Chapter 7 Managers

You don’t lead by hitting people over the head – that’s assault, not leadership.

–– Dwight Eisenhower1

There is a problem with many line managers – they make the people who work for them miserable. The Nobel Prize laureate Daniel Kahneman has pioneered the study of time-use to find out which times of day are happiest for people, and the answer is quite shocking. As Figure 7.1 shows, the worst time of day is when you are with your boss. The person who should be inspiring you and appreciating your work makes you feel lousy. There must be something deeply wrong with our philosophy of management.

Most work is not enjoyable

There is another, hugely depressing finding that emerges from these studies. Most people don’t much like their work – compared with almost anything else they might be doing. Figure 7.2 shows how unhappy people are when they are doing different things. For the average person, working is about the most unpleasant activity there is.2 This is not of course true for everybody and quite possibly it is not true for many readers of this book. But for the average American citizen it is just that. And the same has been found in Britain. An ingenious app called Mappiness bleeps people at intervals and asks what they are doing and how happy they are.3 Users of the app are least happy when they are at work – the only thing that is worse is being ill in bed. Moreover, things are not improving and stress is increasing.

Figure 7.1 Unhappiness depends on who you are with (USA)
Figure 7.1
Unhappiness depends on who you are with (USA)
Figure 7.2 Unhappiness depends on what you are doing
Figure 7.2
Unhappiness depends on what you are doing

But if work is so often unpleasant, one might ask why people are so unhappy if they are unemployed. One reason is of course that they are poorer, but, as we saw in Chapter 2, it is not only that. Work makes you feel needed. Work supplies a purpose in life, a reason to get up in the morning, a sense of being useful – even if it is often boring or hard.4 It provides a social connection – to other workers and to the customers of your labour – and it provides a sense of meaning and purpose.

But can we produce better ways of working? One thing is obvious: the culture at a workplace is not immutable, nor are the details of how the work is organized or how the workers are paid. If current practice makes people miserable, it can be changed. Even if the job to be done is unappealing, it can be organized in a more appealing and motivating way. Work is not, as the Book of Genesis would have it, a punishment for the sin of Adam.

Happiness and the bottom line

But is it reasonable to expect employers to care about the happiness of their workers? There are two reasons why they should: moral and prudential. The moral reason stems from our Policy Principle: that the objective and raison d’être for any organization must be that it contributes to the happiness of the world. This includes the happiness of the shareholders, the customers, the suppliers and the workers (see box below). Contrary to the dogma of many business theorists, it is not only the happiness of the shareholders that should count. Shareholder value has become an increasingly dominant objective in recent years, but all four stakeholders matter,5 and in English law at least the directors of a company must ‘have regard to’ the interests of all of them.6 Profits are essential for a company to survive and grow. But they are not the reason for having companies or for giving them all the protections they receive from the state.7 Companies exist to serve the interests of all their stakeholders. The workers are generally fewer in number, it is true, than the customers, suppliers and shareholders, but for them it is a much bigger part of their life. So Corporate Social Responsibility starts with the workers.

The sole purpose of a business is to make the maximum contribution to the combined happiness of

The second reason for caring about workers is prudential: happy workers work better. Suppose that in 1984 you had invested $1000 in the US companies listed in the 100 Best Places to Work, while your brother invested $1000 in the rest of the market. By 2007 you would have earned $500 more on your investment than your brother did on his.8 This does not mean that every policy that makes workers happier is good for the bottom line. But it does mean that the happiness of the workers is a serious issue for managers.

This is not surprising since a happier environment attracts and retains better workers.9 Happy workers are also more productive. This is borne out both by experiment and by observation. So here is a typical laboratory experiment. Two groups of people were given the same specific tasks and paid according to their performance. People who before the task were shown a happy film clip did 12 per cent better than people who were shown a neutral clip.10 Moreover, happy people tend to do better in their careers. For example, if you take US adults aged twenty-two and follow them up seven years later, those who were happier by one standard deviation when aged twenty-two earn 5 per cent more later (everything else being constant).11 The weight of evidence supports the conclusion that happy workers generally work better.12

What creates a happy workplace?

So what can managers do to improve the happiness of their workers? Needless to say the first step is to have the right people as managers. They need to be appointed as much for their ability to lead as for their technical skills. As the saying goes, ‘people don’t leave their job; they leave their boss’. But how does a good manager lead?

The basic principles of good work organization are three: autonomy, relatedness, and competence.13 First, workers need a clear idea of what is expected of them, but also the maximum feasible autonomy in how they discharge their role. Second, they need to feel part of a collective endeavour in which their own contribution is recognized.14 And, third, they must have the skills and support to do the job – they need to feel competent. The importance of these factors is borne out in Figure 7.3, which comes from the International Social Survey Programme, and assesses what makes workers more satisfied with their job.15

Figure 7.3 How job satisfaction is affected by different aspects of workplace organization
Figure 7.3
How job satisfaction is affected by different aspects of workplace organization

In this figure the top five factors are the standard topics of labour market analysis. But the bottom seven are equally important – and they concern the firm’s culture and work organization. In particular, they confirm the importance of autonomy (e.g. independent working and work–life balance), relatedness (e.g. good relationships and usefulness),16 and competence (e.g. good skills match and interesting work). These job-related factors account for nearly as much of the variation in overall happiness as is explained by mental health.17

So, how can managers increase the autonomy, relatedness and competence of their workers? For competence, it is pretty obvious – they need to operate good selection procedures, proper training and manageable schedules of work. But what about autonomy and relatedness?

Controlling your work

Workers want a voice in how their work is organized. The STAR initiative was an experiment in providing just that. It was led by a team of American researchers from MIT and elsewhere, and it was designed to:

Workers met with their team leader and an outside consultant in four two-hour meetings to discuss what changes would work best. And before that the consultant had four hours with the team leader.18 The initiative was implemented within the IT division of a large US company. Roughly half of the fifty-six working groups in the IT division participated, and the other half (randomly selected) acted as controls.

Six months later the results were striking. As Figure 7.4 shows, job satisfaction increased by 11 percentage points – a major increase. And over the following three years quitting was down by 33 per cent.19

One way in which work can become more family-friendly is if it can be done from home. In 62 per cent of all two-parent American households with children, both parents work.20 So it can be really helpful if one of the parents can work from home. This is not always feasible, but it is possible in many jobs, including call-centre work.21 So what if call-centre workers are allowed to work from home? Does this produce happier workers and does it improve or damage their performance?

In 2010 a large Chinese travel agency began an experiment to find the answer. They asked all the workers in their Shanghai call-centre (doing airline and hotel bookings) whether they would like to work four days a week from home (and one in the office). Roughly half said yes. Half of those who said yes were then allowed to work at home and the other half (randomly selected) were not. Over the following nine months, those who worked at home reported an 18 per cent increase in life-satisfaction compared with the controls. Their productivity also increased by 13 per cent and their rate of quitting fell by 50 per cent.22 The firm was so pleased that it then offered the option of working at home to all of its employees.

Figure 7.4
How the STAR experiment improved wellbeing at work

These two studies confirm the common-sense conclusion that giving individual workers more autonomy can make them both happier and more productive – a win–win situation.23 And there should also be higher-level ways of giving workers greater influence at the workplace. The most radical method is making a firm into a cooperative (like the UK’s highly successful John Lewis Partnership). Less radical but also worthwhile is having employees as part-owners (‘employee share ownership’) and having worker representatives on company boards (as in Germany). All of these methods increase workers’ sense of autonomy and having a voice.24

Working for the team

But what about relatedness? People enjoy being in a team – provided the team works well. But whether teams work well together or become fraught with personal rivalries depends heavily on how the team members are paid.

In 2017 I was speaking to a senior group of HR managers in London. I described in some detail the well-known arguments for paying individuals as precisely as possible for what each of them does – the case expounded so forcefully by many American business schools. And I then said something I had never before said in public: ‘Bollocks!’ The result was amazing: a massive cheer, followed by a punching of hands in the air. I had said what almost all of them believed but could never say, because it was politically incorrect.

There is, however, considerable evidence that what I said was right. We must of course distinguish between situations where people work in teams and where they work independently – as do sales staff, bond dealers or mechanics when carrying out individual tasks. In the case of independent working, it is natural to pay people by their results. Most studies show that this increases productivity and has no negative effect on life-satisfaction.25 But what if people are working in teams, as do at least a half of the British workforce?26 How should each person be paid?

A narrow-spirited view of human nature says that even here we should focus, as best we can, on the individual’s contribution to the work of the team. A standard approach is known as ‘forced ranking’. In any team the supervisor is forced to rank the members of the team every year; and the bonus each worker gets depends on where they fall in the ranking. The alternative would be to reward all of the team on the basis of the team’s performance rather than their own individual ranking. In the narrow-spirited view this team-based approach would provide little incentive, because each individual’s effort would make little statistical difference to the average measured performance of the whole team – and thus to his or her pay.

However, the evidence is against the narrow-spirited view. According to data from fourteen American companies and from the US General Social Survey, pay based on team or company performance makes people work harder and quit less often.27 This is because they are more satisfied with their job. Similarly, in both the European Working Conditions Survey and the British Household Panel Survey, workers who are rewarded for the overall performance of their group or company are more satisfied with their job than other workers.28 Moreover, a recent study of over 300,000 Danish workers showed that, when performance-related pay was introduced into their company, 6 per cent more of them used anti-depressant or anti-anxiety medication.29

But why in the team context does individual performance pay work so much worse than group performance pay? There are two reasons:

  1. Individual performance pay produces jealousy
  2. Group performance pay enhances team spirit.

Regarding jealousy, people hate to be ranked below others and it demotivates them. Of course, at the same time the people ranked above them may get a boost to their motivation, but this effect is smaller than the first, so that the overall effect on motivation is negative.30 This has been demonstrated in a number of experiments.31 In one experiment, a large supplier of office furniture in North America had traditionally ranked all its sales personnel, and then posted the results on its website. But then, as an experiment, it stopped doing this for a randomly chosen group of employees. Over the next two years their sales rose by 11 per cent compared with other workers: they worked better when they were no longer ranked.32

It is easy to understand these results because of the negative effect of ranking upon job satisfaction. If you do not know how you are doing relative to others, that ignorance can be bliss compared to knowing and resenting. David Card, at the University of California, Berkeley, did an ingenious test of this.33 It had recently been decided to put all UC salaries online. But most faculty members did not know that. David Card then randomly informed some of his colleagues at Berkeley that these data were available and measured their job satisfaction before and after doing so, compared with a sample of those he did not inform. Those who had learned about other people’s salaries became on average less satisfied. If they earned less than their peers they became less satisfied; and yet if they earned more than their peers they did not become more satisfied. So ignorance was better than knowledge.34 This must be one reason why a third of American firms make workers sign an agreement not to reveal their remuneration – it would create too much jealousy (and too much pushing for higher wages).

So it is best to avoid regular public rankings of performance. Life, of course, produces its own rankings – periodically some people get promoted while others do not. This is both efficient and inevitable. But we should avoid constant and ceaseless comparison which divides people. Better instead to unite them.

That is what team spirit does, and group-based performance pay enhances team spirit, which in turn enhances performance. Most people like their team to do well, and even people who are not team-players get subjected to peer-group pressure to pull their weight. Moreover, group-based pay reinforces fellow feeling between the members of the group – group loyalty is a powerful motivator. Its power is most evident in war: when soldiers face death in battle, their main driver is loyalty to their colleagues. But group loyalty exists in every well-functioning team. It can be cultivated from the earliest ages onwards. An example of this is the Good Behaviour Game. For the first two years of primary school, the children in a class are split into three teams. Every time a child misbehaves, this is counted as a black mark against the team. Eventually each team is rewarded according to how many times its members have broken the rules. The result is that (compared with controls) the children behave much better; and years later at the age of nineteen to twenty-one they are half as likely to be dependent on drugs or alcohol, or to smoke, or to have anti-social personality disorder, or to have suicidal thoughts.35 Such is the power of team spirit to have a lasting impact on human behaviour.

I have laboured this point about pay for one very good reason. When I had ended my talk to the HR managers, I asked many of them what action would most to increase the happiness of their workers. Nearly all replied, ‘End forced ranking’.36

Wellbeing and mental health

Another time, I was chairing the World Economic Forum’s Global Agenda Council on Health and Well-being (not as grand as it sounds).37 We made an important proposal: employers should regularly measure the wellbeing of their workers. Since companies measure other goals, they will only take workers’ wellbeing seriously (as a goal) if they measure it as well. There are many good systems of measurement.38 The results, we proposed, should be published on the front page of every company’s annual report.

And we made another suggestion. Managers should be appointed to lead, and an important part of this would be their approach to mental health. Mental illness is a major cost to business. It accounts for a half of all absenteeism, and it also reduces performance on the job – sometimes referred to as presenteeism. Altogether, mental illness reduces the average firm’s output by about 2 per cent – leading to a substantial loss of profit.39

But of course the worst feature is the worker’s own misery; and managers can do a huge amount to reduce this misery. There are at least four steps:

  1. First, the manager must recognize that mental illness afflicts about one in seven workers. Managers must have some training in recognizing it and being comfortable talking about it. This means being able to ask, ‘Are you OK?’
  2. If the answer is ‘Not really’, the manager has to be able to ask more and discuss what help is available. Many employers have ‘employee assistance programmes’ which often provide good treatment. But the manager should also know what is available from the health care system at large.
  3. If a worker goes off sick, it should be the line manager who calls up and asks what is wrong. It should not be Human Resources. The line manager should care enough about the worker to want to do it.
  4. As the person begins to recover, the manager should make it easy for the person to come back to work – part-time if necessary, and sometimes on less demanding work. The key point is that work is a major aid to recovery: once you’re ready for it, work is truly therapeutic.

Employers can also play an important role in preventing mental illness arising from whatever cause, at work or outside. They can run courses in, for example, mindfulness or stress management, or (for line managers) on wellbeing-friendly management.40 Such courses have an increasing evidence-base, which shows that they can improve both mental health and job satisfaction.41

Business ethics

These are some of the ways in which employers can improve the wellbeing of their workers. But their responsibilities go wider than this – both to their workers and to their customers. Suppose there is an economic downturn. If it is temporary, companies should (if possible) avoid firing workers, by shortening hours rather than cutting jobs. And if there is a long-term decline in the demand for their products, companies should seriously consider new lines of business in which their workers can continue to be used. Nokia did just that. But if redundancies are unavoidable, companies should (with state help, if necessary) organize retraining and the finding of other jobs.

Business also has duties to its customers. Some companies, including famous banks, sell dud products. Anyone who really believes in the Happiness Principle would not participate in such practices and would if necessary find a different job. More generally, everyone should choose their job so as to make the greatest positive difference to the world (including, of course, their own happiness).

Conclusions

In a capitalist society, most businesses make a big positive difference. And some things are improving. Customer care is hugely better than it was thirty years ago. There is growing concern with worker morale and mental health, and many new consultancies form each week to offer advice on this. Google offers meditation to all of its workers and prides itself on its happiness Googlegeist.

On the other hand, the old macho culture is still strong – setting worker against worker. The former CEO of General Electric, Jack Welch, practised ‘Rank and Yank’ – find out who the worst 10 per cent are each year and sack them. This may be less orthodox today, but it is still common. It will require a new generation of managers, believers in the Happiness Principle, to bring a quite different philosophy to the workplace.42

If we want a happier society, it is vital that more people should enjoy their work. At present work is, for most people, one of the least happy of all their experiences – worse, for example, than housework. And meeting your boss is the worst time of all. In many firms, the philosophy of management needs to be rethought. This should involve:

Firms which do these things will gain both higher productivity and greater profits. And they will make the world happier.

But, if people are mentally ill, what kinds of treatment actually work?

“Granted it would save countless lives—but to what end?”