Reith is wrong: happier staff means greater success in the workplace

Contracts are not the answer to productivity.

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? Reintroduce statutory individual contracts and split workers off from their union so they lose all bargaining power.

It is a good way to minimise wage costs if you don't mind having a surly, resentful staff, if they are 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, particularly those they consider equals. In other words, play favourites with pay and you're just as likely to create dissatisfaction.

The other thing to remember is that when you establish a culture in which 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 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, roughly a quarter of surveyed workers who rated trust in management at 9 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 5 or below.

And get this: for the whole sample of workers, a change in management trust 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 manger should see there's 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.