Managers need to understand why employees deserve fair compensation

Managers must learn why workers deserve a fair share of the spoils

In general, it can be said that business schools on a global scale, according to authoritative analysts and critics, lack the diversity that fosters empathy and, ultimately, could cure the evil of salary stagnation. It seems that dwelling on this question is vital to realizing that the share of productivity gains going to employees has been stagnant for several years now. And it is these critics who argue why it is the directors, managers (and all kinds of middle managers) who should know why workers deserve a fair share of the spoils. It is important to clarify that it is logical that in the business activity the profits obtained by the company are shared with the shareholders, because this is so due to the legal dynamics that regulate the behavior of corporations in general. But what does not seem to spill over to the staff is a salary increase more in line with their effort and participation, because they have contributed to those benefits being obtained.

When asked why do corporations exist? the conventional answer is to maximize shareholder returns, although it should be explained that corporations have other stakeholders, such as customers and the local community

 

André Spicer, who is Professor of Organizational Behavior and Head of the Faculty of Management at Bayes Business School, City, University of London, says that “for more than a decade, I taught a course on business ethics. Each year, I would start with a simple question: why do corporations exist? “To maximize shareholder returns,” a student would reply. Then another would explain that corporations have other stakeholders, such as customers and the local community.

But this professor says things always got more complicated when he posed a real business problem: What if you run a company facing increasing competition from foreign rivals with a lower cost base? Should you cut dividends or cut labor costs? Often the answer was the latter.

This professor also indicated that it seemed to him that his students were not alone, since a recent study carried out by Daron Acemoglu of the Massachusetts Institute of Technology, who is a Turkish economist (1967) born in Istanbul, Turkey who currently resides in the United States, where he is Professor of Economics at the Massachusetts Institute of Technology, along with Alex Xi He from the University of Maryland and Daniel le Marie from the University of Copenhagen, who according to the results of this research found that managers educated in business schools had more likely to favor shareholders than employees.

In their paper, titled Eclipse of Rent-Sharing, the authors found that employees who work for companies run by a business school-educated manager earn, on average, 6% less in the United States and 3% less in Denmark. . Companies run by business school-trained managers are not more productive or innovative, but they do have higher share prices (5% higher in the US) and better return on assets (3% higher in Denmark). Their CEO is also likely to be paid more.

What if you run a company facing increasing competition from foreign rivals with a lower cost base? Should you cut dividends or cut labor costs? Often the answer was the latter

 

The pattern Acemoglu and his colleagues identified is part of a broader trend

The pattern that Acemoglu and his colleagues identified is part of a larger trend. While corporate productivity has continued to rise for the past 40 years, the share of productivity gains going to employees has stagnated.

There are many reasons for this, including the globalization of supply chains, the waning power of unions, the increasing role of automation, and the shift from higher-paying manufacturing jobs to lower-paying service sector jobs.

Yet the rise of business school-trained managers explains about 15% of the stagnation in wages since 1980 in the United States.

In 1980, just over a quarter of the largest American companies were led by professional managers. Today, that number is almost half. Although the percentage of European companies run by managers trained in business schools is lower than in the United States, it is also growing. For example, in 1995 about 11% of Danish CEOs went to business school. Today that number is 19%. Business school-trained CEOs often bring with them the ideas they absorbed in the classroom.

The two ideas that have had the biggest impact are maximizing shareholder value and reengineering business processes. In many finance and accounting classes, students learn that the purpose of the corporation is to maximize shareholder value. In operations management classes, they often learn how business process reengineering can be used to eliminate labor costs and increase profitability.

The Acemoglu article took issue with this approach. On the one hand, it shows that the ideas we teach in business schools have a profound impact. On the other hand, it seems that this impact is not entirely positive. The ideas taught by business schools have helped improve stock prices and CEO pay, but they haven’t made any difference to innovation and efficiency. More worryingly, though, these insights have helped fuel one of the great economic ills of our time: stagnant wages.

If Acemoglu is right, business schools need to change what they teach, how they teach it, and who they teach. The good news is that part of the transformation is already underway. Friedman’s doctrine, that corporate social responsibility is simply increasing profits, is out of the question. The vast majority of business schools place greater emphasis on maximizing value for a wide range of stakeholders. We must be fair and recognize that business schools are promoting this change in mentality and are modifying (in fact, they have already been doing so in recent years) their teaching methods. Instead of dry case studies, students are increasingly likely to face complicated “big challenges” from the real world.

They are asked, for example, how to deal with the risk of flooding in Pakistan, the refugee crisis in Europe, or hate speech in the United States. It is by unraveling these wicked problems that students begin to understand the broader role that business plays in today’s society.

The one area where business schools have made less progress is who they teach: classrooms are often filled with people from affluent backgrounds. A class full of elite members may be good for building networks, but not for generating empathy.

Harvard associate professor of economics Gautam Rao found that when school-age children were placed in classes that were a mix of the affluent and less affluent, they were more likely to share and volunteer, and less likely to discriminate. Perhaps business schools should take inspiration from Rao’s study and introduce more socioeconomic diversity into our classrooms.

If we can do this, tomorrow’s business leaders are more likely to share the productivity gains a bit more fairly.

Companies run by business school-trained managers are not more productive or innovative, but they do have higher share prices (5% higher in the US) and better return on assets (3% higher in Denmark)

 

Why managers deserve more understanding.

Do not exaggerate in sympathy, but the work is necessary and demanding. Horrible bosses loom large both in reality and in the popular imagination: if people leave their jobs, they often do so to escape bad bosses. And any praise for decent bosses is tempered by the fact that they usually get paid more than the people they manage: they must be good.

A world without managers is a good idea. But teams need leaders, regardless of the quality of the people in charge. Someone has to make decisions, even bad ones, to keep the corporate machine from bogging down with endless arguing. That’s true even in the flattest organizations.

In a paper published in 2021, the researchers described an experiment in which several different teams participated in an escape room challenge. A few randomly selected groups were asked to choose a leader before the task began; the rest were not. Teams with leaders did much better: 63% of them completed the challenge in one hour, compared to just 44% of the control group.

Why do managers need to understand the needs of employees?

Knowing your employees well leads to better results and higher productivity. When managers understand their employees well and vice versa, there is hardly any problem and organizations become a better place to work.

The rise of business school-trained managers explains about 15% of the stagnation in wages since 1980 in the United States

 

Importance of knowing your employees

Knowing the employees plays a crucial role in motivating employees to give their best. Knowing the employees helps managers understand their needs and expectations of the organization. It is also true that managers need to know if their team members are happy with their work or not. They should not make their employees feel ignored or excluded, as they would hardly contribute to the organization.

Meet the employees

Unless and until employees feel indispensable to the organization, they will never take things seriously. In such cases, people attend the office only to receive their monthly payroll transfer into their Bank account and treat the work as a mere source of charge.

Why criticize the boss

Do you ever think about badmouthing your family, friends or relatives? Absolutely not. So, why this tendency to always criticize the BOSS? Why don’t we feel like coming to our office while having so much fun at home? Have you ever wondered?

Managers need to understand that employees need to be appreciated in order to perform consistently. Make them feel special.

When work is not recognized

Problems arise when managers do not recognize the hard work of employees. Keep in mind that they are not paid simply to sit at their job and perform their duties. Similarly, the manager or middle manager is not paid to sit and give instructions to employees all day.

There are managers who don’t even know their team members well. You have to sit down with team members on a regular basis to get to know them, evaluate their work, and provide accurate feedback.

In operations management classes, they often learn how business process reengineering can be used to eliminate labor costs and increase profitability

 

The responsibility of guiding team members

Managers and other middle managers have a responsibility to guide their team members and help them achieve their goals within the stipulated time frame. Do you know which team members are really contributing to the organization and who are just coming to have fun in the workplace?

 

 Appreciate employees who perform extraordinarily

Reward them appropriately. Employees feel happy and proud to be part of the organization when their performance is noticed and explicitly recognized. Knowing employees well leads to a healthy work culture.

When employees know each other well, they rarely fight and criticize their coworkers. Conflicts and misunderstandings not only spoil the atmosphere in the workplace, but also increase people’s stress levels. Employees get frustrated and find it extremely difficult to get results in such circumstances.

Managers and middle managers should not prevent their employees from speaking with people representing other departments

What is the problem if people have friends in the workplace? Everyone is mature enough to understand that there are certain things that are confidential and should not be revealed.

Team leaders should also talk about a person’s family, personal life, relatives, etc. from time to time, but yes, do not interfere too much in their personal lives. They should not ask something that is too personal for an employee.

The ideas taught by business schools have helped boost stock prices and CEO pay, but they haven’t made any difference to innovation and efficiencies

 

Employees feel happy when managers connect with them on a personal level

They look forward to coming to work every day, they face challenges with a smile, and they also constantly push themselves to take their organization to the top. Employees must be made to feel responsible for the organization, that they are committed and made to understand that their projects or work responsibilities are like their own children and they must be sincere and take good care of them.

Managers need to know the names of all their team members and understand where all their team members are missing and what initiatives would make them better professionals. Knowing your employees well leads to better results and higher productivity.

When managers understand their employees well and vice versa, there is hardly any problem and organizations become a better place to work.

Focus efforts on the technological aspect of the business, neglecting human resources

In today’s ultra-competitive global economy, organizations must take all the steps necessary to ensure they are as competitive as possible. Although advances in technology in recent decades have meant that organizations have often focused their efforts on the technological side of their business, those that have neglected their human resources have struggled despite the technology. Today, employees drive productivity, customer satisfaction, and profitability.

With this in mind, companies in a variety of industries have realized the important role their employees play in their continued success. Hiring and retaining the best employees equals greater efficiency and effectiveness. This increase in efficiency and effectiveness equates to increased company profitability, which leads to increased market share and industry success. As such, hiring and retaining quality employees has never been more important than in today’s business world.

We must be fair and recognize that business schools are promoting this change in mentality and are modifying (in fact, they have already been doing so in recent years) their teaching methods. Instead of dry case studies, students are increasingly likely to tackle tricky, real-world “big challenges.”

 

To retain or not to retain talent: that is the question

The question then arises: why do some companies, divisions, or even managers seem to be able to consistently hire and retain the cream of the crop, while others do not? Do managers really get the staff they deserve? By analyzing the psychological contract between employee and employer, the impact of organizational structure and culture, group dynamics and leadership, motivation and performance management, it can indeed be shown that managers get the right people. What they deserve.

The psychological contract

The term “psychological contract” was coined in the 1960s. Argyris used this term to refer to mutual obligations, values, expectations, and aspirations between an employer and an employee that go beyond formal employment contracts. It is an unwritten and tacit agreement between employee and employer in which both parties assume certain expectations and obligations.

Horrible bosses loom large in both reality and popular imagination: if people leave their jobs, they often do so to escape bad bosses

 

Is money the most important motivator?

The common misperception is that money is the most powerful motivator on the list of psychological contracts. This is simply not true. For employees, these expectations can include a variety of non-monetary factors, including:

– Safe and hygienic working conditions.

– Job security.

– Challenging and satisfying job.

– Impartial personnel policies and procedures.

– Opportunities for personal and professional development.

– Respectful and considerate treatment.

Whereas, for employers, this psychological contract may include:

– Employee acceptance of the organization’s ideology.

– Diligent work by the employee to achieve the objectives of the organization.

– Do not abuse the goodwill of management.

– Maintain the image of the organization.

– Demonstrate loyalty and maintain positions of trust.

– Maintain dress and appearance in a reasonable and acceptable manner.

This psychological contract is a powerful tool to motivate and retain staff.

When each party’s contract expectations are met, both are satisfied with their relationship. However, when expectations are not met, one or both parties are left unsatisfied and as such present faceted challenges such as productivity and employee retention.

Each psychological contract is unique and depends on the individual, even if the positions of two employees are very similar within the organization. These people develop their unique expectations of an organization early on, sometimes even before they enter the recruiting-hiring phase.

A world without managers is a good idea. But teams need leaders, regardless of the quality of the people in charge. Someone has to make decisions, even bad ones, to keep the corporate machine from bogging down with endless arguments

 

The psychological contract changes throughout employment

When an employee first starts at a company, their expectations are based on very little real information about the company. It is formed mainly on guesswork. This also applies to the employer’s contract, as they have little information on what to really expect from their new hire. However, as your relationship progresses and you become more familiar, your expectations naturally change.

Perhaps an employee now realizes that there are many more opportunities for career growth with their employer than they originally expected. Or perhaps an employer realizes that the employee won’t be able to progress as quickly as she hoped.

 

Changes should be evaluated periodically

To continually employ and retain the best possible staff, a manager must find out from the employee what is on the list of expectations in his or her psychological contract, both early in the relationship and throughout the relationship. In addition, the manager must find out whether or not the employee feels that these expectations are being met. If not, they need to be further analyzed.

Are the employee’s expectations unrealistic?

If so, to ensure employee satisfaction, the manager needs to show this to the employee and perhaps create a new, more realistic expectation in this particular area.

If the employee’s expectations are not met, but are realistic, then the manager must take the necessary steps to help fulfill this contract. By doing so, he will create happier and more productive employees, who will stay with his organization longer than if they were dissatisfied.

Employers often have misconceptions about their employees’ psychological contracts. If managers misjudge what is in an employee’s psychological contract, this will increase the employee’s dissatisfaction with the job and cause them to be less productive or to leave the organization altogether.

Knowing the employees plays a crucial role in motivating employees to give their best. Knowing employees helps managers understand their needs and expectations of the organization

 

Managers must share their expectations with their employees

Rather, managers must share their expectations with their employees, both as new hires and as they change over the course of their developing relationship. If a manager has expectations that the employee will be instrumental in achieving an organizational goal, this should be communicated to the employee. If an employee does not live up to an expectation, this should also be expressed so that the employee has the opportunity to make the necessary changes to fulfill the employer’s psychological contract. The doctrine agrees that only through understanding both sides of the psychological contract can managers hope to attract and retain the best people.

Safeway, a UK food retailer, is a prime example of using psychological contracts to retain employees, even at times when most would be walking out the door. In December 2003, a takeover battle for the company unfolded. In most situations, like this one, organizations find themselves with numerous employees leaving due to perceived job and organizational instability. However, Safeway management focused on the psychological contracts between the organization and staff and maintained an open dialogue. The end result was employee retention that exceeded expectations and increased morale throughout the organization.

Culture and Organizational Structure

McLean (1993) describes organizational culture as a collection of traditions, values, policies, beliefs, and attitudes that drive the way members think and act within an organization. The motivation and commitment of the members of the organization can be encouraged or discouraged due to the organizational culture.

Organizational culture is one of the facets that affects employee productivity, innovation, adaptability to change, and acceptance of new technologies. These aspects critically affect the competitive advantage of an organization compared to other organizations within its industry.

This information has been prepared by OUR EDITORIAL STAFF

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