In the quest to lift the flagging productivity of labour, we can go back to old, failed ideas or move on to new ones. Last week Peter Reith came out of retirement to urge the Liberals to get tough with workers and reopen class warfare.
Want to get more out of your workers, make them work at unsociable hours for normal hourly rates, keep wage rises tiny or simply whittle away at their conditions? Re-introduce statutory individual contracts and split workers off from their union so they lose all bargaining power.
Does this mean you spend most of the year negotiating one-on-one with your employees because Mary wants to leave early on Mondays, Jenny and Julie want to job-share and Bill wants time off to do a tech course?
Hell, no. That's just the advertising. In reality you get your lawyer to cook up a single contract document that runs all your way and tell each of your employees to feel free to leave if they don't want to sign.
It's a good way to minimise wage costs if you don't mind having a surly, resentful staff, if they're supervised tightly enough for you to be confident they won't be able to find ways to get back at you, if they're mainly unskilled and if unemployment is high.
But if their work is skilled, if you need them to accept a high degree of responsibility with limited supervision, if there are shortages of skilled labour and rival employers are on the poach, it's a great way to damage a good business.
I'm sure there are second-rate business people urging the Libs to restore their former ability to screw their workers with impunity, but I hardly think it's the way to a brighter, more productive future.
The first stage of employer enlightenment comes when they seek to improve employees' performance with monetary incentives: merit increases to selected workers, bonuses or other forms of performance pay.
This approach makes sense to model-bound economists and money-minded executives, but industrial psychologists know it often backfires. Workers do care about pay, but they care less about the absolute level of their pay than about its relative level - that is, what they're getting compared with others are getting, particularly those they consider their equals. In other words, play favourites with pay and you're just as likely to create dissatisfaction as satisfaction.
The other thing to remember (which many economists and business people don't) is that when you establish a culture that good performance is rewarded with money, you tend to demotivate people from performing well for other, more intrinsic reasons. You debase the currency, so to speak.
What never occurs to second-rate managers - the sort of managers who run to politicians for legal solutions to their inadequate relationships with their workers the sort who never reach the ultimate stage of human-relations enlightenment - is that most workers want to work in an environment in which they can trust their bosses and be trusted by them, where they can give and receive loyalty.
Why wouldn't you want to work in such an environment? Recent research by two Canadian economists, John Helliwell, of the University of British Columbia, and Haifang Huang, of the University of Alberta, shows that life satisfaction - happiness - is significantly higher among workers who work where they rank management trustworthiness highly.
For example, the roughly one quarter of surveyed workers who rated trust in management at nine or 10 on a 10-point scale also rated their satisfaction with life at 8.3 on a 10-point scale, compared with an average of 7.5 for the quarter or more who rated trust in management at five or below.
And, get this: for the whole sample of workers, a change in trust in management of just 0.7 points had the same effect on life satisfaction as a 31 per cent change in income. But why should a hard-headed manager care about the happiness of the people working for them?
Well, one reason is that, unless managers are money-hungry to a quite inhuman extent, they themselves would get more satisfaction being the boss of an outfit where everyone gets on and pulls together.
Even a manager should see there is more to life than money (and, please, spare me the sermon about how corporation law requires you to maximise profits for the shareholders). But, if that's not a good enough argument for you, try this: longitudinal research finds that happier people tend to be more successful in all dimensions of their lives - their incomes, their careers, their health and their relationships.
It's not hard to believe successful people are happier, but this is saying the reverse: being of a happier disposition tends to make people more successful. More specifically, happy workers make more money, receive more promotions and better supervisor ratings, and are better citizens at work.
So, if employers want to offer a satisfaction-inducing working environment, what must they do? The British psychologist Peter Warr has identified five factors as important to job satisfaction. First, opportunities for personal control. This means having some discretion - autonomy - in how to tackle problems, apply skills and envisage outcomes.
Second, jobs with a variety of tasks. Many jobs are naturally varied but highly repetitive jobs are soul-destroying. When workers work in teams, roles can be shared.
Third, good supervisors provide a balance of freedom and supervision. The ideal ratio of positive to negative feedback is about six to one.
Fourth, jobs that afford people respect and status are likely to engender feelings of competence and pride. In the best organisations, the respect that is inherent in some high-status jobs can be extended to all jobs.
Finally, have clear requirements and information on how to meet the requirements.
Frequently Asked Questions about this Article…
How does trust in management affect employee happiness and productivity?
Research cited in the article (Helliwell and Huang) shows workers who rate trust in management highly also report higher life satisfaction — for example, the top quarter who scored trust 9–10 averaged 8.3/10 life satisfaction vs 7.5 for low-trust workers. The article also notes happier workers tend to be more successful at work (higher incomes, more promotions and better supervisor ratings), so higher management trust can translate into better productivity and company performance.
Do merit increases, bonuses and performance pay always boost worker performance?
No. The article explains that monetary incentives can backfire: workers care about their pay relative to peers, so perceived favoritism can create dissatisfaction. It also warns that paying people solely for performance can crowd out intrinsic motivation, meaning financial rewards don’t always deliver the intended productivity gains.
What are statutory individual contracts and how might they impact a business?
The article describes statutory individual contracts as single, employer-drafted agreements that split workers from unions and limit bargaining power. They can reduce wage costs, but the article warns they often produce surly, resentful staff and can seriously harm businesses that rely on skilled, autonomous employees or face competition for talent.
In what situations might tougher workplace rules or individual contracts actually reduce labour costs successfully?
According to the article, using tough contracts or restrictive conditions is most likely to lower labour costs when staff are largely unskilled, tightly supervised, and unemployment is high — conditions that limit employees’ ability to leave or retaliate. The piece cautions this approach is risky for firms needing skilled, responsible workers.
What workplace factors reliably increase job satisfaction and could improve company performance?
The article highlights five factors (from psychologist Peter Warr): 1) opportunities for personal control and autonomy, 2) a variety of tasks (not soul‑destroying repetition), 3) good supervisors who balance freedom and supervision and give about six positive comments for every negative one, 4) respect and status extended across roles, and 5) clear requirements and information on how to meet them.
Why should everyday investors pay attention to a company's treatment of staff and workplace culture?
The article argues that happier, trusted employees tend to be more productive, earn more promotions and perform better. For investors, this means companies that foster trust, respect and good job design may generate stronger and more sustainable operating performance than companies that rely on cost-cutting or punitive labour measures.
How can pay favoritism or unequal merit rewards harm a company's workforce?
The article points out that workers judge pay relative to peers, so playing favourites with pay can create as much dissatisfaction as satisfaction. That dissatisfaction can reduce morale and motivation, undermining the intended benefits of selective merit increases or bonuses.
What practical signs should investors look for that indicate a company values employee wellbeing and long-term productivity?
Based on the article, investors can look for signals such as evidence of strong management trust, transparent and fair pay practices (not excessive reliance on one‑off performance payments), investments in autonomy and job variety, supportive supervision and clear role definitions. These traits are linked in the article to higher employee satisfaction and better long‑term performance.
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