Contracts are not the answer to productivity.
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.
Frequently Asked Questions about this Article…
How does employee happiness affect workplace productivity and company performance for investors?
The article explains that happier workers tend to be more successful across income, careers, health and workplace behaviour. For investors, this means workplace happiness can support better productivity, stronger supervisor ratings and promotion outcomes—factors that can help a business operate more effectively over the long term.
What did Peter Reith propose about individual contracts and why should investors pay attention?
Peter Reith urged a return to statutory individual contracts to weaken union bargaining and reduce wage costs. The article warns this can create surly, resentful staff and may damage businesses that rely on skilled, responsible employees—so investors should watch policy shifts that could harm corporate culture and talent retention.
Do individual employment contracts reliably boost productivity?
No. According to the article, individual contracts can cut wage costs but often at the expense of trust and employee morale. They may work short-term for unskilled roles with tight supervision, but for skilled work or where responsibility and retention matter, they can harm a company's long-term performance.
Are monetary incentives like bonuses and merit increases always effective at improving employee performance?
The article cautions they are not always effective. Performance pay can backfire because workers compare pay with peers; favouritism breeds dissatisfaction, and overemphasising money can undermine intrinsic motivation that drives high-quality work.
What research links management trust to worker happiness and why does that matter for investors?
Research by John Helliwell and Haifang Huang found employees who rate management trust highly report significantly greater life satisfaction. The article notes a 0.7-point increase in management trust had the same life-satisfaction effect as a 31% income rise. For investors, higher trust can signal better workplace culture and potentially stronger, more sustainable company performance.
How can workplace trust influence employee retention and on-the-job behaviour?
The article reports that trusted management environments lead to higher life satisfaction and that happier workers tend to earn more, get promoted more often and be better workplace citizens. That suggests trust helps retention, productivity and teamwork—key drivers of consistent business results.
Should everyday investors consider company culture and employee well‑being when evaluating stocks?
Yes. The article argues that a culture of trust and loyalty often produces better outcomes than strategies focused only on cutting wages or paying bonuses. Investors looking for durable performance should factor in corporate culture, management trustworthiness and employee satisfaction as part of their analysis.
What practical approaches does the article recommend for boosting productivity besides cutting pay or enforcing contracts?
The article recommends building trust and mutual loyalty between managers and staff rather than relying solely on individual contracts or monetary rewards. Fostering an environment where employees feel trusted and rewarded intrinsically is presented as a more sustainable path to higher productivity.
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