Wednesday, July 19, 2017

What Happens at Work Doesn’t Stay There: (Poor) Workplace Democracy Promotes (Poor) Political Democracy

The workplace is not like Las Vegas—what happens at work, often doesn’t stay at work. Nearly 250 years ago, the father of modern economics, Adam Smith, worried that mind-numbing jobs would cause workers to lose the ability and motivation to be thoughtful, engaged citizen-people outside of the workplace (The Wealth of Nations, Book V, Chapter I, Part III, Article II). This is perhaps one of the few areas where Karl Marx would have agreed with Smith, and Marx’s rejection of capitalism is deeply rooted in his concerns with the far-reaching, negative effects of work. The detrimental effects on someone’s personal life and on their community might be fairly obvious for workplace injuries, and there is increasing recognition of the mental health risks of lousy work. But does the nature of the workplace affect other aspects of society, like political participation?

Some argue that the workplace can be a breeding ground for pro-democratic attitudes and political behaviors. That is, the use of deliberative and other participatory skills in one’s work can give someone the confidence and the skills to want to participate in the political arena. And hearkening back to Smith and Marx, the absence or repression of autonomous decision-making in the workplace can undercut attitudes and skills that promote political participation, thus weakening political engagement. But does this actually happen in practice, at least to a magnitude we can observe across many workers?

To investigate this, my co-authors and I analyze European Social Survey data on over 14,000 workers across 27 European countries. These workers reported their level of political participation in nine activities (such as voting, contacting a politician, wearing a campaign badge, and belonging to a political party) and also their interest level in politics. Moreover, they also answered several questions on the extent to which they have autonomy and participate in decision-making in their jobs. We combined these several questions into an index of individual voice or workplace democracy.

We then undertake a number of multivariate analyses and find that that employees with greater levels of individual voice at work are indeed significantly more likely to engage in a broad array of pro-democratic behaviors, and we find strong results even when controlling for a wide-range of employee and job characteristics. Or to put this in a negative frame reminiscent of Smith and Marx, dictatorial and authoritarian workplace practices are likely to be related to reduced political participation in the democratic arena.

This relationship appears just as strong as the commonly-accepted relationship between labor unions and political participation. We further show that the results do not appear to be driven by a small number of specific countries; rather, the relationship between workplace democracy and political democracy is one that is apparent across diverse countries, and hence across diverse institutional environments.

These results imply that the importance of organizational practices extends beyond the workplace, and public policy interventions might be warranted to prevent dictatorial work regimes that dampen political engagement. And while we use accepted econometric techniques to account for the possibility that the causal arrows runs from the workplace to the political arena, our findings are still important if causality actually runs from the political arena to the workplace. In such a case, then a participatory workplace should be seen as an important outlet for individuals valuing political involvement. In particular, workplace participation can prevent individuals from getting frustrated or losing their deliberative skills, thus reducing the likelihood that they withdraw from the political arena. So regardless of which way the causal arrow points, the workplace-political engagement nexus is an important one that deserves greater attention.

What happens at work, doesn’t stay at work. Rather, work is an inseparable part of our lives and our communities. As such, it deserves continued scrutiny by all of us. 

Source:  John W. Budd, J. Ryan Lamare, and Andrew R. Timming (forthcoming) "Learning About Democracy at Work: Cross-National Evidence on the Effects of Employee Participation in Workplace Decision-Making on Political Participation in Civil Society,"  Industrial and Labor Relations Review. Click here to read the full paper.

Thursday, June 22, 2017

Employment Relations in a Post-Industrial Post-Democracy Era?

If one had to come up with a shorthand for the values of the field of employment relations, a strong contender would be “industrial democracy.” For starters, employment relations scholars seek to understand the rules of the workplace. Organizations are therefore seen as industrial governments that can be autocratic, technocratic, or democratic. The employment relations ideals of fairness and self-determination are best served by the democratic form of industrial government (“industrial democracy”) in which unilateral, unchecked managerial authority is replaced by orderly rules, participatory rule-making, checks and balances, and due process in dispute resolution. That (non-Marxist/critical) employment relations scholars see the employment relationship as analogous to a pluralist political society in which multiple parties (e.g., employers and employees) have legitimate but sometimes conflicting interests reinforces the preference for decision-making and dispute resolution processes that respect a diversity of rights and interests.  

The main vehicle for delivering industrial democracy has typically been labor unions  because imperfectly competitive labor markets and capitalist legal systems favor employers over individual employees. Labor unions that are legally and financially independent of management are the needed counterweight to managerial power, and are therefore necessary for giving employee voice legitimacy through the negotiation and enforcement of collective bargaining agreements. Consistent with this thinking, labor unions have a long history of promoting collective power as a way to bring democracy to the workplace, and to strengthen political democracy by creating independent and responsible rather than subordinate and repressed citizen-workers. 

We’ve already seen what happens to employment relations and labor unions when the “industrial” part of industrial democracy disappears. That is, the decline of manufacturing and traditional blue collar occupations have paralleled the steady decline in private sector U.S. union density. Though the relationship isn’t necessarily causal, it’s hard to deny that labor unions have struggled as the nature of the economy and the workforce have shifted, and probably not coincidentally, the size of the field of employment relations has simultaneously declined.  

But clearly there should be an important space for post-industrial worker voice as well as for employment relations scholarship. Unions are experimenting with different representation strategies, new institutions (especially worker centers) are emerging to give non-traditional workers a voice, and employment relations scholarship is broadening beyond a traditional focus on labor unions.

But perhaps a new challenge looms…the decline of support for democracy. In “The Democratic Disconnect” (Journal of Democracy, July 2016), Roberto Foa and Yascha Mounk report disturbing trends from individual responses to the World Values Survey. For example, 26 percent of U.S. millennials characterize choosing leaders in free elections as unimportant and 24 percent indicate that democracy a bad way to run a country. These percentages are significantly higher than those reported by older generations. Similarly, 72 percent of Americans born before World War II say that it’s essential to live in a democracy, but among millennials that percentage plummets to 30 percent.

I incorporated these statistics into a presentation I made earlier this month entitled “Two More Problems Facing the Field of Employment Relations, and the Need for Inclusion” at the annual conference of the Labor and Employment Relations Association (LERA). To be honest, I did this primarily to be provocative, and maybe we shouldn’t place much weight on attitudinal surveys. But other indicators keep popping up. In "Why Republicans (and Trump) May Still Win Big in 2020 —Despite 'Everything'," Grover Norquist outlines how the Wisconsin strategy to eviscerate public sector unions (via Act 10) provides a desired model "for Republican political dominance" because "if Act 10 is enacted in a dozen more states, the modern Democratic Party will cease to be a competitive power in American politics" (Ozy, May 28, 2017). In other words, Norquist is championing a blueprint for one-party politics. Other examples consistent with a decline in support for democracy include trends toward greater restrictions on free speech ("Under Attack," The Economist, June 4, 2016) and toward increased support for dictatorships ("America’s Foreign Policy: Embrace Thugs, Dictators and Strongmen," The Economist, June 3, 2017). 

The industrial change was a compositional one, not one in fundamental values. But if support for democracy is truly declining, this could be much more damaging for industrial democracy and for the field of employment relations. The tendency to defer to strong leaders in the name of efficiency and expediency is even stronger in business than in government. If democracy isn’t robustly supported in the political arena, it will presumably be even harder to generate support in the workplace. If achieving post-industrial workplace democracy has been a challenge, imagine the challenge of post-industrial post-democracy. 

So what's to be done? I don’t think there are any easy answers. We need to monitor these democracy-related trends, and if they are real, they need to be reversed. The industrial democracy values of employment relations continue to need champions. Whether post-industrial or not, the values and value of industrial democracy need to be explicitly recognized, not taken for granted.  

Tuesday, May 2, 2017

Are More Stock Options the Answer for Target's Woes?

I’m no expert on stock options or executive compensation. So maybe you should stop reading, and I should stop writing. But here I go anyway…Target Corporation’s latest executive pay plans were revealed yesterday in its proxy filing with the SEC.

The CEO didn’t get an incentive bonus. Makes sense…Target hasn’t been hitting its financial performance targets. Some other top executives received bonuses for strategic initiatives. I have no basis for doubting that these are valuable strategic initiatives, so this makes sense, too.

But I became more confused when the Star Tribune reported the following in today's paper:

Target's board decided to offer more stock options to executives to help keep pay levels up since the company's recently lowered growth targets for the coming year would likely mean financial and performance goals previously used to trigger bonuses won't be reached in coming years.

So…executives are given incentive pay in order to push their performance. And when those performance targets are not met, the natural consequence is to not receive rewards. Hopefully my personnel economics students can tell you that that’s a fundamental principle of incentives. But what Target’s board seems to have done is to add more stock options so that executives don’t miss out on payouts when the performance targets aren’t hit.

My first reaction was that this seems to be a confused understanding of incentives. It’s not really an incentive if there aren’t consequences for failure (alternatively, a lack of rewards for a lack of performance). So is executive compensation really just a game to give executives lots of pay, and the talk about incentives and performance is just a nice public relations spin?

I’m not sure. So I looked up Target’s proxy statement online. In that document, the compensation committee explained that Target has now committed over $8 billion in store and customer-experience investments. These are likely to reduce profitability in the short run, thus making long-term incentive performance targets unlikely to be achieved. So to make up for the presumed lack of long-term incentive plan payouts, additional price-vested stock options were granted.

The principle here seems to make more sense than I initially thought. Those investments are likely important, and it’s important that they be done well. But why not change the performance targets to reflect new realities? And more puzzling (to me, the admitted non-expert on executive pay), why the continued obsession with stock options? Wall St. is notoriously short-term focused. If these store investments are meant to have long-term payoffs, why magnify the linkage between compensation and stock options? And doesn’t this just further reinforce the incentive for executives to buy back shares rather than invest in the business? This latter phenomena is a major issue with our increasingly financialized world

Admittedly, designing effective incentive systems are harder in practice than in theory (that's why I teach the theory!). But new approaches beyond stock options seem to be needed.