Suppose you were offered a job or a promotion that gave you higher intrinsic rewards, but required accepting less pay than you could get elsewhere. Might you have concerns that the employer would, at some point, renege on its promise of higher intrinsic rewards—which are harder to observe than pay—leaving you with just lower pay? Even if the manager is being sincere at the time, later on there could be new pressures, perhaps because of profitability concerns, new executives, or a change in ownership.
One thing that might shape your willingness to accept this deal is whether you think the organization’s reputation is important to it, such that it will live up to its promises in order to maintain a good reputation in the labor market. However, David Marsden, a longtime professor of employment relations at the London School of Economics, argued that a stronger signal of an organization’s likely commitment to implicit contracts is its governance structure, which is stable, easy to observe, and difficult to change, unlike perceptions about a desire to maintain some amorphous sense of reputation.
For example, in an investor-owned company with a strong shareholder value ethos, the managers are the agents of investor-owners and are tasked with acting on their behalf to generate financial returns. Because of financial concerns and the ability to buy and sell ownership and assets, employees should be wary of implicit contracts in which the promise of intrinsic rewards offsets lower pay because of managerial incentives and the prospect that new corporate owners or executives will ignore these non-transferable agreements. To the extent that family-owned firms may face weaker shareholder pressures while also embodying stronger social connections, visible ownership identities, and enduring inter-generational transfers of ownership, workers may be more willing to trust implicit contracts at family-owned corporations.
In nonprofit and charitable organizations, conventional owners do not exist as there are not profits to distribute, but donors can be seen as key stakeholders to whom managers are accountable. Moreover, assets are largely non-tradeable and a social mission is explicitly part of the organization’s mandate. So discretionary actions allowed by this model of organizational governance are expected to serve the public good. In an earlier article, my colleague Avner Ben-Ner argued that “an organization’s nonprofit status may serve as a signal of trustworthiness to customers that their well-being will not be compromised by the organization’s pursuit of profit,” and the Marsden theorizing is that this applies to employees, too. Public sector organizations with socially-oriented missions, as in public education, health care, and social services, are theorized to be similar to nonprofit and charitable organizations such that the pursuit of the organization’s mission is likely to remain consistent with respecting commitments made to employees. But public sector agencies with more of a bureaucratic or regulatory function are more likely to have new governments change their orientation, similar to new owners or executives in a private-sector corporation.
Marsden’s theorizing, then, is that organizational features that are easy to observe contain information about the likelihood that the organization will fulfill its promises, and thus we should observe different combinations of extrinsic and intrinsic rewards across different types of organizations. In other words, employees will be less likely to expect breaches of implicit contracts promising higher levels of intrinsic rewards in lieu of pay when certain organizational features are present. Ryan Lamare and I explore this in a new article “Organizational Governance and Trade-Offs Between Pay and Subjective Employee Well-Being: A Comparative Analysis” which will appear in an issue of the British Journal of Industrial Relations honoring Professor Marsden. I’ve created a short animation that provides an overview of our article.
In short, we find supportive evidence across 35 European countries. Moreover, the trade-offs across organizational types appear larger in liberal market economies, like the UK, where there is a stronger shareholder orientation and capital is impatient, compared to coordinated market economies, like Germany, where governance arrangements are somewhat more insulated and capital is more patient. At the same time, employee well-being across all organizational types appears greater in coordinated market economies, which isn’t surprising given the relatively greater strength of labor unions and other pro-worker institutions in that type of country.
Advocates for improving work often focus on work-related laws and institutions such as unions. But we shouldn’t overlook how organizational governance, such as a strong shareholder ethos, also affects human resources and worker well-being.
Source: John W. Budd and J. Ryan Lamare (2025) "Organizational Governance and Trade-Offs Between Pay and Subjective Employee Well-Being: A Comparative Analysis," British Journal of Industrial Relations. https://doi.org/10.1111/bjir.12860.
The article is open access, or you can watch our animated video overview.
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