Creating an Employer-Employee

Relationship for the hture

Clifford J. Ehrlich

INTRODUCTION

A tidal wave of change is sweeping across the American workplace.

Resulting in part from tumultuous economic conditions, the relationship
between employers and employees is being redefined in a fundamental
and permanent way. The consequences are as critical to the future of
business as are developments in marketing, financial management, and
technology.

BACKGROUND

The relationship that is being changed can be understood most clearly

when it is placed in a historical perspective. It was created originally by
the post-World War U: boom that boosted the economy of the United
States (US) into high gear. The demands of domestic consumers com-
bined with those of foreign countries rebuilding from the devastation of
war ushered in a period of unprecedented expansion.
Year-to-year gains in productivity created prosperity and made pos-
sible a steady increase in the size of the economic pie available for our
society to distribute. The leverage provided by collective bargaining in
key industries was an impetus for pay and benefit improvements that
benefited union and non-union workers alike.
Employers who remembered the struggle to survive the Depression
suddenly found themselves able to provide their employees with stable
employment, promotional opportunities, annual increases in pay, and
improvements in benefit plans. As the economy grew more robust,
employee expectations rose and union demands escalated. Gradually,
the concept developed that employers “took care” of their employees,
and employers were proud of their ability to do so.
As the United States basked in its success, the rest of the world was
rebuilding with the help of the Marshall Plan and the World Bank. Our
former allies and our f o m enemies made steady progress, and by the
1970s they were capable of competing on a worldwide basis. The eco-
nomic advantage the United States had enjoyed was gradually being lost

Human Resource Management, Fall 1994, Vol. 33, Number 3, F‘p. 491-501
0 1994 by John Wiley & Sons, Inc. ccc 00904848/94/030491-11
because the post-War conditions that had created it were being elimi-
nated.
By the late 1970s, many US companies found they were being rivaled
and, in some instances, overtaken in markets they had dominated. Our
preeminence in steel and automobile manufacturing and in electronics
disappeared. We were being outclassed in the marketplace as other
countries, particularly Germany and Japan, became strong competitors.
As a result, employers and employees in the United States found
themselves entering a new era. The number of manufacturing jobs
peaked at 15 million in 1979 before going into a four-year decline and
never regaining its 1979 level. The defeat suffered by the Professional
Air Traffic Controllers when they struck in 1981 was an introduction to
the difficulties organized labor would face throughout the 1980s.
The average first-year wage increase negotiated with manufacturing
companies plummeted from 9% in 1980 to 1.7% in 1986. At the bargain-
ing table, unions frequently were forced to accept two-tier wage sys-
tems, pay freezes, a relaxation in work rules, and even a reduction in
previously negotiated benefits. Non-union employers took the same
action as they struggled to survive the economic Darwinism confronting
them. The United States' economic pie no longer could be assumed to be
bigger every year.
Competition for customers and capital forced businesses to reappraise
their relationship with customers, suppliers, and employees. The impor-
tance of being customer-driven rather than product-driven began to re-
shape thousands of enterprises. A renewed emphasis on product quality
led companies to change how they did business, often discarding or
altering long standing practices to meet the demands of the marketplace.
The pressure to be profitable led to waves of corporate restructurings
that have permanently eliminated hundreds of thousands of jobs. Para-
gons of lifetime employment like General Motors and IBM have re-
sponded aggressively to bring their staffing levels in line with their
business levels. GMs salaried workforce declined from 136,000 in 1985
to 82,000 in 1992, while IBM reduced its worldwide workforce by 40,000
in 1992 and announced its "first ever" layoffs in 1993.

THE NEW RELATIONSHIP

Global competition alone has had a dramatic impact on the economy

of the US. When it is combined with the industrial realignment occur-
ring in the aftermath of the Cold War, the United States is facing its most
severe business challenge in 60 years. ProfitabiIity (and in some cases
survival) has depended on a company's ability to simultaneously im-
prove quality, reduce costs, and streamline its organization. Gradual,
evolutionary change often has been replaced by abrupt, revolutionary
change. In the process, the relationship between employers and their
employees has had to be revised.

492 I Human Resource Mnnagment, Fall 1994

 Still in its formative stages, the new relationship is based on princi-
ples of partnership rather than paternalism. Unable to “take care” of
employees the same way they were able to during the post-war econom-
ic boom, the new responsibility of employers is evolving in the following
direction: Employers are responsible for creating opporfunifiesfor employees f o
fake care of fhemselves. This new responsibility is pragmatic and recog-
nizes that human resource practices are driven by a combination of
business strategy and economic reality.
This shift in the employer-employee relationship has many facets. It is
particularly evident in the benefits area. On the one hand, employers
want to control mushrooming benefit costs. On the other hand, they face
a clamor for new benefits such as child care, elder care, and long-term care
that are geared to the needs of today’s more diverse workforce.
The response to this conflict primarily has taken two forms: One is
the flexible benefit concept in which an employer establishes a cap to its
benefit spending per employee and concurrently gives employees dis-
cretion to select their benefits from a broad array of choices.
The second is the requirement that employees pay a portion of benefit
plan costs through payroll deduction. Each of these approaches requires
employees to make personal economic decisions that reflect their priori-
ties. No longer able to foot the bill for the entire menu of employee
benefits, employers are providing employees access to valuable benefits,
and at the same time they are putting a ceiling on their cost exposure.
A rise in the popularity of defined-contributionretirement plans is a
related development. These plans specify the level of employer contri-
bution to a retirement fund but don‘t guarantee the level of retirement
income it will produce. Virtually every start-up company is choosing
this approach, according to Terry Thompson, a benefit specialist at
Hewitt Associates (personal conversation, 1993). This is because the
employer contribution is based on ability to pay, as determined by oper-
ating profit, ca?h flow, or some similar measure, while employees per-
ceive great value from the portability of their account.
Since employees cannot predict the size of their retirement fund un-
der a definedtontribution plan, they have a greater burden to plan and
provide for their own retirement. This has increased the popularity of
savings plans, particularly those complying with Section 401 (k) of the
Internal Revenue Code that permit employees to save a portion of their
pay on a before-tax basis. Each dollar of savings typically qualifies for a
matching company contribution in the range of 25 cents to a dollar. Not
surprisingly, some companies are finding a related responsibility of pro-
viding financialplanning assistance to help employees upgrade their
money management skills.
The most common type of retirement plan is still the defined-benefit
pension plan that specifies the level of retirement income that will be
provided to participants. The employer‘s funding obligation is unrelated
to its ability to pay. A issue of concern is that the Pension Benefit Guar-
anty Corporation estimates $50 billion of pension liability is unfunded.

Ehrlich: Creating an Employer-Employee Relationship I 493

To some, this raises a question about the long-term reliability of the
defined-benefit approach.
Tenure of employment and personal development are other areas
undergoing change. Downsizings and right-sizings have made the idea
of spending a career with one employer almost ancient history. Yet,
employers still have the challenge of providing an environment in which
employees will work with the care and interest of people who expect to
be there for the duration of their careers. To do so, particularly in the
face of limited promotional opportunities, places a strain on most career
management systems and requires a hard look at how to best meet the
growth and development needs of employees.
Four decades of growth and prosperity have made "development"
synonymous with "promotion" in the minds of employees. Individuals
certainly develop when they are promoted, but much meaningful devel-
opment occurs in the absence of promotion-a fact employees tend to
minimize or overlook, and one which, until recently, employers have
not emphasized.
Now, more than ever, employers are stressing to employees that mas-
tering the skills of their current job is the most immediate and effective
development opportunity available. Others include training and educa-
tion programs and participation on task forces that enable employees to
stretch their capabilities, increase their personal asset value, and prepare
themselves for promotion. It has become more widely understood that
the responsibility to maximize the benefits of these actions must be
shared jointly by employers and their employees.
While most training programs are job-related, some companies are
finding that general education programs also can be valuable. An eco-
nomics course taught to thousands of Goodyear employees has contrib-
uted to their awareness of the competitive circumstances facing their
company. Once they realized what was at stake, according to recently
retired Executive Vice-president Frank Tully (personal conversation,
1993), it became very difficult for them to take an adversarial position to
much-needed operational changes sought by management. The invest-
ment made in a course such as economics can be lost if employees walk
out the door to another employer. But, as Goodyear found, it also can
strengthen the ties that bind employees and employers.

THE NEED FOR UNDERSTANDING

Since the new relationship between employers and employees is still

evolving, an appropriate question is whether it should be discussed
with employees now or postponed to when it has become more clear.
After all, some would argue, it's only a broad guideline likely to vary
from employer to employer and discussing it now is premature.
However, that view or ones like it are very short-sighted. They ignore

494 I Human Resource Management, Fall 1994

the fact that expectations are impliat in any relationship, and the era in
which employers “took care” of their employees has created a set of
expectations in the minds of much of the US work force.
In the absence of mutual understanding, each party to a relationship
will establish its own expectations. Any relationship will become
strained when the parties to it have different expectations. It is likely to
become very strained when the parties’ expectations are very different. If
employees in a company expect that their employer will ”take care” of
them yet observe repeated examples of contrary conduct, they’re not
likely to have the level of commitment or provide the level of perfor-
mance most businesses seek.
This is particularly critical with regard to mid-level managers who
usually have one allegiance to their employer and another to the em-
ployees they manage. These allegiances will be in conflict when manag-
ers are asked to implement deasions they consider unfair to their em-
ployees based on how things were done in the past. Unless the reasons
for those decisions are explained, they may be implemented poorly to
the disappointment of executives and the disadvantage of the enter-
prise.
Leaders have a responsibilityto help the people they lead make sense
out of what’s happening. Their subordinates can’t be expected to be ”on
the bandwagon” unless they understand which bandwagon they’re ex-
pected to be on and why it’s different from the one they used to be on.
A weak economy might minimize the importance of the employer-
employee relationship being understood by both parties. Employers
know that some employees will be motivated to perform well to avoid
the risk of losing their jobs. However, that kind of motivation isn’t likely
to inspire performance that will provide a competitive advantage for a
business. A company whose workforce has nothing more to UIUfy it
than the fact there are not many other jobs to choose from can expect to
face very high rates of tumover when the economic clouds dearf and
employees have more employment choices. The result will be higher
training costs, a deterioration in product quality, or some combination of
both.
The value of a company’s responsibility being understood by its em-
ployees is that the understanding helps create alignment between an
employer‘s goals and the energy of its employees. Much has been writ-
ten recently about the importance of properly aligned resources to the
ability of a business to succeed, and few alignments are as critical as the
one between employers and their employees. Employees are the means
by which a business functions,and every employer knows that inspired
employees who willingly support the company’s mission are the life-
blood of its success and the foundation of its future.
Employees won’t be inspired for long if their employer‘s actions re-
peatedly fall short of expectations.
Additionally, if the conduct of an employer doesn’t meet the expecta-

Ehrlich: Creating an Employer-Employee Relationship I 495

tion of its employees, the resulting disaffection and disappointment may
result in lower productivity or be channelled into an interest in unions.
Worse yet, it might result in demands for more government intervention
and regulation “to level the playing field,” which are meant to give
employees what they thought they were entitled to because their em-
ployer never explained that the company’s economic circumstances had
changed.
Finally, there’s a macroeconomics factor worth noting. National in-
come accounting data (Freund, 1985) reveal that almost 70% of the cost
of every item produced in this country reflects labor cost. Unless a great
majority of the people in our labor force have a genuine interest in the
success of their employers-and demonstrate it by the energy and cre-
ativity they apply to their jobs-our national productivity and standard
of living will suffer.

T H E LEADERSHIP CHALLENGE

It’s apparent that powerful economic forces are causing the relation-
ship between employers and their employees to change, and, given the
state of the economy, they may not stabilize anytime soon. The leader-
ship challenge is to deal with these circumstances constructively to bet-
ter enable business enterprises to flourish despite the turmoil.
Employers that recognize themselves in the employer/employee rela-
tionships outlined above can begin to deal with it by placing a priority on
the following four prinaples.

Principle 1. Effective communications are the foundation for effective

employee relations.

Communications to employees often get a low priority in the pres-

sures of business. Some managers expect their employees to notice the
same things they notice and to understand what’s happening in busi-
ness because ”It‘s all over television and the newspapers.” Those
sources, however, usually contain only information about the economy
in general, supplemented with reports on how a handful of companies
are being affected.
Employees can‘t be expected to know what‘s happening to their com-
pany unless they hear it from an authoritative source, and management
is the on2y source that qualifies. A lack of understanding by employ-
ees about their company’s economic health is almost certain to pro-
duce resistance that will impede the implementation of much needed
change.
In assessing the importance of employee communications, some
managers get tripped up by the “management prerogatives” argument.
It goes something like this: Management has the prerogative to take

496 I Human Resource Management, Fall 1994

these actions, so why should it spend time and money explaining them
to employees?
The argument is interesting but irrelevant. The issue is whether man-
agement prefers to force change or to introduce it in a manner that gets
employees behind it. In many companies management is accustomed to
forcing change because employees don’t cooperate. Employees often
don’t cooperate because they don’t understand the reasons for the
change. Communications help break the cycle.
Face-to-face communications between executives and employees via
meetings and videos generally convey a concern and interest that writ-
ten communications can only approximate. Employers who emphasize
face-to-face communications are usually aware that leadership is ”a con-
tact sport.”
Employers who rely on communications to prepare the way for
change are aware that it takes time for new information to be integrated
into a person’s view of the world and to affect their understanding and
behavior. Changes implemented successfully usually take this time de-
lay into account. Informed employees may still resist, but they’re less
likely to do so when they’ve been given time to adjust to what they’ve
heard. Experience suggests that bridges of understanding and trust are
built with patience. Attempts to build them quickly often are frustrated
and fail to build either understanding or trust.

Principle 2. Problem-solving and decision-making processes must in-

volve employees and draw on their experience and energy.

Historically, management has been a command-and-control occupa-

tion anchored in the saentific management theories of Frederick Taylor.
In the meantime, the world has been changing. Peter Senge (1992) at
MIT has observed that there is an irreversible trend in the disbursement
of power from the top of organizations because the complexity of issues
demands thinking and acting at all levels. This process has been acceler-
ated by the information age which provides all of us with more data than
ever before. W e the avalanche of data may be overwhelming at times,
it also has ushered in an era in which people have greater confidence in
their ability to decide for themselves.
A major management challenge is to harness this data of the informa-
tion age to improve business results. Total quality management goes
farther in doing this than any popular approach to management. While
it is focused primarily on customer needs, one of its fundamental prem-
ises is that highly motivated and empowered employees are the cor-
nerstone of business success.
Ken Leach (1991), a Senior Examiner for the Malcolm Baldrige Nation-
al Quality Award, believes a company’s human resource climate is the
single biggest influence on its ability to produce highquality products.
Leach’s view is particularly noteworthy because in 1988 he was ceowner

Ehrlich: Geating an Employer-Employee Relationship / 497

and chief quality officer of Globe Metallurgical when it was the very first
winner of the Baldrige Award in the Small Business category.
A cornerstone principle of TQM is that employees who produce a
product or service are the people most qualified to redesign and improve
it. TQM provides an orderly process for converting employee know-how
into products and services that better meet customer needs. Its empha-
sis on higher quality at lower cost is consistent with the agenda of every
company intending to thrive during the next decade.
A stumbling block to the adoption of TQM principles is often man-
agement's uncertainty about relinquishing the power and authority as-
sociated with its traditional role. The questions often asked are: How can
TQM be implemented without creating chaos? What does manage-
ment's new role become?
The answer to the first question seems to be that companies who
implement TQM principles successfully create a vision and set of shared
values that become their driving force. The experience of employees is
drawn on to confront the knotty problems of quality improvement and
cost reduction. Through the process of involvement, the energy, intel-
lect, and enthusiasm of employees are engaged and they, in turn, be-
come more strongly committed to the success of the company and more
capable of contributing to that success. In the process, a strong partner-
ship based on mutual dependence develops between employees and
employers.
The answer to the second question-What is management's new
role?-is leadership. John Kotter at the Harvard Business School who
has researched the subject extensively defines it as the ability to inspire
employees to undertake change enthusiastically and willingly. Another
definition is the ability to help employees expand their view of what's
possible. Leadership has a dynamic influence on employees and, like
management, is based on a set of principles that can be learned.
There's no question that moving from an authoritarian style of man-
agement to one based on total quality management principles can be
messy. The alternative, however, is probably a slow, steady decline in
the ability of a business to respond to the pressure of competitors and
the demands of customers.

Prinaple 3. The work environment must promote and sustain teamwork.

Much of what was discussed in conjunction with m a p l e s 1and 2

applies here also. The extent to which information about the condition of
a company is shared with its employees and the extent to which employ-
ees partiapate in problem-solving and deasion-making influence the
creation of a teamwork atmosphere. When both of these are prevalent,
an employer conveys that employees are trusted. Stephen Covey speaks
and writes convincingly about the importance of trust in creating mean-

498 I Human Resource Management, Fall 1994

ingful ties between people and organizationsin Principle Centered Leader-
ship (1990).
Ensuring that employees are treated with respect is vital, as is acces-
sibility of company leaders to their employees. "Management by walk-
ing around" is one method for leaders to be accessible, provided it is
accompanied by a commitment to look and listen and then act construc-
tively on what is seen and heard.
The topics of executive compensation and perquisites are part of this
issue. The extravagance of a few self-indulgent CEOs with very under-
standing Boards of Directors has put executive pay in the spotlight of
shareholders and employees alike, with government now also threaten-
ing to intervene. Executive compensation that is out of line with a com-
pany's business performance as well as executive perks such as execu-
tive dining rooms, lavish offices, and access to corporate jets contribute
to the stratification in organizations that runs counter to the creation of
teamwork. Privileges associated with rank are common and generally
accepted, however if those privileges are not seen as reasonable or equi-
table by employees, they will silently and insidiously undermine team-
work efforts.

Principle 4. The development of employees is an essential ingredient of

organizational continuity and makes a powerful statement about the
importance of people.

The development of executives and the continuity of management

which that development provides create an imperative for most busi-
nesses, particularly major corporations. Those that don't pay adequate
attention to that imperative face the prospect of having to rely on the
unpredictable results of executive search for their future leaders.
While there is no uniform approach to executive development, its
elements usually include coaching by senior people, education, job rota-
tion, special assignments, and participation on task forces and special
project teams. Employers must provide the opportunity for develop-
ment, but individual executives are responsible for mining the value
from their own experiences.
Below the executive level, the most prevalent type of development
activity is the training of employees in skills required in their current job
or the next higher job. This is generally true for management and non-
management employees alike. The fact that most businesses don't do
more probably reflects the view that development is an intrinsic part of
being human and accounts for our progression from infant to adult. The
adage about old dogs and new tricks, however, suggests that many
people do not learn easily and may find it difficult to acquire the infor-
mation and skills on which professional development depends in the
absence of programs specifically designed for that purpose.
To provide for the development of employees while keeping that

Ehrlich Creating an Employer-Employee Relationship / 499

development aligned with the needs-and pocket book-of the busi-
ness, training should be undertaken as an investment in employees. It
should be explained as such, with success depending on the mutual
commitment of both employers and employees. Employers can use the
same elements of executive development to deal with their nonexecutive
employees and benefit from the growth and learning that will occur.
Employers adopting TQM programs will find their employees acquir-
ing new skills and expanding current ones as they tackle the quality
challenges facing their company. Employees benefit from the increased
employability their new skills give them. To the extent they are appro-
priate, programs like the economics course provided by Goodyear can
help create ties of mutual interest between employers and employees.
By approaching development as a responsibility shared with their
employees and by using the full range of opportunities available to
foster development, an employer can create, cost-effectively, an envi-
ronment that will attract and retain the caliber of employees needed for
the company to flourish.

CONCLUSION

American business-its leaders and its employees-should re-

spectfully bury the paternalistic notion that employers should take care
of their employees. They should vigorously communicate that the path
to the future depends on forging a new relationship that is rooted in
principles of partnership: Employers are responsible for creating oppor-
tunities for employees to take care of themselves. The four principles
outlined above represent the foundation on which that relationship
should be built.
Employer actions based on these four principles will enable the
employer-employee relationship to evolve in the years ahead in a man-
ner that balances human, customer, and financial considerations.
Skillfully managed, this new relationship will accommodate both eco-
nomic realities and the emerging needs of employees. The result will
help strengthen America’s competitiveness in the global marketplace
and will help rejuvenate our economy and our workforce.

Clifford J. Ehrlich is the Senior Vice President, Human Resources, for Marriott
International, a lodging and food m a c ecompany with 175,000 employees and
annual sales of $8 billion. He is a graduate of Brown University and Boston
College Law School and holds the honorary degree of Doctor of Humanities from
Bethany College. Active in professional organizations, Ehrlich is the Chair of the
Personnel Round Table, an Executive Committee member of the Labor Policy
Association, and a former Chair of the Employee Relations Committee of the
Business Round Table. He was elected a Fellow by the National Academy of
Human Resources in 1993.

500 I Human Resource Management, Fall 1994

 REFERENCES

Freund, W. (1985). Speech at personnel round table, June 9.

Covey, S. (1990). Principle Centered Leadprship. New York Summit Books.
Leach, K. (1991). Speech at personnel round table, May 16.
Senge, P. (1992). Speech at McIntyre Group.

Ehrlich: Creating an Employer-Employee Relationship / 501