Employers seek to create higher levels of employee
performance as well as high firm profits. Standard employment contracts with
predefined pay may not be offering an appropriate level of motivation for
employees. Research conducted by Kuang and Moser may provide insight into how
such negotiable contracts would work in the marketplace.
Participative decision-making can improve firm
performance in two ways (Zwick 2004) which includes information transference and
employee involvement. In the first case, the transference of information creates
a more efficient organization while employee involvement improves overall
satisfaction with the organization. Both help tie the individual to the
organizations success and mission.
Employees need accurate information in order to make
choices within the workplace. The information disseminates useful data to
employees (Freeman & Lazear 1995) that encourages effective organizational
operations. The more useful information employees have the more efficient their
daily activities and choices become which in turn raises the potential profits
of the firm. Waste can be seen as a byproduct of poor choices.
Such participative management also produces a
psychological effect on employees that raises their satisfaction and morale
(Covaleski et al. 2003). With participative management employees may feel as
though they are part of the organization and will take greater care to ensure
its success. Through such activities, employees change from being the actors to
the authors of their employment status.
Wages are a central factor in
gainful employment and often determine the nature of employee-employer
relationships. Wage negotiation is part of the process of participative
management (Locke & Schweiger, 1979). Employees who have a level of control
over their wages are likely to work smarter and harder in order to raise their
market value.
Research conducted by Kuang and
Moser (2011) studied the psychological effect of a model that offers a
contract, allows the employee to counteroffer and then provides a final offer
the employee can either accept or reject. It is believed that such offers raise
the employee’s aspiration levels which will encourage them to either put forth
more effort or move to another organization. A total of 80 MBAs with
approximately 4.5 years of full-time experience were included.
Results:
-There were differences in firm
profit and employee effort.
-When there is participative
management and adequate employee information there is a reciprocal between employee
effort and firm profit.
-If the firm affords the ability
for employees to negotiate and raise their aspiration levels without adequate
increases in pay once that level has been achieved a negative performance result
may occur.
-Employees prefer no negotiation
if they do not feel the relationship with their employer is equitable.
-Potential negative effects of
mismanaged negotiation processes are more damaging than the positive effects of a
well managed negotiation processes.
Analysis:
Employees, like firms, seek to create higher levels
of pay and resources. Negotiating with employees can raise their level of
performance as they become attracted to and seek higher levels of needs
attainment. However, a poorly designed approach to negotiating with employees
can damage and limit future performance. Successful negotiation provides a
truer economic relationship between employer and employee when compared to
contracts with defined pay as seen in unionized environments. Yet the perceived
equity of those contracts and improved performance by employees relies on
trust, participatory management, and adequate information. Equitable
relationships based on trust result when employees have an incentive to raise
their market value and employers reward employees for their increased value. It is important to note that if the negotiation process is not seen as equitable employee prefer a defined contract without negotiation.
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Kuang, X. & Moser, D. (2011). Wage negotiation,
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contracts. Contemporary Accounting
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Locke, E. and Schweiger, D. (1979)
Participation in decision-making: One more look. In
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in organizational behavior, vol. 1, ed. B. M. Staw, 265–339.
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