Wednesday, November 5, 2014

Deeper Lessons from Recent Employee Wellness Program Controversies

It’s no secret that employee wellness is an important issue today. As just one example, Honeywell’s wellness program penalizes employees if they don’t complete a biometric screening. According to newspaper reports, the penalties can include a $500 medical plan surcharge, the loss of up to $1,500 in contributions to health savings accounts, and up to $2,000 in tobacco-related surcharges. This has landed Honeywell in hot water because two employees complained to the U.S. Equal Employment Opportunity Commission (EEOC), and the EEOC subsequently filed a lawsuit against Honeywell saying that these noncompliance penalties violate federal law. I’ll let others comment on the legal merits of this case, but I think there are at least three lessons here that go beyond Honeywell and the specifics of this dispute.

First, the emphasis on penalties rather than rewards in some employee wellness programs underscores the need for those who design corporate policies of any type to have a sound understanding of what drives human behavior. If one believes that employees are exceedingly rational (as is common in neoclassical economics), then it shouldn’t matter whether something is implemented as a penalty or a reward. For example, a $500 reward for complying is viewed by a dispassionate ultra-rational person as the same as a $500 penalty for non-compliance.

But research in psychology and behavioral economics demonstrates that real decision making isn’t dispassionately rational; rather, it’s shaped by a number of cognitive biases and limitations. Of particular relevance here is the phenomenon of loss aversion—that is, individuals are significantly more bothered by a loss than a gain. So it probably matters--maybe a lot--whether wellness plans (and many other policies) emphasize penalties or emphasize rewards. Admittedly this is complex. On the one hand, this might imply that companies should design policies around penalties because employees will work harder to avoid them than to achieve rewards. But what seems to have happened here and elsewhere (e.g., Penn State) is that the threat of a penalty seems more coercive than the possibility of a reward, so employees have a stronger negative reaction from the outset when the program uses a penalty-based approach. Maybe these are exceptional examples, but the fundamental point remains—corporate policy-makers need to have a deep understanding of human behavior in order to design effective policies.

Second, the Honeywell lawsuit can be a tale that illustrates the importance of employee voice. The opposition to the Honeywell wellness plan, at least by some workers, harkens back to a year ago when Penn State similarly launched a wellness plan that included a monetary penalty for employees who failed to complete a health questionnaire (a very invasive questionnaire, by the way, that included asking women if they intended to become pregnant, but that’s a story for another day). Unlike many U.S. corporations, U.S. universities have strong traditions of employee voice by key employees (in the form of faculty governance). There was an uproar on the Penn State campus in reaction to this plan, there was a special meeting of the faculty senate in which administrators were told of passionate employee objections, and the penalty part of the wellness program was withdrawn. Maybe it’s just coincidence, but I find it telling that Honeywell is facing a lawsuit because when workers lack a voice, they need to turn to other avenues for redress. Wouldn’t it be better for all involved to resolve many issues through employee voice rather than through the courts?

Third, on some level, it’s natural to have sympathy for Honeywell and other employers. Health care costs are obviously a major challenge, and something needs to be done. But I think the deeper lesson is that this is another symptom of a fundamentally broken system. The U.S. is fairly unique in having a health care system that is so closely tied to voluntary, employer-provided insurance. At its worst, this system can dampen overall employment, contribute to job lock (employees not leaving jobs because of the difficulty in switching health carriers), and burden American employers with anti-competitive costs. And this system isn’t necessarily good for health care delivery, either, because the private health insurance system can increase costs by dividing up risk pools and increasing administrative costs.

We need to remember, however, that corporate American was instrumental in shaping this system in the first place (see Jennifer Klein’s book, For All These Rights: Business, Labor, and the Shaping of America’s Public-Private Welfare State). From the 1940s on, business lobbied against national or universal health insurance so that employees would need to rely on employer-provided benefits, and therefore be loyal solely to their employers, not to the government or even worse, to a labor union! So we probably shouldn’t feel too sorry for Honeywell and other corporations as they grapple with health care challenges in the system that they largely created. More importantly, rather than rearranging the deck chairs on the Titanic by fussing with incentives (and even worse, penalties) through employee wellness programs, fundamental reform that decouples health care coverage from employment should be the real issue of the day.

Monday, October 13, 2014

Another Empowering Story from the UK Miners Strike on its 30th Anniversary

This year marks the 30th anniversary of the UK miners strike. The singular watershed event in U.S. labor relations in last the 50 years is arguably the illegal Professional Air Traffic Controllers Organization (PATCO) strike in 1981. President Ronald Reagan’s firing of the 11,000 striking air traffic controllers is often cited as the event that made it acceptable for private sector companies to aggressively fight unions in organizing drives, at the bargaining table, and by using replacement workers for strikers. In Great Britain, the analogous watershed event is the National Union of Mineworkers (NUM) 12-month strike against the government-run National Coal Board (NCB) in 1984-85, often now referred to simply as the Great Strike.

The strike was extremely divisive. Hard line bargaining stances spilled over into numerous violent clashes between miners and police, with an estimated 10,000 arrests, 1,700 injuries, and a couple of deaths. Politically, the strike highlighted north (poor) – south (rich) divisions within Britain, created fissures within the labor movement and the Labour party, and questioned the fabric of British society. Prime Minister Margaret Thatcher’s opposition was so intense that she labeled the miners “the enemy within.” It was later revealed that MI5, Britain’s domestic CIA, led a widespread surveillance effort which included infiltration of NUM, bugging restaurants frequented by NUM leaders, and tapping the phone of every NUM branch. [For a collection of powerful images, see this Daily Mail retrospective]

Any yet, empowering stories emerge (and not just fictional ones, as in the movie-now-musical Billy Elliot). In stories that parallel the women’s brigade in the General Motors sit-down strike in 1935-36, women became actively involved in the NUM strike in running soup kitchens, speaking to groups around Great Britain to develop support for the strike, and picketing. A daughter, mother, and ex-wife of South Yorkshire miners captured this significant change in a later interview:

The NUM, as far as I can see, put all its eggs in the picketing basket, as they traditionally have, and made no particular provision for dealing with destitution amongst the families. So the women began to see that as well as campaigning there was a need to support the families. That meant going far beyond the traditional housewife role of the mining women. There has been large-scale catering, feeding five and six hundred people in a day; having to raise the money for that, learning to argue for it, to earn it in all sorts of ways, by speaking at meetings and rallies, by collecting on the streets. What they did was to set up an alternative welfare system, and an effective one at that. And these women who had never done anything outside the home before, learning to speak on public platforms to enormous audiences. The change in those women is tremendous. [Source: Vicky Seddon (ed.), The Cutting Edge: Women and the Pit Strike (London: Lawrence and Wishart, 1986), p. 229.]

And now there is a movie, Pride, based on another empowering true story from this strike. A group of gay and lesbian activists in London from a group “Lesbians and Gays Support the Miners” (LGSM) to raise money to support the strikers. One can easily imagine the culture clashes that result when LGSM members travel to a tiny Welsh village (Onllwyn) to personally hand over the donated money, as well as during subsequent reciprocal visits, such as for the “Pits and Perverts” benefit at a London rock club.

I highly recommend this movie to anyone who has the chance to see it. It is a very powerful and uplifting story. Individual struggles among activists and miners as well as the evolution of various relationships are captured with a deft blend of realism and humor. Within the domain of work, the film is a visual reminder that the labor movement can be a champion of social change, but it can be difficult to overcome traditional attitudes. Human resources professionals should also see this movie as a reminder that “diversity” should be very powerfully about human dignity, not superficially about broadening employee demographics to better serve a diverse customer base or enhancing creativity through a mixing of diverse perspectives. But you don't just have to be professionally interested in the domain of work to find this a very good movie. It has it all: human rights and dignity, identity, labor, caring, stunning Welsh scenery, an entertaining soundtrack, and many laughs.

To get you in the mood (or recall it, if you've seen the movie), here is the closing song: Billy Bragg, There is Power in a Union. Which reminds me of Jimmy Barnes, Working Class Man. Though one is British and the other Australian. But I digress. Just go see Pride.

Monday, September 22, 2014

Regulating Work: The Importance of the Geography of the Value Chain

Last week I was lucky to spend two days in beautiful Tuscany at an excellent ESRC-sponsored seminar on employment regulation hosted by faculty from Newcastle (England), Strathclyde (Scotland), and Monash (Australia) universities. As the stimulating presentations unfolded, a pattern emerged: in cases where the geography of employment regulation matched the geography of the value chain, regulation was effective; otherwise it was not.

As Nigel Haworth described, in the New Zealand fishing industry, the state is a robust actor in regulating working conditions on fishing vessels because particularly valuable species of fish are only found in New Zealand waters. So demand for those fish can only be filled by work that takes place there. In contrast, New Zealand recently weakened labor laws for workers in the movie industry because Warner Bros could have filmed “The Hobbit” somewhere else. Regional approaches to governing Italian workplaces match the vibrant pockets of Italian industrial districts (Luigi Burroni), whereas unions in Sierra Leone struggle to represent the large numbers of informal sector workers (John Stirling). And local and national attempts to create safer garment workplaces in Bangladesh and elsewhere have failed because of the ease of shifting production to new locations. So in this case, international standards are needed (Janice Bellace). 
 
Of course I’m not the first to think of these linkages.  In 1909, John R. Commons, the father of American industrial relations, published a once-famous article, “American Shoemakers, 1648-1895: A Sketch of Industrial Evolution.” Commons illustrated how workers’ efforts to improve their working conditions matched the evolution of the shoemaking production process and the nature of the “competitive menace.” When shoemakers were skilled craftsmen largely working as individuals, they formed guilds to prevent unskilled, substandard shoemakers from undermining their standards. When shoemaking became more of a job, workers formed unions, first on a local basis. And as the competitive menace expanded with the extension of the production and distributions systems, local unions joined to become national in scope, and they lobbied for protections in international markets.

Putting all of this together, we can think of the geography of the value chain as ranging from atomistic to global:


And then we must note that effective regulation typically occurs when the geography of the value chain is in the middle range (local and national systems)--this is the “sweet spot” of effective regulation and governance. For value chains that are more atomistic or more global, it is often difficult to establish and enforce labor standards and to give workers effective voice. 

If this analysis is right, it should be particularly alarming because trends in work point toward both ends of the geography of the value chain as increasingly important, not the middle. The effects of globalization on manufacturing over the past few decades is a well-known story, but services, too, are increasingly becoming globalizedfor example, through outsourcing to lower cost areas, such as has happened with legal research and Catholic prayer fulfillment. At the opposite end of the spectrum, in addition to the millions in developing countries who work in informal sectors, there are many atomistic areas on the rise in developed countries, such as the self-employed, independent contractors, and household-based workers such as home health aides.

These are not new issues (see Commons), and they are not easy issues. But they are issues of critical importance. The geography of the value chain is dynamic in today’s organizations and economies. The regulation of work cannot continue to only hit the sweet spot of subnational and national value chains. We need to continue to figure out how to design strategies for governing work—whether privately crafted through unions and other institutions, or publicly crafted through government regulation—that match the dynamism of the geography of the value chain across its full spectrum. Only then will work really work for all.