Employee Relations8 CHAPTER

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To early skeptics, The Container Store seemed like

an odd retail concept. Who would choose to special-

ize in selling containers, shelving, and home storage

items, let alone make a profit from it? Yet with $800

million in annual sales, The Container Store manages

to do both. The Container Store is a storage and

organization retailer that sells over 10,000 products

to meet consumers’ needs, from desktop organizers

to laundry racks and closet solutions.

When cofounders Kip Tindell and Garrett Boone

started The Container Store in 1978, their vision was

to take a “solutions-based approach to retail” by

selling products that would save consumers time

and space. Throughout the years, The Container

Store gained widespread notoriety, not only for its

eclectic assortment of goods, but also for its unique

and compelling corporate culture. Perhaps most

strikingly, the retailer views shareholders as less

important stakeholders than customers and employ-

ees. Such a strong emphasis on corporate culture

over profits might appear risky, as every business

requires profits—and the goodwill of shareholders

and investors—to survive. However, rather than dam-

aging The Container Store’s bottom line, its culture

has caused the company to thrive. Six principles

serve as the foundation of the retailer’s approach:

! One great person equals three good people.

In terms of business productivity, one great

person is equal to three good people.

! Communication IS leadership. Simply put, we

want every single employee in our company to

know absolutely everything.

! Fill the other guy’s basket to the brim. Making money then becomes an easy proposition. Business is not a zero-sum game. Someone

doesn’t have to lose for someone else to win.

! The best selection, service, and price. We

work to offer a well-edited, carefully curated

collection of 10,000 products, expert advice

and service that customers delight in, and

competitive prices.

! Intuition does not come to an unprepared

mind. You need to train it before it hap- pens. Our extensive training, coupled with our employees’ life experiences, allows them to

intuitively solve all of our customers’ storage

and organization challenges.

! Serve the man in the desert. Imagine a man

lost in the desert. He stumbles across an oasis

where he’s offered a glass of water because

he must be thirsty. But if you stop to think

about what he’s just been through and what his

needs really are, you know that he needs more

than just water. He needs food, a comfortable

place to sleep, and much, much more.

! Air of excitement. Three steps in the door and

you can tell whether or not a store has it.

These principles demonstrate the importance of

both customer service and employee engagement

at The Container Store. The retailer’s founders were

determined to create a work environment where

employees can feel valued and appreciated. And

their efforts have met with success. The Container

Store has been on Fortune’s “100 Best Companies

to Work For” for more than nineteen consecutive

years. Like most retailers, the company has experi-

enced ups and downs in its 40-year history; recently,

The Container Store slipped out of the list of top

places to work. Is this a temporary glitch in their

“culture of care,” or have other companies simply

made more strides toward improving employee

relations, thus increasing the standard?1

The Container Store: An Employee-Centric Retailer

Chapter Objectives �O Discuss employees as stakeholders

�O Examine the economic, legal, ethical, and philanthropic responsibilities related to employees

�O Describe an employer of choice and that employer’s relationship to social responsibility

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214 Business and Society

he Container Store illustrates the extent to which some firms consider the needs, wants, and characteristics of employees and other stake-

holders in designing various business processes and practices. Although it is widely understood that employees are of great importance, beliefs about the extent and types of responsibilities that organizations should assume toward employees are likely to vary. For example, some managers are primarily concerned with economic and legal responsibilities, whereas proponents of the stakeholder interaction model discussed in Chapter 2 advocate for a broader perspective. As this chapter will show, a delicate balance of power, responsibility, and account- ability exists in the relationships a company develops with its employees.

Because employee stakeholders are so important to the success of any company, this chapter is devoted to the employer-employee relationship. We explore the many issues related to the social responsibilities that employers have to their employees, including the employee-employer contract, workforce reduction, wages and benefits, labor unions, health and safety, equal opportunity, sexual harassment, whistleblowing, diversity, and work/life balance. Along the way, we discuss a number of significant laws that affect companies’ human resources (HR) programs. Finally, we look at the concept of employer of choice and what it takes to earn that reputation and distinction.

Employee Stakeholders Think for a minute about the first job or volunteer position you held. What infor- mation were you given about the organization’s strategic direction? How were you managed and treated by supervisors? Did you feel empowered to make decisions? How much training did you receive? The answers to these questions may reveal the types of responsibilities that employers have toward employees. If you worked in a restaurant, for example, training should have covered safety, cleanliness, and other health issues mandated by law. If you volunteered at a hospital, you may have learned about the ethical and economic considerations in providing healthcare for the uninsured or poor and the philanthropic efforts used to support the hospital financially. Although such issues may have seemed subtle, or even unimportant, at the time, they are related to the responsibilities that employees, government, and other stakeholders expect of employers.

Responsibilities to Employees In her book The Working Life: The Promise and Betrayal of Modern Work, business professor Joanne B. Ciulla writes about the different types of work, the history of work, the value of work to a person’s self-concept, the relationship between work and freedom, and as the title implies, the rewards and pitfalls that exist in the employee-employer relationship. Ciulla contends that two common phrases—“Get a job!” and “Get a life!”—are antithetical in today’s society, meaning they seem diametrically opposed goals or values.2 For the ancient Greeks, work was seen as the gods’ way of punishing humans. Centuries later, Benedictine monks, who built farms, church abbeys, and villages, were considered the lowest order of monks because they labored. By the eighteenth century, the Protestant work ethic had emerged to imply that work was a method for discovering and creating a person.3 Today, psychologists, families, and friends lament how work has become the primary source of many individuals’ status, fulfillment, and happiness. Critics point to the ways in which business influences the personal choices that individuals make, not only as consumers, but as employees. As with

T

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Chapter 8 Employee Relations 215

the complicated history of work, the responsibilities, obligations, and expectations between employees and employers are also fraught with challenges, debates, and opportunities. In this section, we review the four levels of corporate social responsibility (CSR) as they relate to employees. Although we focus primarily on the responsibilities of employers to employees, we also acknowledge the role that employees have in achieving strategic social responsibility.

Economic Issues The significance of the economic realm of employment is evident in the story of Malden Mills Industries, a company established in 1906 and credited with invent- ing synthetic fleece in 1981. In 1995, just a few weeks before the winter holidays, the factory and office space at Malden Mills burned to the ground, injuring many workers. In an unusual move, the company’s CEO, Aaron Feuerstein, paid full wages, year-end bonuses, and benefits to employees while the buildings were reconstructed. HR managers set up a temporary job-training center, collected holiday gifts for employees’ children, and worked with community agencies to support employees and their families.4 When economic factors forced Malden Mills through several employee layoffs in the late 1990s, employees were offered jobs at another plant and received career transition assistance. Feuerstein believed in an unwritten contract that considers the economic prospects of both employer and employees.

Several years later, Malden Mills filed for bankruptcy protection. The company’s assets were sold and the company name was changed to Polartec, LLC. Polartec started with the original synthetic fleece developed by Malden and today offers 300 different fabrics. Customers include the U.S. military, L. L. Bean, Patagonia, Jack Wolfskin, and other apparel brands around the world. While Feuerstein is no longer at the company, his product inventions and commitment to social responsibility continue to exist at Polartec, now a leader in sustainable engineering and manufacturing.5

Employee-Employer Contract As discussed in Chapter 1, the recent history of social responsibility has brought many changes to bear on stakeholder relation- ships. One of the more dramatic shifts has been in the “contract” and mutual understanding that exist between employee and employer. By the beginning of the twenty-first century, many companies had to learn and accept new rules for recruit- ing, retaining, and compensating employees. For example, although employers held the position of power for many years, the new century brought record employment rates and the tightest job market in years. Huge salaries, signing bonuses, multiple offers, and flexible, not seniority-based, compensation plans became commonplace throughout the late 1990s. However, the first decade of the 2000s reversed this trend. Business scandals in the early 2000s, the World Trade Center attacks on September 11, 2001, and the Great Recession of 2008–2009 brought a decline in lucrative employment opportunities and forced many firms to implement layoffs and other cost-cutting measures. At one point, the unemployment rate, which is the percentage of the available labor force that is currently unemployed, in the United States reached 10 percent. Pay raises, healthcare benefits, mental health coverage, retirement funding, paid maternity leave, and other benefits were reduced, or costs were shifted to employees.6

Bolstered by job growth, the U.S. economy rebounded, and by 2019, the U.S. unemployment rate was less than 4 percent. From a statistical perspective, a very low unemployment rate in a growing economy is sometimes considered full employment because of sampling error and related concerns. Full employment occurs when the available labor force is fully utilized and employers have difficulty finding employees to fill available positions. From a psychological perspective,

unemployment rate the percentage of the available labor force that is currently unemployed

full employment occurs when the available labor force is fully utilized and employers have difficulty finding employees to fill available positions

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low unemployment rates generally make it easier for employees to change jobs and employers, seek higher wages and new benefits, and otherwise exert more stakeholder power in the employment relationship.

Regardless of the economy, employing organization, or salary and perks of a specific position, a psychological contract exists between an employee and employer. This contract is largely unwritten and includes the beliefs, perceptions, expectations, and obligations that make up the agreement between individuals and the organizations that employ them.7 Details of the contract develop through communications, via interactions with managers and coworkers, and through perceptions of the corporate culture often formed by watching management and leadership. These interactions are especially important for new employees, who are trying to make sense of their new roles within the context of their prior beliefs and experiences.8 New employee orientation, along with ongoing training, performance evaluation discussions, internal newsletters, and company-sponsored social events, are important mechanisms for introducing and communicating the psychological contract.

This contract, though informal, has a significant influence on the way employees act. When promises and expectations are not met, a psychological contract breach occurs, and employees may become less loyal, less trusting, inat- tentive to work, or otherwise dissatisfied with their employment situation.9 On the other hand, when employers present information in a credible, competent, and trustworthy manner, employees are more likely to be supportive of and committed to the organization. Therefore, employers and employees are the two groups that contribute to the development, maintenance, and evolution of the psychological contract at work. Table 8.1 provides an overview of what is needed for employee commitment to the firm and employer promises to the employee.

An employee’s perception of how well employer promises are kept provides an ongoing psychological assessment of the employment relationship, including whether the employee will choose to leave the organization, recommend it to others, or increase commitment to the employer. Recent research has revealed that the psychological contract is dynamic over the lifetime of an employment relation- ship. Steps in the dynamic process include creation, maintenance, renegotiation, and repair. Like other relationships, intentional maintenance is important, and there may be times when perceived violations of trust, miscommunication, goal incongruency, and other disruptive situations create the need for reconciliation and repair. In the latter cases, the employer’s timeliness and responsiveness

to employee concerns is one of the main predictors of the relationship’s health in the future. Experienced managers maintain open and transparent communication, so that issues are discussed and resolved before a serious breach in the psychological contract occurs.10 The promises, or induce- ments, made by the organization are valuable to nearly all employees, but one study of over 5,000 employees indicates this rank order for their importance to employees: (1) social atmosphere, (2) career development opportunities, (3) job content, (4) work/life balance, and (5) financial rewards. This same sample ranked the organizational fulfillment of these promises as: (1) job content, (2) social atmosphere, (3) work/life balance, (4) career development opportunities, and (5) financial rewards. Based on these results, it is clear that career development opportunities deserve more attention from managers to strengthen the psychological contract and pro- vide incentives for employee retention. Organizations that are able to implement their key promises so that employees view them as fulfilled reap rewards in terms of increased employee loyalty and decreased intentions to leave and/or search for a

psychological contract largely unwritten, it includes beliefs, perceptions, expectations, and obligations that make up the agreement between individuals and the organizations that employ them

Table 8.1 The Psychological Contract Between Employee and Employer Employee Commitment Employer Promises

Loyalty to the company Respect from management

Teamwork and cooperation

Training opportunities

Compliance with policies Opportunity to advance

Ethical leadership and behavior

Adequate benefits

Protection of company resources

Fairness in work assignments

Volunteering to address challenges

Ethical culture

Solving problems independently

Financial rewards

Trust and confidentiality Work/life balance

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Chapter 8 Employee Relations 217

new employer.11 Employee engagement is the connection that employees have with their employers that influences behavior, effort, and commitment. Strong employee engagement is revealed through positive interactions with key stakehold- ers, especially customers, and ultimately has a positive influence on organizational success, as discussed in Chapter 1.12

Employee engagement is an international phenomenon that has caught the attention of leaders, managers, and researchers. Recently, more than 8 million employees in 1,000 companies around the world participated in a study of employee engagement. The study used the “Say, Stay, Strive” model for measuring engagement found in Table 8.2.

The annual survey results indicated that while engagement is increasing in many parts of the world, some areas are experiencing declining employee engagement. Declines were found in several Latin American countries, including Argentina, Brazil, and Mexico. Even with these declines, employees in the region maintain a relatively high level of engagement (75 percent) compared to the global average (65 percent). In contrast, results for employees in Algeria, South Africa, Nigeria, and other African nations has improved dramatically since 2011, when 52 percent of survey respondents indicated strong engagement. By 2017, this engagement was at 66 percent, even though some of these nations have experienced economic and social instability. In all likelihood, business leaders in Africa recognized the disruptive effects of instability and implemented methods to strengthen employee recruiting and retention efforts and fortify corporate cultures to withstand external pressures.13

Just as in other stakeholder relationships, expectations in the employment psychological contract are subject to a variety of influences. This section discusses how the contract has generally ebbed and flowed over the last 100 years. Even with these overarching trends, employers should be mindful of differences that may exist in particular industries, geographic regions, job types, and employee characteristics. Table 8.3 provides examples of the methods and programs that companies prioritize and implement to fulfill aspects of the psychological contract. These examples demonstrate that there is not a “one-size-fits-all” approach for meeting the needs and expectations of employees.

Until the early 1900s, the relationship between employer and employee was best characterized as a master-servant relationship.14 In this view, there was a natural imbalance in power that meant employment was viewed as a privilege that included few rights and many obligations. Employees were expected to work for the best interests of the organization, even at the expense of personal and family welfare. At this time, most psychologists and management scholars believed that good leadership required aggressive and domineering behavior.15 Images from Upton Sinclair’s novel The Jungle, which we discuss briefly in the next chapter, characterized the extreme negative effects of this employment contract.16

In the 1920s and 1930s, employees assumed a relationship with an employer that was more balanced in terms of power, responsibilities, and obligations. This shift meant that employees and employers were coequals, and in legal terms, employees had many more rights than under the master-servant model.17 Much of the employment law in the United States was enacted in the 1930s, when legisla- tors passed laws related to child labor, wages, working hours, and labor unions.18 Throughout the twentieth century, the employee-employer contract evolved along

employee engagement the connection that employees have with their employers that influences behavior, effort, and commitment

Table 8.2 Measuring Employee Engagement: Say, Stay, Strive If they Say positive things about their organization and act as advocates

If they intend to Stay at their organization for a long time

If they are motivated to Strive to give their best efforts to help the organization succeed

Source: AON, “2018 Trends in Global Employee Engagement,” http://images.transcontinentalmedia.com/LAF/lacom/ Aon_2018_Trends_In_Global_Employee_Engagement.pdf (accessed November 19, 2019).

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the coequals model, although social critics began to question the influence that large companies had on employees and the rest of society.

In the mid-twentieth century, companies exerted a more patriarchal approach to employees, which emphasized job security along with generous benefits, retire- ment income, and continuing professional development and growth. The concept of the “company man” was born out of this time frame, with television and movies depicting white-collar men working in stable and generous middle-class jobs in exchange for company loyalty.19 In 1951, the political commentator and soci- ologist C. Wright Mills criticized white-collar work as draining on employees’ time, energy, and even personalities. He also believed that individuals with business power were apt to keep employees happy in an attempt to ward off the development of stronger labor unions and unfavorable government regulations.20 A few years later, the classic book The Organization Man by William H. Whyte was published. This book examined the social nature of work, including the inherent conflict between belonging and contributing to a group on the job while maintaining a sense of independence and identity.21

Organizational researchers and managers in the 1960s began to question authoritarian behavior and consider participatory management styles that assumed that employees were motivated and eager to take responsibility for their work. A study by the U.S. Department of Health, Education, and Welfare in the early 1970s confirmed that employees wanted interesting work and a chance to demonstrate their skills. The report also recommended job redesign and managerial approaches that increased participation, freedom, and democracy at work.22 By the 1980s, a family analogy was being used to describe the workplace. This implied strong attention to employee welfare and prompted the focus on business ethics that have been explored in previous chapters of this book. At the same time, corporate mission statements touted the impor- tance of customers and employees, and In Search of Excellence, a best-selling book by Thomas J. Peters and business consultant Robert H. Waterman Jr., profiled companies with strong corporate cultures that inspired employees toward better work, products, and customer satisfaction.23 The total quality management (TQM) movement increased empowerment and teamwork on the job throughout the 1990s and led the charge toward workplaces simultaneously devoted to employee achievement at work and home.24

Although there were many positive initiatives for employees in the 1990s, the confluence of economic progress with demands for global competitiveness convinced many executives of the need for cost cutting. A common method for

Table 8.3 Methods That Companies Use to Fulfill Psychological Contracts Company Employee Promise

Google Child care

Starbucks Two years of college tuition

The Container Store Extensive employee training and higher pay

SAS Free on-site healthcare clinic

REI Provides annual surveys to employees to get feedback on employee engagement

Salesforce.com Employee recognition and reward programs for the company’s salespeople

Wegman’s Market Strong growth opportunities in the company

W. L. Gore and Associates Flat nonhierarchical business structure

Nvidia Reimbursement for student loan debt

Baird Reverse mentoring program pairs senior leaders with junior employees

Pinterest Fertility benefits and coverage of in vitro fertilization treatments

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Chapter 8 Employee Relations 219

cost reduction came in the form of outsourcing, which occurs when a company hires external parties to perform tasks and functions that had been previously performed by company employees. This practice has long been associated with plans to increase efficiencies, In the late 1930s and early 1940s, business writers exalted the practice of subcontracting as a way to ensure that the U.S. government had armament and other provisions to compete in World War II. Subcontracting takes place when one company hires external parties to perform specific tasks or functions in partial fulfillment of a larger contract. During World War II, subcontracting created an economic ripple effect, as small businesses became part of the supply chain and offered jobs when the country was in a state of austerity.25 Unlike subcontracting, outsourcing is used for traditional business functions, like payroll, information technology (IT), accounting, auditing, and other services that are largely independent of a company’s core business and mission. Outsourcing is positioned as a way for companies to reduce distractions as well as costs.26

For individuals accustomed to messages about the importance of employees to organizational success, workforce reduction was both unexpected and traumatic. These experiences effectively ended the loyalty- and commitment-based contract that employees had developed with employers. A study of young employees showed that their greatest psychological need in the workplace was security, but that they viewed many employers as “terminators.”27 By the time Barack Obama became president of the United States in 2009, his administration was facing an economy in terrible condition. By mid-2009, over 8 million employees had been laid off and recessionary effects loomed large. The Conference Board, which publishes the Employment Trend Index (ETI) monthly, announced the index was declining faster than at any other time in the 35-year history of the ETI. Eight indicators contribute to the index, including claims for unemployment insurance, number of part-time workers due to economic reasons, consumer confidence, industrial production, and manufacturing and trade sales, among others.

Although unemployment went as high as 10 percent during the Great Recession, the economy slowly began to recover. In 2015, unemployment had decreased to 5.3 percent, and the number of long-term unemployed individuals had been reduced. According to economists, it had been the slowest recovery in 55 years.28 By 2019, unemployment in the United States was below 5 percent, and some states, including Hawaii, reached unprecedented unemployment rates of 2! percent.29 For a state that depends heavily on tourism, low unemployment could mean that jobs in the retail, hospitality, and travel sectors go unfilled and the overall tourist experience diminishes. However, this particular unemployment rate in Hawaii was precipitated by a decline in tourism spending that resulted in job losses.30 This is a cautionary tale on the importance of assessing the overall health of the economy by multiple indicators. Unfortunately, recovery is often slower for minorities and individuals under the age of 30. In 2019, unemployment for younger adults aged 16 to 24 was 8 percent, double the national average.31 There are concerns that the opportunities for employment based on education and skills has diminished. For example, many college graduates experience underemployment in their first jobs. Underemployment occurs when employees are engaged in work that require skills or education below the qualifications of the employee. It also occurs when an employee wishes to work on a full-time basis but can find only a part-time position. Like unemployment, time-based underemployment leads to “enforced leisure,” a situation linked to increasing levels of stress, depression, and polarization in society.32

Workforce Reduction At different points in a company’s history, there are likely to be factors that beg the question, “How can we decrease our overall costs?”33 In a highly competitive business environment, where new companies, customers, and products emerge and disappear every day, there is a continuous push for greater organizational efficiency and effectiveness. This pressure often leads to difficult

outsourcing the practice of hiring an outside individual or organization to perform tasks and functions traditionally performed by company employees

subcontracting the practice of hiring an outside individual or organization to perform specific tasks and functions in partial fulfillment of a larger company contract

underemployment occurs when employees engage in work that requires skills or education below their qualifications, or when employees want to work on a full-time basis but can find only part-time positions

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decisions, including ones that require careful balance and consideration for the short-run survival and long-term vision of the company. This situation can create the need for workforce reduction, the process of eliminating employment positions. This places considerable pressure on top man- agement, causes speculation and tension among employees, and raises public ire about the role of business in society.34

There ar