Leadership Implications of a Jobless Recovery

US unemployment is ebbing; this is good news for the global economy and many organizations. But we still have a long way to go in terms of reducing unemployment—which will drive general economic growth. We also have a long way to go in terms of corporate leadership and engagement.

Successful leaders will have to address the contours of this changing environment. The recession, and business environment, has made leadership more difficult by breaking trust.



Recently, an HR leader of a Fortune 100 company told me “corporate America has changed. Now, bosses make a choice to lay you off or loose their own job. Inevitably they will lay you off.” I was not surprised. But when I started to think about it, I realized this will make leadership and engagement difficult for managers as the economy picks up.

Actually, the economy has picked up and we are seeing a jobless recovery, which has become the norm in recent recessions, according to the Bureau of Labor Statistics. Since the 1990s, we have seen jobless recoveries.

Strangely economists have been confused by this trend. Derek Thompson, of the Atlantic, weaves together several forces in his theory of jobless recoveries:

1. Executive pay is increasing linked to the stock market, and thus quarterly profitability is of increasing concern to executives. One method of continuing profitability, when faced with reduced revenue, is to reduce costs with layoffs
2. Fewer barriers to lay-offs (lower unionization, rising personnel/medical costs)
3. An increasing contingent workforce, including part time and contract workers. The BLS would consider many of these individuals unemployed. Indeed 27% of US job growth since 2007 has been temp-workers.  The real winner in the current economy are "temp-firms" like Manpower.

So, both the Atlantic and the HR executive agree on one thing—a dog-eat-dog work environment leads to layoffs.

As a consultant that spends a lot of time helping organizations develop leaders, I have to ask how to build leadership in this environment. No matter how you look at it, there is an element of trust in leadership—followers must trust leaders. Yet, in our current environment employees cannot trust their boss, well they can trust them --to lay them off to save their own job, which is the same as no trust at all!

So, the HR leader's statement seemed like a natural enough. But then I was saddened, shocked and yes concerned. I have to ask "can we develop leaders in this environment?"

Of course there are ways to address this—simply noting that the employee-employer relationship has changed is one way to honestly relate and build trust. Regardless, employers will have to develop a method of addressing this new world that requires bravery and yes, honesty.

Is your organization developing a plan to rebuild trust? Without authentic trust, I do not believe there will be employee engagement.

Engagement and the Employee Value Proposition

Speak to many consultants and you may hear the suggestion that engagement is a free resource that you should tap and that you should always engage your work-force more—for better results. I encourage you to question this assumption. I don’t think much in life is completely “free.” There is an element of reciprocity involved in all relationships—even employer-employee relationships. Dilbert offers some wisdom about this.

Different Takes on the Psychological Contract 

A psychological contract exists between employers and employees. Historically, the contract was a reciprocity of “lifetime pay and benefits in exchange for loyalty.” This month's HBR has an important article by Tamara Erickson that explains how this contract can be understood by generational differences (e.g., Baby-boomer v. Generation-X). I agree with Tamara.

It is more important, however, that the psychological contract reflects the talent management strategy. This contract is critical to understanding links between employee engagement, talent management, and leadership. In this post, I will describe these links in more depth.

Since the early 1990s, HR pundits have argued about the “new” employer-employee value proposition. The arguments goes something like this: large organizations in a more stable business environment offered continuing employment, pay and retirement in exchange for employees’ on-going loyalty and effort. As the pace of global and organizational change has increased, unfortunately this implicit agreement has been broken. The pundits, however, are still arguing about what will replace the old contract. 

The arguments about the psychological contract can be replaced with a question: “what does your organization need from employees to be successful and what does it offer in return?”   

Fundamentally, the psychological contract is about the employee value proposition.  This value proposition has two points of view: the employers and the employees.  Both must be balanced. Employees must feel like they are getting a reasonably equitable deal, or they will disengage or leave. My colleague Amy Bladen wrote about this in the the April edition of Leadership Excellence (read the article here)

The universal employee value proposition is gone.  In its place are a number of employee value propositions that vary according to organizational strategy, employee class (some employees are more critical to organizational success) and generation.

Organizations can literally balance and harmonize the employers and employees value proposition—try using two columns and write some words.  Be careful, the reciprocal relationship in employee engagement is nuanced! It is important to think about what your organization needs as well as what your employees, or classes of employees, need.  When thinking about your employees’ needs, it must be from their point of view.

Reciprocity and trust are critical to building employee engagement.  Without trust for their leaders and organizational direction employee have no foundation for inspiration let alone energy for achieving the vision.

From the Employers Point of View    

Different organizations need different types of employee engagement and as such the value proposition varies with corporate strategy. To some organizations retaining employees is critical; to others only a few years of intense effort is needed. Yet others need to retain customers and as such employee engagement with the customer is critical. Others rely on employee innovation and skill as the strategy. The list could go on—ask yourself "what does your organization really need from its employees?" In all likelihood you will need different types of engagement from different classes of employees, so you may also ask "are there groups of employees that need to have a special type of engagement?"

Some organizations have a business model based on "employee churn." Life insurance sales organizations have a reputation for paying largely on commission and accepting that a large percentage of employees will leave when they cannot make ends meet. Employee churn is a reasonable business model. Life-insurance sales organizations need producers and they can use churn to find the one out of ten applicants who can actually sell life insurance to strangers (versus selling to family and friends). 

Other organizations have an up-or-out value proposition. These organizations often provide great opportunities a highly stimulating environment and these organizations benefit from hiring younger employees with alacrity. If employees run out of engagement in a few years, more can be hired.

Companies pursuing a product innovation strategy often rely upon skilled employees who have a deep understanding of their product--for example consulting, technology and pharmaceutical firms. In these companies the value proposition has to do with retention and reward of the key talent that enables the innovation-- for example expert consultants, critical skill engineers and R&D/Commercialization professionals. Again, employee value proposition should vary with strategy. 

Also some employees, within an organization, need to be especially engaged.  Consider actuaries in the life insurance industry.  Few life insurance companies want actuary turnover—the few individuals can accurately predict mortality to set insurance rates are rare and critical to a business success.  While high turnover of sales representatives is acceptable, actuary turnover is not. 

Organizations, for cultural reasons, often have a general employee value proposition. Thus, some life insurance companies may overlook low engagement or high turnover. In many pharmaceutical companies, retention-tactics are applied to all employees; these tactics, such as higher pay, lead to higher HR costs.

From the Employees Point of View   
Employees view the world through their own eyes.  As the Tamara Erickson's article highlights, Gen-X employees believe that their employer seems them as “replaceable,” and this colors their interpretation of corporate life. Baby-boomers are more likely to believe in the old psychological contract and act accordingly.

Employees will engage in any organization, even those with a churn or an up-or-out employee value proposition. However, the value proposition must be transparent to earn engagement. 

A leader can build trust if he or she is transparent about the employee value proposition.  I consider transparency to be part of being authenticity. A young and ambition prospective employee is likely to join a leader who says “I’m going to give you an opportunity and it will be challenging. You will learn a lot that will be useful in your career.  If you are successful you are likely to make some reasonable money.”  If, however, the employee value proposition is not made clear some new hires will have other expectations and be disappointed.  This is the basis of the realistic job preview. 

High potential employees may have another worldview.  They may, realistically, see themselves as having more opportunities than typical employees.  As such, they may require more opportunities or compensation in return for their engagement and loyalty.

Implications for HR and Leaders
The challenge for organizations is to understand the links between the value propositions and strategy and then to make the contract explicit. This becomes more difficult when you have multiple value propositions in the same organization. This is where front-line leadership comes in; supervisors need to authentically relate to employees and build trust on the basis of reciprocity. Organizations need to ask themselves:

• "Are our managerial ranks are up to this task?” 
• “Does the organization support supervisors to have authentic relationships with employees?”

As ever, I would like to hear your thoughts.  Does your organization have an aligned employee value proposition? Does your organization have multiple value propositions for different employee classes, or should it?

Charley Morrow

www.SageAssessments.com