To commemorate the 75th anniversary of its founding, Industrial Relations Counselors, Inc. (IRC) scheduled a symposium to be held at Princeton University, September 11 and 12, 2001. The opening session was under way when news of the tragic events at the World Trade Center and the Pentagon was received. Under the circumstances, the proceedings were suspended. The symposium would have been a significant event. The agenda included discussions of papers on various aspects of human resources prepared by a group of academic experts, a practitioner view of the current state and future outlook of human resource policies and practices by staff members of Organizations Resources Counselors (now ORC Worldwide), and talks by industry and business school leaders (which never took place.) A full report of the proposed proceedings entitled Industrial Relations to Human Resources and Beyond: The Evolving Process of Employee Relations Management will be published at a later date.
This issue of IRConcepts contains a brief history of IRC, summaries of the opening presentations, and outlines of the academic papers that would have been presented had not the vicious attacks upon the United States occurred.
IRC: A Pioneer in Industrial Relations
Although officially born in 1926, IRC traces its roots to the 1914 strike by the United Mine Workers at the Colorado Fuel & Iron Company (CFI), during which women and children died. This “Ludlow Massacre” brought great disrepute on John D. Rockefeller, Jr., the major CFI stockholder. Rockefeller, who had left company operations to local management, was distraught and sought the advice of William Lyon Mackenzie King, former Minister of Labour of Canada, who formulated a plan granting individual workers the right to appeal grievances and establishing a joint industrial council (JIC) of employees and management. This employee representation plan (ERP) spread among progressive companies.
A Special Conference Committee, composed of representatives of progressive companies, which met periodically to discuss labor policies, was formed in 1919, and developed what became known as welfare capitalism, a management theory that emphasized the stake of workers in the system. These companies also led in the establishment of the new field of personnel management. In 1922, an “Industrial Relations staff” was established in the office of Rockefeller’s attorney to provide expert investigation and help in introducing progressive labor policies in companies. It was incorporated in 1926 as a separate nonprofit organization, Industrial Relations Counselors, Inc., “to advance the knowledge and practice of human relations in industry, commerce, education, and government.”
In 1922, an industrial relations section also was established within the Economics Department of Princeton University with Rockefeller’s support. Through the Chairman of its Board of Trustees, Clarence J. Hicks, IRC was instrumental in establishing additional industrial relations centers at the University of Michigan, California Institute of Technology, Stanford University, Massachusetts Institute of Technology, and Queens University in Canada. Later, IRC established the C. J. Hicks Memorial Fellowships in Industrial Relations at each of these universities. In the 1970s, an IRC professorship in industrial relations existed at the Colgate Darden School, University of Virginia.
IRC was the first and, at the time, only organization in the United States engaging in industrial relations research. It pioneered in advancing progressive human resource policies through a wide swatch of American industry, as it received requests to conduct studies and make recommendations from organizations beyond the Rockefeller circle of interest. In 1927, IRC published the pioneering study, Vacations for Industrial Workers, a revolutionary idea at that time and, through its consulting activities, IRC promoted pension plans, employee services, and safety programs. Between 1927 and 1932, it maintained an office at the International Labour Organisation in Geneva, conducting research on European social insurance programs. In the 1930s, its research unit was lent to the U.S. government and it played a pivotal role in the development of the nation’s social security system.
Rockefeller, IRC’s principal benefactor for a decade, had agreed to support the organization until other income would provide an adequate budget. Recognizing that its greatest opportunity for both raising income and influencing managerial policy lay in the realm of management counseling, IRC expanded those activities. In the mid-1950s, however, it dropped all its consulting services, which were transferred to a separate for-profit corporation, called Organization Resources Counselors, Inc. (now ORC Worldwide); but IRC’s ideals and concepts have become part of ORC’s mission.
With the upsurge in unionism in the 1930s, IRC aided companies in effecting smooth labor-management relations. It stressed the responsibilities of supervisors for good industrial relations and the importance of foreman training. IRC was a foremost promoter of job evaluation as an instrument through which to rationalize company wage structures and promote internal equity. Its efforts gained momentum in the 1930s as it recognized that through job evaluation, management, no longer able to control the wage level, could maintain control of the wage structure under collective bargaining. IRC also offered guidance to the nation in terms of national labor policy through a host of publications from the 1930s to the 1990s.
As World War II loomed, IRC helped establish compensation structures by which to operate the defense effort effectively. During the war, it explored problems of wage stabilization and, as the need for industrial relations competence became a matter of national priority, it started offering IR training courses. Even before the civil rights crusade began, IRC was working to open economic opportunities in industry to African-Americans and its 1959 publication, Employing the Negro in American Industry, became a guide to management as it established nondiscriminatory hiring in the 1960s.
In 1958, Richard A. Beaumont joined IRC as director of research and, with the financial support of a group of companies and new staff members, such as Roy B. Helfgott, Robert Reichenbach, and Charles A. Tasso, research activities were strengthened. Its research emphasized two areas: 1) the interaction between new technology and progressive human resource management and 2) a balanced national labor policy. IRC also began a symposium series that explored the significance to HR of the latest developments in the behavioral sciences. For the past decade, it has been publishing IRConcepts, occasional papers focusing on important current issues affecting human resource policy and practice.
The Opening of the Symposium
The symposium began Tuesday, September 11, with a note of welcome by Richard A. Beaumont, IRC director of research and chairman, Board of Directors, ORC. Then Orley Ashenfelter, Joseph Douglas Green 1895 Professor of Economics, Princeton University, reviewed “The Historical Lineage and Work of the Princeton IR Section.” Next came presentations by IRC president Roy B. Helfgott and Bruce Kaufman of Georgia State University. At that point, we learned of the events at the World Trade Center and the symposium was suspended—but let us now summarize those presentations.
The United States in the 1920s: Breaking with European Traditions
Roy B. Helfgott, Industrial Relations Counselors, Inc.
According to Helfgott, the 1920s witnessed a burst of innovative behavior in the United States, which diverged from European and British traditions. Disillusioned by World War I, the United States returned to “normalcy,” and the Republican Party, adhering to laissez-faire, dominated the decade politically. Times were good—incomes rose, investment soared, jobs were available, and work time was reduced. Americans thus both could afford to buy things and had time in which to enjoy them, and industry obliged by turning out a plethora of products—a consumer society took shape. This was one way we deviated from Europe, where class-riven societies could not envisage the lower orders enjoying the better things of life, such as driving automobiles or wearing clothing indistinguishable from that of their “betters”.
Americans were confident. Business was booming and people were buying into it, that is, buying shares of stock in American corporations—the great bull market was in full swing. Not everyone, however, fully participated in the prosperity, with rural areas faring the worst. The nation also suffered cultural conflict, and nativist sentiment against those from southern and eastern Europe led to an end to open immigration and to a discriminatory admissions policy. There was a resurgence of the Ku Klux Klan, with its animus now including Roman Catholics and Jews. Americans of African descent, however, bore the brunt of bigotry. They fared poorly due to an unfriendly trade union movement and very few employers willing to hire them for jobs other than those in the unskilled categories.
The United States followed a policy of isolationism, refusing to join the League of Nations or the International Labor Organization. It turned away from Europe, not only politically, but also culturally, asserting an American culture, which included the shift of dominance from staid Boston to polyglot New York. It was an incredibly creative period for American literature (Fitzgerald, Dos Passos, Dreiser, Hemingway, Lewis, and Faulkner). Uptown, the great Harlem Renaissance was in full bloom and the lights of Broadway were ablaze with hits by the Gershwins, Rodgers and Hart, and Eugene O’Neill. Symphony orchestras were rising across the nation, but the most significant musical innovations came in the form of jazz and attempts to combine it with classical music. Radio broadcasting, the motion picture, and sports became part of the new consumerism. American accomplishments extended to the physical and social sciences. (Americans won two Nobel prizes in physics.)
Trade union membership declined, as management improved conditions on the job and real earnings rose. While unionism atrophied, management blossomed and business innovations were also dramatic. With the firm having grown to the size of a giant multi-establishment corporation, problems of control and coordination abounded. Alfred P. Sloan created the concept of decentralized administration and operation combined with centralized control and review at General Motors. Dupont then added to decentralization into divisions the idea of profit center accountability.
John D. Rockefeller’s attempts to establish a new relationship between a company and its employees also symbolized another American effort to turn away from Old World models. He and his advisor, Mackenzie King, sought to distance themselves from Europe’s class struggle model and American employers’ laissez-faire doctrine. They wanted to create a labor-management relationship based on mutual interests and obligations, curbs on management’s authoritarian power, and fair treatment of workers by giving them the right to help determine their working conditions.
This distinctive American approach envisioned by Rockefeller, however, crumbled and this fascinating decade came to an end with the 1929 stock market crash that ushered in the Great Depression. The nation’s morale was shattered and faith in laissez-faire was shaken to its foundations. Jobs disappeared, wages were cut, employer pension plans went bankrupt, and the misery of the times made workers psychologically ripe for unionization. In place of the philosophy of mutual interests of employers and employees came an adversarial labor-management system under government aegis.
Industrial Relations Counselors, Inc.: Its History and Significance
Bruce E. Kaufman, Georgia State University
Professor Kaufman then explored IRC’s role in the development of human resource policies and practices in American management, which he traces to Rockefeller’s recognition of the need for cooperation between labor and management and replacement of workplace autocracy with representative democracy. The employee representation plan (ERP) was put into effect at the Colorado Fuel & Iron Company and then at the Bayonne refinery of the Standard Oil Company of New Jersey. Jersey Standard adopted one of the most forward-looking industrial relations programs in the nation, a model for what became known as the welfare capitalism movement of the 1920s.
Rockefeller broke with the other industrialists at President Wilson’s 1919 industrial conference, trying to steer a middle course between their advocacy of the open shop and union demands for collective bargaining. He supported the principle of employee representation, but rejected unionism as its only form. This conference failed to adopt any statement of policy, but a second one elevated employee representation to a basic principle of American industrial relations. The fact that the recommendation was not enacted into law does not obscure the major contribution Rockefeller and King had made toward reshaping industrial relations along more progressive lines.
IRC was established to advance their concept of mutual gain through cooperation between management and employees. It advised on specific issues, but more importantly, it conducted in-depth industrial relations surveys at companies.
Although it promoted nonunion representation, IRC always insisted that if and how employees were to be represented was to be determined by them. Six thousand managers participated in its training programs and many of them became the chief HR officers of leading companies. IRC’s research in employee benefits and social insurance made it a leading authority on the subject. The organization played a major role in the setting up of the U.S. Employment Service, the retirement system for railroad workers, and the Social Security Act of 1935.
Although the Special Conference Committee (SCC), formed in 1919 by ten leading companies and IRC were separate and independent groups, they were linked through their close Rockefeller ties and a common industrial relations philosophy. In 1935 SCC activities came under scrutiny by a congressional committee investigating violations of labor’s rights, and IRC took over coordination of its meetings and administrative affairs. Known today as the Cowdrick Group, in honor of its former secretary, Edward S. Cowdrick, it meets regularly, but now under the sponsorship of ORC.
With the establishment of a separate organization for consulting activities, IRC efforts went solely into research and education. Its symposia on the behavioral sciences brought university researchers and IR executives together to “bridge the historical gap between academic research and its application in the workplace.” Increasing costs and a reduced budget have curtailed IRC research output, but they continue on a modest basis and IRC has provided support for university researchers.
Kaufman concludes that the birth and development of IRC over the past three-quarters of a century is noteworthy on many counts. It was the first IR consulting and research organization in this country. Where industrial relations had been regarded as of secondary importance and something to be handled by foremen and supervisors, its founding signaled a new conceptualization in which the management of labor is considered of strategic importance requiring executive attention and professional administration.
IRC helped develop, propagate, and implement the progressive IR philosophy formulated by Rockefeller, King, and Hicks. It
- Urged companies to regard employees as human beings and assets, not as commodities and a short-run expense
- Advocated various forms of collective dealing with workers
- Told employers that they had a social/ethical responsibility toward labor and the community
Looking over the course of the 20th century, one is impressed with the tremendous advances made in all aspects of employment and the conditions of labor. IRC’s history is testament to the measure of success it and the progressive management movement have had in transforming American industrial relations to a more scientifically based, professional, and humanistic model.
Papers Prepared by Academic Experts
In preparation for the symposium, IRC had commissioned a number of papers on developments in the twentieth century in specific areas of industrial relations.
The Quest for Cooperation and Unity of Interest in Industry
Bruce E. Kaufman, Georgia State University
Professor Kaufman notes that IRC’s birth was an outgrowth of four decades of attempts to find a solution to the labor problem, that is, the struggle between labor and management over control of the process of production and distribution. By the 20th century, technological change, bringing with it greater capital intensity of production and economies of scale, together with expansion of markets, resulted in giant corporations replacing single proprietorships. Workplace theory circa 1900 provided an intellectual and legal foundation for a largely unrestricted system of employer autocracy in the internal governance of the firm. It also resulted in an unregulated system of wage/employment determination in which labor was treated as a commodity to be bought as cheaply as possible and used only as long as necessary. This led to conflict and poor work performance.
Two ways of changing the system were proposed. The first was to replace private ownership with socialism. The second was to have labor and management compromise their interests through collective bargaining with unions. However, this often fostered an adversarial attitude leading to union pursuit of policies that effectively destroyed the basis for a long-run, mutual-gains relationship.
Rockefeller, King, and Hicks, therefore, proposed a third way—recognize areas of activity in which the interests of labor and management coincide and build cooperation between the two parties. This employer’s solution sought to preserve capitalism and the employer’s authority to run the enterprise, but resolve labor problems through a reform program intended to achieve both increased efficiency and employee satisfaction. This could be achieved by fostering workplace cooperation, based on promoting identity of interest (goal alignment in modern terms) between the parties. IRC propagated this unity of interest philosophy and the following associated management practices:
- Articulation of a formal labor policy
- Establishment of an industrial relations department
- Gainsharing forms of compensation
- Provision of employee benefits
- Employment security
- Employee communication
- Management training in human relations
- Limits of supervisory power to discipline and discharge
- A nonunion system of employee representation
Today there is a burgeoning literature on the high performance work system that brings together work, people, technology, and information in a manner that optimizes the congruence or “fit” among them in order to produce high performance. Thus, we find that the ideas behind today’s concepts of high performance organizations and the human resource practices used to achieve such results are remarkably similar to those promoted by IRC and practiced by the progressive firms of the 1920s.
A Century of Human Resource Management
Sanford M. Jacoby, UCLA
Professor Jacoby notes that between 1880 and 1920, management introduced methods of coordination and control and staff departments to handle technical duties, but hiring and firing remained with foremen. Since this led to high turnover rates and labor unrest, some companies established employment departments to handle these functions. Efficiency, administration, specialization, uplift, and vocational guidance led companies to pay more attention to how they managed their employees.
Labor market tightening, growing labor unrest, and intrusion of the federal government during World War I led more companies to create personnel departments and to raise their status. Personnel management took over more of the foreman’s domain with central hiring, disciplinary rules, training, performance evaluation, and even rationalized wage structures. Spurred by the 1919 creation of the Special Conference Committee, welfare capitalism emerged in the 1920s. Most of these companies had employee representation plans, pensions, paid vacations, health insurance, and profit sharing, and sought to provide steady jobs, good pay, and fair treatment. IRC was part of this movement and its role was to provide research and consulting services.
The Great Depression led to massive government intervention, including economic regulation and encouragement of trade unions. Under the influence of IRC, there was a resurgence of foreman training and provision of benefits, but that could not halt either the growth of unions, particularly in the mass production industries, or the spread of government regulation. Personnel management became important in operating coordinated corporate labor policies to make sure that they complied with government regulation and to deal with unions, and this became even truer during World War II. The War Labor Board, moreover, allowed circumvention of wage controls through fringe benefits and there was an expansion in health, hospitalization, and pension benefits.
In the “golden years” of the 1950s and 1960s, management saw itself as having responsibilities not only to stockholders, but also to consumers, the general public, and employees, which boosted HR’s status. The behavioral sciences grew in importance within HR and a gap opened between labor and employee relations, leaving the former responsible only for collective bargaining and contract administration. As the internal labor market became the key, HR headquarter staff grew and concentrated on management development, employee benefits, training, and communications. In the 1960s, however, the corporate financial function was elevated and HR suffered, as financial measures were hard to apply and HR was criticized for not being business oriented. Personnel managers received a respite in the 1970s, as the stock market dropped, worker dissatisfaction heightened, the ability to open nonunion facilities increased, and government regulation of the workplace proliferated. Dealing with worker dissatisfaction and the application of new forms of work organization in new nonunion plants expanded the organizational development staffs within HR. Labor relations became still less important as the role of local line managers in both union avoidance and work reform rose.
In the 1980s, HR departments became smaller and less influential, as oversight of federal regulations eased, unionism declined further, and the labor market loosened. Corporate restructuring and stronger alignment with demands for higher returns led companies to again view employees as costs and to allow line managers to assume greater control. HR’s roles as provider of services to current employees; provider of programs to, and monitor of, line managers; and employee advocate were called into question. To survive in this short-term organizational milieu, HR moved from an employee focus to a business orientation, but it remained a low status function.
With continued tight labor markets for skilled employees and the growing importance of human capital in business strategy, Jacoby sees the pendulum swinging back in HR’s favor.
Employee Benefits and Social Insurance: The Welfare Side of Employee Relations
John F. Burton, Jr., Rutgers University and Daniel J.B. Mitchell, UCLA
Professor John F. Burton, Jr. with the assistance of Professor Daniel J. B. Mitchell sees the development of employee benefits as one of the most important features of industrial relations in the 20th century. Their growth has been phenomenal: in 1929, employee benefits paid for by employers and employer contributions to social insurance represented only 1.3 percent of wages and salaries, but by 1999, 18.4 percent.
Rapid industrialization caused a serious problem of work injuries and the only form of social insurance to emerge in the pre-New Deal era was workers’ compensation, which, applying the principle of liability without fault, provided cash benefits, medical care, and rehabilitation services to workers who experienced work-related injuries. In the 1920s, some progressive employers provided employee benefits. Depression trauma produced a general quest for security. President Roosevelt appointed a Committee on Economic Security, and its recommendations led to the Social Security Act of 1935. IRC’s research on European insurance programs between 1927 and 1932 was important in the development of the U.S. system of old age and unemployment insurance.
Social security old age benefits were supplemented by privately negotiated defined-benefit pension plans, and they encouraged workers, particularly older ones, to remain with the firm. Unable to obtain a national health insurance system, unions turned to negotiating health insurance coverage with employers. Nonunion firms followed suit and employer-provided health insurance mushroomed. From less than 300,000 covered in 1952, the number jumped to 3.6 million workers and their dependents in 1956, and has skyrocketed since then. Employer-based health insurance, however, also causes job lock, as people are afraid of losing coverage. Tax efficiency, the fact that employer contributions are tax-deductible but employee ones not, led to a largely noncontributory private benefit system.
Benefits rose rapidly relative to wages and salaries, but there was some reversal of the trend in the late 1990s, as a soaring stock market cut the cost of defined-benefit pensions and rising health care costs led to cost-containment efforts, including shifting some of the burden to employees. Both pensions and health benefits are more likely to be provided by larger than smaller firms and go to full-time workers than to part-timers. The anti-mobility effect of defined-benefit pensions has been diminished by a shift toward more portable defined-contribution arrangements, and there have been some moves in public policy toward making health insurance more portable.
Burton and Mitchell end by raising the question of why health insurance should be part of a person’s employment package. Originally, physician opposition had blocked national health insurance, but that has evaporated. Other major nations have health insurance funds run by governments or quasi-public institutions. There is a paradox in our compensation system: in Europe, where labor mobility is low, the external funding arrangements for benefits are compatible with mobility, but in the U.S., where job mobility is high, we have put in place social welfare benefits that impede labor mobility.
Incentives and Structure: Development of Pay Practices in the Twentieth Century
Daniel J.B. Mitchell, UCLA
In this paper, Professor Mitchell defines compensation as payouts of cash, financial assets or services directly to the worker, whether that payment is current or deferred. Historically, there have been four types of compensation arrangements: 1) time-based wages; 2) social welfare benefits, including pensions and health insurance; 3) explicit incentive programs, individual and group; and 4) incentive programs that involve employee assumption of organizational risk.
In the pre-New Deal period, scientific management heavily influenced pay structure and pay was set based on job descriptions, plus a reliance on incentives. Some large firms recognized the implicit incentive of paying above the going rate, a practice termed efficiency wages. A few companies practiced profit sharing. The Great Depression dramatically altered compensation policy, as unions began to play a major role in pay setting. Union policy and the spread of the human relations approach, stressing nonpecuniary motivation, worked against incentives. The need for higher productivity during World War II provided renewed support for incentives, but with the unions having a say in their operation.
The quest for security led to the Employment Act of 1946 and union demands for a guaranteed annual wage (GAW). Neither one, however, met labor’s goals—the federal act guaranteed nothing and the demands for a GAW became a supplementary unemployment insurance scheme.
Escalator clauses protecting against declines in real wages were injected into collective agreements. As membership declined, union influence on compensation diminished and in the 1980s unions acquiesced to risk-sharing plans. Data show the trend toward more flexible pay arrangements, with 7 to 10 million workers receiving stock options in 2000. According to a Chamber of Commerce survey, over 80 percent of respondent companies had 401(k) tax-favored savings plans. Generally, compensation has shifted towards the pay-for-performance emphasis of the 1920s.
Advancing Equal Employment Opportunity, Diversity, and Employee Rights: Goodwill, Good Management, and Legal Compulsion
Jonathan S. Leonard, University of California at Berkeley
Professor Leonard observes that employers who discriminate impose costs on benevolent ones, since their actions can provoke laws and judicial decisions regulating the behavior of all employers that limit the discretion of nondiscriminatory employers to deal with discrimination in their workplaces. Absent a union, an employer has no one with whom to discuss issues and no way to preserve any resulting agreement from legal challenge. Affinity groups for black, Asian, Hispanic, and female employees that exist at some companies might provide a mechanism for employee voice on equal employment subjects. In contrast with unions and collective bargaining, there is no support in the law for a parallel institution for demographic bargaining, and so EEO disputes are channeled into the legal system.
The idea that an employee has a right not to be subject to discrimination is of relatively recent vintage. The United States welcomed immigrants and women into the labor market, but it was not illegal to discriminate against them. Discrimination on the basis of race was prevalent. In the South, the labor force was totally segregated and in the North, most blacks were relegated to jobs at the lowest rungs of the occupational ladder.
World War II was an anvil for change. Dire labor shortages forced industry to hire formerly excluded groups—women and blacks. Under pressure of A. Philip Randolph’s threat of a march on Washington, President Roosevelt issued Executive Order 8802, barring discrimination by race, creed, color, or national origin in federal employment and defense contracts, and established a Fair Employment Practices Committee to investigate charges of discrimination. The FEPC ran into a wall of political opposition, collapsed in 1943, and FDR instituted a new FEPC to investigate complaints and to help resolve them. That FEPC folded in 1946 when Congress no longer funded it.
The campaign against discrimination always has depended on a balance between commitment bred of goodwill and compulsion based on strong law, but public opinion had yet to support a law sufficient to compel action. With federal legislation blocked by Southern Senators, laws barring employment discrimination were enacted at the state and local level, and they had some success. Blacks, however, made significant progress through improvement in education and migration to industrial jobs in the North. Progressive managers, who saw themselves as following proper human resource practices, also opened doors to blacks, according to the 1959 IRC monograph, Employing the Negro in American Industry.
With the passage of the federal Civil Rights Act of 1964, workers achieved the legal means to fight employment discrimination. Affirmative action had been implicitly encouraged by judicial interpretation of Title VII, and explicitly required, but not defined, by Executive Order 11246 that applied to federal contractors. Despite criticisms, affirmative action goals have played a statistically significant role in improving opportunities for minorities, but the goals have not resulted in quotas or caused reverse discrimination. Yet, the term affirmative action evokes controversy, since it runs up against the deeply held American belief in individual merit. Discrimination policies will be stronger where they are seen as applying generally rather than being specially targeted toward narrow groups. This leads back to the 1959 IRC argument for general good business practice that treats all individuals fairly and without favor or bias.
Voice in the North American Workplace: From Employee Representation to Employee Involvement
Daphne G. Taras, University of Calgary
Professor Taras sees two forms of employee voice. The first, employee representation, sought to give workers collective participation in determining the terms and conditions of their employment. The second, employee involvement, recognizes that workers’ creative talents can be harnessed for the good of the enterprise by providing them with a say in how their jobs are to be performed.
Employee representation emanated from the Ludlow Massacre of 1914 and Mackenzie King’s recommendation to set up an enterprise-based plan of representation. First, however, industrialists would have to embrace social and labor reform, a dramatic departure from the prevalent Social Darwinism. Second, with genuine participation, voluntarism rather than statutory compulsion was the solution. Third, enlightenment had to occur at the top. Adherence to these principles would result in labor-management harmony rather than discord and the need for unions would become moot. This view was based on the idea that there was no irreconcilable conflict of interests between labor and management.
Mackenzie King’s employee representation plan (ERP) was put into effect at CF&I and employee representation plans spread among the Rockefeller companies. Both workers and senior managers favored the plans, but foremen offered resistance. The new personnel staff function helped to develop employment policies and ensure their consistent application. Companies outside the Rockefeller orbit also began to adopt ERPs. Plans were most successful where workers had little interest in union organizing. The Wagner Act of 1935 ended nonunion representation, despite IRC efforts to distinguish between it and the company union. Canadian law never banned ERPs and they still exist. At Imperial Oil, for example, workers and managers are satisfied that the Joint Industrial Council helps maintain a strong communications channel, allows worker input into the fine-tuning of company benefit plans and employment policies, and is a better way of operating than unionization.
After World War II, the notion of achieving higher performance and enhanced productivity through motivation and investment in people, based upon research by Elton Mayo, Kurt Lewin, Douglas MacGregor, and Frederick Herzberg, gained favor. In the 1970s, the concept of the high performance workplace, with teams, job enlargement, flexibility, greater worker authority, use of gainsharing, investment in training, and creation of trust between workers and managers became popular. In the 1980s, Japanese approaches, e.g. quality circles, rose in importance, and new successful nonunion high performance workplaces, utilizing autonomous work teams and performance-based compensation, were established. Since then, employee involvement (EI) has spread through industry, in union as well as nonunion operations.
Although the primary philosophy of employee involvement is directed towards enhanced productivity, it is difficult to draw a line between it and representation matters, e.g. team-performance pay systems, and the prohibition on nonunion representation has affected the lawful practice of EI programs. Taras concludes that the Wagner Act stands as a barrier to employee involvement, since it forbids employers in EI programs to discuss with employees any issues that fall within the domain of collective bargaining, even absent a union, and there is a pressing need for overhaul of United States labor relations policy.
Industrial Relations in the Global Economy
Morley Gunderson and Anil Verma, University of Toronto
New industrial relations issues have arisen with increased international trade and investment, and professors Morley Gunderson and Anil Verma see labor standards as the most pressing one. Three mechanisms govern the employment relationship: market forces, employee representation, and laws and regulations. Market mechanisms rely on demand and supply to determine pay and labor allocation, ensuring efficient utilization of labor and production of items that consumers want. But markets have imperfections, and even perfectly functioning ones can lead to efficient outcomes, but not necessarily what society would consider fair. Employee representation, which includes unions and other devices for employee voice in the workplace, mitigates market forces by providing a bargaining mechanism and/or assuring due process to employees. Some argue, however, that unions also reduce the managerial flexibility and organizational competitiveness needed for joint survival of employers and employees. Laws regulating the employment relationship are those governing collective bargaining, setting wages and hours, banning discrimination, fixing health and safety standards, and providing social insurance. By establishing a floor below which market transactions are not allowed to occur, labor regulations and legislation provide a safety net when the market mechanism creates disadvantages for workers.
Freer flow of goods, capital, people, and ideas across borders has enhanced the market mechanism role, with decisions being made on a global basis. Since labor flexibility and adaptability enable employers to respond quickly to changing circumstances, collective bargaining is put on the defensive. Unions have been unable to attain any form of transnational collective bargaining and plummeting membership in many countries means that they are less able to set national standards. Domestic regulative initiatives also are inhibited by fear of repelling investment.
Gunderson and Verma point out that, from its foundation, IRC was interested in issues of labor standards, worker voice and fair wages, recognizing that, while such practices may not maximize profits in the short run, employers who promote good labor standards can benefit in the long run from better relations, improved productivity, and enhanced quality. There was another rationale for promoting better labor policy—reducing competition among firms on the basis of lower labor standards. Indeed, Mackenzie King set forth the “Law of Competing Standards” (based on Gresham’s Law with respect to precious metals), that, left to market forces, labor standards would decline to their lowest possible denominator. He argued that progressive employers should undertake to stem this slide because, in doing so, they would secure their firms’ and indeed capitalism’s future.
Corporate codes of conduct have been adopted among those firms that subcontract production to locally owned and managed companies in developing countries, but the issue of international labor standards continues to fester. The authors see the International Labor Organization as the body best structured to deal with global solutions to labor problems. The ILO follows a voluntary, cooperative approach and rejects the use of trade sanctions against countries that do not adopt its standards, because labor standards must reflect the ability of different countries to afford them.
They conclude that globalization has implications for all the stakeholders in the employment relationship. Individual workers must acquire the human capital (education and training) valued in the market and gear skills towards flexibility and adaptability. Unions should concentrate on those aspects of their role—providing voice, articulating employee preferences, insuring due process—that do not imply large cost increases. Government policy should emphasize adjustment assistance that facilitates labor allocation geared to market changes, rather than income maintenance that encourages workers to remain in declining sectors or regions. Employers should build employee commitment and loyalty by providing workers with skills, decent wages according to the standards of the nation, and a safety net, and they should make sure that HR strategies are an integral part of the business strategy
Towards Collaborative Interdependence: A Century of Change in the Organization of Work
Paul S. Adler, University of Southern California
Work organization, who performs what tasks and how these activities are coordinated, is examined by Professor Adler. Work organization helps shape (and is shaped by) workers’ values and management’s industrial relations policies. The 20th century saw vast changes in the labor force, including a huge increase in female participation and a dramatic rise in educational levels. With technological change and capital deepening, factory production became dominant and the size of firms and establishments grew. Government became a progressively larger factor in the economy.
A century ago, control of the work process was in the hands of line managers and management discovered efficient ways of utilizing workers’ labor time. Worker protest over being driven abated as management exerted control over foremen. Increased capital per worker and technological innovation led to increases in productivity, some of which flowed to workers in the form of higher wages and shorter hours.
Studies by IRC in 1964 and 1988 captured the key effects of technological change on work organization. 1) Modern technology reduces physical and increases mental effort. 2) Automation displaces the direct human production role and workers become more like technicians. 3) Automation increases the share of skilled to unskilled, of maintenance to production, of technicians and engineers to blue-collar workers, and of service to manufacturing. 4) The environment of most jobs becomes more pleasant and safer. 5) New group relationships are formed based on work coordination.
Since World War II, research on trends in work organization has gone through four stages. The first (Blauner, Woodward) saw an initial shift from unit and small batch to mass production leading to narrower, less-skilled jobs, but the later move to automated, continuous-flow production, resulted in broader jobs and upgraded skills. The second, based on Marx’s analysis of the labor process (Braverman), in the 1970s, argued that automation’s potentially favorable effects were rarely realized, as capitalist societies tend to deskill work and narrow responsibilities. The third, contextualist, in early 1980s, said there were no valid generalizations concerning long-term trends in work organizations. A current fourth phase has shifted emphasis from work to that of organization, trying to understand the features of work experience that lead to high vs. low levels of commitment, alienation, and satisfaction.
Confusion over trends in work organization stems from viewing it either as a technical or a social system when, in fact, it reflects both, since its main components are skills required of workers in their jobs, and the fabric of relations into which workers enter in the course of their work. The technical forces have pushed in the direction of progressive upgrading of skill requirements and broader interdependence that have made commitment an increasingly important condition for effective operation. Under the pressure of market competition among firms and the structural authority within firms, however, the positive trends may become distorted at times. Adler concludes, however, that hidden beneath a seemingly cyclical process is an underlying trend towards what he dubs collaborative control, based on stronger, broader, and more “modern” forms of trust and cooperation.
Human Resource Management in the Twenty-first Century
Following the academic authors’ review of the history of industrial relations and human resource management were to come papers on what the future may hold in store prepared by members of the staff of Organization Resources Counselors, Inc. (ORC), who continually observe what companies are doing and guide them on proper practice.
HR Today and Tomorrow: Organizational Strategy in Global Companies: An IRC Study
Richard A. Beaumont, Carlton D. Becker, and Sydney R. Robertson, Organization Resources Counselors, Inc.
In preparation for the symposium, IRC had commissioned ORC to conduct a study on human resource policies and practices in major U.S. corporations. The study was based on a survey in ten global companies that involved intensive interviews and discussions with the senior vice president of human resources, the chief of HR at a business unit level, and senior executives at both corporate and business unit levels at each of them. Three themes were explored: how HR adds value to the enterprise; how HR today differs from the past; and what will be required of it in the future and how it should prepare to meet those challenges.
Change today is so rapid that there is little time in which to take measured approaches, and managers struggle to remain in control of the change process and not allow it to foment internal chaos. The focus of the human resource function, consequently, has shifted from that of an administrator of policies and programs to that of a strategic business partner, contributing to the bottom line by building an organization that can change rapidly and continuously on a global scale. Where formerly HR’s role was maintaining the workforce (compensation, benefits, labor relations), it is now advancing the business (finding and developing talent, leading organizational development, and implementing HR strategies that affect productivity, lead time, and return on investment). HR is moving away from its role as advocate for employees to redefining itself as a facilitator of employee self-service. It also is reengineering its own processes to improve quality and cycle time.
With the ranks of midlevel managers decimated, HR must undertake the role of facilitating alignment of work groups to corporate goals and assisting line managers in communicating among themselves and with their corporate leaders in order to clarify goals and strategy, resolve conflict, and allocate resources. Critical new priorities include developing global leaders, as well as reskilling the workforce and strengthening its commitment. The successful adoption of this role has been a significant factor in boosting the image of HR and enabling it to become part of the management process.
The complexity of global business manifests itself in every function of HR. Staffing today requires the consideration of talent needs throughout the organization and establishing processes for deploying people where and when they are needed. Similarly, every system must take into account variations in social, political, and cultural contexts and include processes that facilitate smooth handoffs and communications among locations and individuals. Given its historic roles of boundary spanner, communicator, and culture protector, HR is becoming “the Great Integrator,” helping the company to translate strategy into structural processes, talent, and cultural designs, balance corporate and local needs, and broadcast the company’s vision and strategy across the organization and then conduct concerns back to the center.
Selected HR Issues
William Brown, Geoffrey Latta, and Roderick Mullett, Organization Resources Counselors, Inc.
Issues in the Development of Pay Practices for the Challenges of the 21st Century
Compensation is a functional area that has been profoundly affected by economic and technological changes and ORC compensation specialist William Brown examines how policy and practice have been altered. Compensation for all levels of employees changed in the past to deal with external demands and in response to how business was conducted. In the 20th century, compensation policy and practice were largely shaped in reaction to outside forces, particularly government, whose tax policies encouraged employer-financed benefits and equity forms of compensation, but also unions, which gained a voice in determination of pay levels and methods. With the shift of HR concern to advancing the organization’s strategy and acting as a facilitator of employee self-service, in the 21st century, compensation policy will be guided by internal concerns, such as support of strategic business plans, accumulation of complex knowledge, and competitiveness.
There will be less concern with what other companies are doing and more on “doing your own thing” to meet the organization’s business strategies and the needs of its employees. Implicit in this commitment is the consideration and design of programs that add value to the business, recognize the global nature of the corporation, represent investments in people, are flexible, and are perceived as equitable and are cost effective. To achieve such goals will require that companies consider the array of questions about the greater use of equity, the appropriate degree of compensation risk, how to reflect shareholder value, and other issues. During the 1990s, for example, many companies encouraged employees to become owners through equity forms of pay, but the sharp decline in the stock market and the financial debacle of Enron and its 401(k) program, may discourage such pay and lead to governmental and internal reforms that better protect employees. Similarly, a new economic environment raises questions about another recent trend—that toward variable pay. When the economy was booming and profits high, it was possible to use variable pay as a major incentive to employee performance, but will it be as effective in a period of reduced profits and less generous add-ons?
If it is to prosper, a business must have the ability to attract, retain, motivate, and reward its key talent and prepare them for future challenges. Therefore, the most important consideration is that the compensation strategy and philosophy be developed to support the individual business locally and globally. Since business and people are different in locations around the world, the organization should plan globally, but reward locally, with the exception of senior executive management where compensation should be linked globally. Brown concludes that the nature of compensation, thus, will continue to evolve and the movement will be toward including more employees in the eligibility for those programs that reward them for their work and provide entrepreneurial connection to the company, and that respect their opinions on programs that impact them.
Current Trends in International Compensation
Both the papers on the human resource function and that on compensation emphasize the important role of globalization in determining future directions. Companies are becoming truly international, making investment and production decisions on a worldwide basis, and their workforces also are becoming global. Multinational companies (MNCs) always have moved people into assignments abroad, since they often could not recruit highly skilled managerial and professional personnel in all countries in which they operated. Those expatriates filled such positions until they could train local replacements. That motivation is being supplemented today by the fact that executive career paths include an expatriate assignment. For all the talk of the world becoming homogenized, differences in standards of living, attitudes, and culture exist and they raise roadblocks to the global mobility of personnel. Geoffrey Latta, vice president and director of international compensation of ORC, explores the challenges in managing this employee group.
One problem is the reluctance of people to accept foreign assignments. This, however, is due largely to fear of what happens when they return—their overseas experience won’t be utilized, jobs at home will be less challenging, and their employee networks will have been weakened. Companies that can demonstrate that assignments abroad will concretely help their careers can generally attract people to accept them.
A greater problem is remuneration. How, for example, should an American-based MNC pay an engineering employee from Belgium who is working in a plant in Thailand, or, for that matter, an American in Thailand? For the vast majority of companies the solution is to pay on a home buildup or balance sheet approach for assignments that are out-and-back. The balance sheet consists first of retaining the expatriate in his or her home-country salary and grading structure, sometimes adding a foreign-service premium, and then to add a series of cost-related allowances, e.g., cost of living, housing, taxes, and children’s education. The underlying principle is to provide broad comparability with home lifestyles and costs—make the individual “whole”. Latta believes that the use of expatriates will continue to grow and that the core underlying balance sheet approach remains the best way of remunerating them.
EEO and Diversity: Capitalizing on Differences
Whether operating globally or domestically, organizations find that their workplaces are no longer homogeneous, by age, sex, ethnic group, or whatever, and their labor forces will become more diverse as the 21st century progresses. Roderick Mullett, vice president emeritus and former director of ORC’s equal opportunity division, viewing the changing scene, notes that, with the spread of protected groups, the original focus of equal employment efforts on African-Americans and women has been diluted and in recent years, anti-affirmative action forces have achieved considerable success, particularly in the courts. In terms of societal mores, intentional discrimination is generally perceived to be unethical, but there is limited recognition of the existence of system discrimination. People of color have not been fully assimilated into American society, but they have been moving in significant numbers into the middle class. Although there has been general upward economic movement, the gap between the bottom and the top actually has widened, but people are not particularly cognizant of that. Empathy with the disadvantaged has diminished, particularly since blatant discrimination hardly exists and system discrimination is hard to identify. Women and minorities have come a long way but have not yet achieved equal opportunity.
This is the environment in which corporate America must fashion its policies. Some companies have successfully differentiated EEO and diversity, but current EEO compliance systems and diversity efforts face inherent flaws and obstacles. Companies have skilled EEO personnel and alternative dispute resolution systems that help to reveal and solve problems, so a foundation for further progress exists, and Mullett describes the elements of a successful diversity system.
Companies understand that American demography is changing and that in the long run survival will require broader utilization of nontraditional talent, but short-term labor market fluctuations have deterred most from making that a priority. Mullett concludes that EEO and diversity must become priority issues for management for ethical reasons and, given anticipated talent shortages, for business ones as well.
Challenge and Balance
Richard A. Beaumont, Organization Resources Counselors, Inc.
In this paper, Richard A. Beaumont views the switch from industrial relations, with emphasis on labor relations, in the era of the Wagner Act and expansion of unionism, to the current one of human resource management, as companies have confronted intensified competition. The IR/HR function has been revolutionized and its emphasis shifted from largely serving employee interests to support of business objectives and focusing more on the cost and character of services.
Cutting costs led to outsourcing some human resource functions, such as benefits administration, leading some people to speculate that the entire function might eventually be moved to outside service suppliers. Such a notion, however, ignores the fact that underlying a company’s performance is the need for a team of managers and workers, with their collective knowledge and skills organized so as to be highly effective in producing goods and services of value to consumers. To achieve that objective, there must be a balance between management and employee needs and that, in turn, requires a function close enough to line management to be able to anticipate business needs and how knowledge workers can contribute to meeting them, something no outside force can do.
Beaumont lists ten challenges that demonstrate management’s need for thoughtful, skilled, professional human resource staffs: 1) continual reskilling of the workforce in response to technological and economic change; 2) a simultaneous shortage of talented personnel and surpluses of other types of labor that threaten the traditional doctrine of equality of treatment; 3) income distribution, with a growing public reaction against a system in which the ratio of pay of the highest job to the lowest is greater than it has ever been; 4) an employee quest for security, which could lead employees with common personal or occupational interests or characteristics to band together; 5) social security and retirement programs that face future difficulties as a result of changing demographics—more older people relative to younger ones in the labor force to support them; 6) a rise in the importance of EEO and diversity programs to ensure effective workplaces as work becomes more team-based and cooperative; 7) corporate governance—determining the proper roles of boards of directors and their members; 8) organization and structure as companies move further from the classical authoritarian model to an ever more flexible and democratic one; 9) risk, that is, HR professionals standing up for what they see as the correct course, but knowing how to marshal arguments to balance immediate business needs with sound long-range human resource ones; and 10) social behavior of companies to be sure that they always are acting as good citizens wherever they operate. He concludes that human resources is best able to deal with these challenges, and will be fundamental to business success and be a partner in the development of strategies responsive to the human/social realities faced by business.
Transition from the Past to the Future
The symposium’s commemoration of IRC’s 75 years of activity can best be summed up from Richard Beaumont’s opening remarks, in which he noted that in telling the story of the rise and development of progressive industrial relations and human resource policy and practice, we must salute John D. Rockefeller, Jr. He learned from the Ludlow tragedy and sought to establish a labor-management relationship based on mutual trust and obligations, to treat employees fairly, and to give them a voice in the determination of the conditions under which they worked, breaking with the other captains of industry, who clung to their laissez-faire, authoritarian views. Yet, it was his outlook that ultimately triumphed within American management.
In recent years, under the pressure of intensified market competition, the focus of the human resource function has shifted from its role as advocate of employees to one of facilitator of employee self-service and there are new challenges for human resources—talent recruitment and development, succession planning, and innovative compensation systems. All companies seek to adjust to change, but it takes time, and they undergo periods of what may be termed, “implicit disequilibrium,” and the human resource function is crucial to restoring equilibrium. Mindful of the concepts of John D. Rockefeller, Jr., industry must balance market demands with employee needs and in the 21st century, the human resource function will play a key role in achieving that balance.