employees including work performance, commitment, sug-gestions for organizational improvement, and so on. The other considera-tion is the rewards (defined broadly) or inducements that an employer offers to the employees in exchange for their contributions. We use the terms ex-pected contributions and of fered inducements to refer to these two major considerations (see Figure 5.1). The nature of the new employment rela-tionship can be understood in the context of this framework.
The new employment relationship is, in essence, a quasi-spot contract (cell 1 of Figure 5.1); it is def ined by a relatively narrow set of inducements
Figure 5.1
The General Typology of Employment Relationships Based on the Inducement-Contribution Framework
Contributions Expected
Inducements Offered
Low/Narrow Low/Narrow
(1) Quasi Spot Contract
(2) Under Investment
(3) Over Investment
(4) Mutual Investment
High/Broad
High/Broad
offered by an employer and a narrow set of contributions expected from an employee. It represents a pure economic exchange relationship, focusing on the short term and on a relatively def ined set of duties. Many well-regarded employers, under competitive pressure, are shifting to temporary, part-time employees or contractors to avoid paying benef its (e.g., Wal-Mart). All of this breaks the traditional employer-employee contract and the bond between the two. Employers adopting this ER are interested pri-marily in a high level of employee task performance, without requiring commitment from the employees to the organization’s overall success. In return, once employees meet the predetermined output expectations, they obtain the promised rewards without a promise of long-term job security from the employers. Though this type of exchange is usually found in re-lationships with contractors in unskilled, skilled, or even professional jobs, its application recently has extended to senior executives. Temporary ex-ecutives, interim exex-ecutives, or so-called corporate samurai are becoming popular in today’s labor market ( Lancaster, 1998; Thottam, 2004). Rather than “having a job,” this new employment relationship form focuses on
“doing a job” (Covey, 1996). Firms use the quasi-spot contract approach to gain f lexibility in the employment and deployment of people resources.
Another form of the new employment relationship is the under invest-ment approach depicted in cell 2 of Figure 5.1. Under investinvest-ment occurs when a f irm offers a narrow set of inducements but in return expects a broad set of contributions from employees. This ER is imbalanced to the advantage of employers because they can get more (from employees) out of less (from themselves). The economic downturn and the slow recovery have increased market competition, which pushes employers to increase pro-ductivity with limited resources. This demanding situation increases em-ployees’ workload while holding inducements constant. Fifteen people now do the work of 20 at the same pay scale! Without noticeable economic re-covery, employees have to sustain such imbalance in the employment ex-change for lack of alternatives. Some labor economists have observed, “Not only are companies making people work harder, but some people want to . . . they are trying to protect their job security” (Conlin, 2002). Gen-eral Electric (GE), propelled by both the recession of the early 1980s and the desire to restructure the business, adopted the under investment ap-proach by laying off thousands of employees, including layers of middle managers, while asking for a high level of commitment from their re-maining employees. This imbalance is a form of disequilibrium that can-not be sustained in the long term. Many f irms eventually migrate to one of the two balanced ERs, the quasi-spot contract or the mutual investment, which is explained in detail later in this chapter. GE today has moved away from the under investment approach. Many f irms that experience perfor-mance pressure inevitably need to under invest in their employees, at least in the short term.
Do quasi-spot contracts and under investment deliver on their promise of f lexibility and firm performance? The answer is not so clear-cut. In ap-pearance, f irms may realize f lexibility in scaling up and down as dictated by market demands. Also, in terms of the short-term balance sheet, f irms may create an attractive bottom line by adjusting employment levels.
However, empirical evidence using systematic research on employee con-tributions to a f irm and the f irm’s long-term strength raises some doubt on the wisdom of f irms choosing these new employment relationship approaches.
Convincing evidence was provided by a study of 10 companies in f ive competitive industries, covering over 85 jobs and involving nearly 1,000 employees in a stratif ied sample (Tsui et al., 1997). The study results re-vealed that organizations adopting the quasi-spot contract and the under investment approaches reported several unfavorable employee outcomes.
These negative outcomes include lower performance as rated by the super-visors, reduced employee engagement in citizenship behavior ( behavior be-yond the call of duty such as helping coworkers), expression of a tendency to leave the company if there were alternative employment opportunities, and less psychological commitment toward the organization. The employ-ees also perceived a lower level of fairness, had less trust in their cowork-ers, and reported more frequent absences. Thus, while firms may gain some f lexibility in employment, they may lose in terms of high performance and commitment from employees.
Another recent study ( Wang et al., 2003) compared the performance (return to asset) of f irms using different ER approaches in over 120 f irms in China (including both domestic and foreign f irms). The results showed that both the traditional Chinese f irms and the multinational corporations had lower f irm performance when they used either the quasi-spot contract or the under investment ER. On the other hand, organization performance was the best when f irms adopted the mutual investment ER approach.