May 31, 2013
Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University’s Graduate School of Business. He attended the Center’s Aging Workforce conference to add his expertise on organizational culture and employee health to the discussion. He has written extensively about evidence-based management practices, the paths to power, and high commitment work arrangements. In a recent interview with the Center, Professor Pfeffer discussed how companies can create efficient and productive work environments for employees of any age.
What are “high commitment” work arrangements? How are they an effective tool for retaining workers of any age?
The most fundamental management practice is employment security. SAS Institute is always on the list of best places to work. At the start of the big downturn, their CEO noticed that employees were distracted and worried about their futures. So he put out a memo and said, look, we’re not going to lay anybody off. They didn’t have a big growth year, but they had one of their more profitable years. People responded to this economic security by working harder for the company because the company activated the norm of reciprocity. But this is the opposite of what many companies do. If you’re going to have employees come and go, then you’re not going to do most of the things required to build a high commitment work environment, such as investing in training, sharing information, or investing a lot of time and energy in recruitment and getting the right people into the organization.
Why should employers implement high commitment work arrangements?
The evidence suggests that companies who practice high commitment work arrangements are more successful than those that don’t. But beyond the bottom line, I think that if we live in a society that actually claims to value human life, as people on both the right and the left say that they do, then we actually ought to take human lives seriously. There ought to be a moral undertone to what organizations do.
If a company were trying to implement a high commitment work arrangement, what kind of retirement benefits would it offer its employees?
You would offer them reasonably generous retirement benefits. SAS, for instance, has always had a very, very generous match. I’m not sure you want people hanging on by their fingernails because they can’t afford to retire. There’s also an enormous amount of epidemiological literature on the effects of economic insecurity on health and mortality. One aspect of economic insecurity is – will I have enough money in my old age? That’s something, as you know from the data, that people are very concerned about.
Many companies are shifting the responsibility for retirement saving from the employer to the employee. What are the risks of this decision?
The risk, of course, is that people will mismanage their retirement assets. As you recall, Adam Smith talked about the division of labor and the advantages of specialization. Now we want every human being in the workforce to become an investment expert, which doesn’t make any sense. You’re asking people to make complex decisions that they have not necessarily been trained to do. Nor would it make sense to train everybody in the finer aspects of investment. So the risk is one of economic insecurity.
What the characteristics of a good employee incentive plan?
I would argue that the best incentives are incentives such as profit-sharing or employee stock ownership plans, where you tie employee well-being to the economic well-being of the enterprise. Additionally, collective rewards are a way to encourage knowledge sharing and teamwork. Individual rewards set people against each other, and most organizations require cooperation and knowledge sharing.
Is there anything else that you want to add?
People spend eight hours a day or more at work; work is where a lot of things happen. So I think companies have a responsibility to consider – not to weight 100% but at least to enter into the conversation – the effects of their decisions on people’s psychological and physical well-being.
Note: Interview has been condensed and edited for space and clarity.