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Published By Dr. Hassan Yemer.
Economic Concerns
February 2010

THE AIR OF DISTRUST

In today’s society, there exists an atmosphere of distrust between employees and employers. Employers suspiciously monitor the employees in an attempt to control shortages. Employees watch news of the economy and carry employment announcements to work. This has created a serious problem in corporate America. Many argue that there is a conflict between building trust and current economic theories; however, in a study conducted by Manuel Beccerra and Anil K. Gupta (1999), it was discovered that building trust among employees has a positive effect on the economics of a company (177-203). According to this study, the benefits of winning back employee confidence are worth the money invested to do so. One of the least expensive ways to restore confidence is by helping employees prepare personally for rough financial times.

Beccerra and Gupta point out that many companies offer retirement and savings plans, as well as stock options, as part of their employee benefit package. By helping the employees become more financially secure, it is hoped that they will also become more reliable in their jobs. This approach helps when employees see a long-term association with their companies. Unfortunately, with today’s economy, more companies are being forced to “layoff” large numbers of workers.

Most of the employees losing their jobs do not have emergency funds saved. Employees who are retaining their positions are becoming concerned and want to be more prepared themselves. Unfortunately, most people do not know how to handle their finances properly, and this is simply creating more financial concerns.

FOCUSING ON THE EMPLOYEES

In order to improve the productivity of the workforce, American companies must regain their employee’s confidence and trust. According to Richard F. Gerson (1999), in order to improve performance, corporations must focus more on the employee. More attention must be paid to the things each person brings to the job, including motivations and concerns (pp. 16-19). Gerson argues that understanding what motivates the employees only solves part of the problem. Companies must also understand what causes concern in the lives of their employees. By helping employees address these concerns, companies can build an atmosphere of cooperation. 

TRANSACTIONAL COST ECONOMICS

One popular trend in American businesses today is to use transactional cost economics, which compares the cost of producing products within the company to the cost of having products produced by outside sources (Williamson, 2000, p. 595). As a result, people are being laid off from companies that feel it costs less to contract for the services they provide. This, added to the present economic downturn and the number of companies downsizing and even closing their doors, has created an atmosphere of distrust among employees.

SYNTHESIS

The issue of trust is the focus of Beccerra and Gupta’s article. They compare popular management and economic theories with theories regarding employee trust. On the surface, the author’s argue, these theories seem to be in conflict with one another. They go on to argue that, if managers will take into consideration the relationship between employee attitude and productivity, the management theories can be used to support programs designed to build trust and confidence.

Gerson seems to take the argument to the next logical step. His study adds evidence to the idea that it is important for managers to understand the needs and desires of their employees. He takes the argument to the extreme, suggesting that management put aside the current philosophies of people management and start focusing more on the employees.

Williamson’s article provides contrast to the others. He argues that companies should look at the cost of production and compare it with the cost of having outside producers provide the necessary components. With Williamson’s approach, companies could save money by reducing the size of their companies and the number of their employees. Of course, such an approach would send employees scurrying to find new jobs.

One of the fundamental laws of economics is that businesses exist to make money. Companies are not created for the benefit of their employees, but employees are hired to benefit the business. According to this traditional approach to business, employees are an asset to a company only so long as the costs associated with keeping the employee productive are less than the profits generated by the employees’ performance. Salaries and benefits are kept as inexpensive as possible, and the employees’ productivity is kept as high as possible. The employees’ personal lives have not been a concern to the company, and companies only become involved in their employees’ lives outside of work only as much as necessary in order to stay competitive in hiring and retaining a quality workforce.

What an employee does with the wages earned from a company is one of the most personal aspects of the employees’ lives outside of work. Companies become involved only to the extent necessary to compete in the labor market. They provide benefits such as health insurance and retirement plans. In recent years, many companies have gone as far as providing stock options in order to encourage employees to invest in their own companies. With today’s economy, I believe it is time for companies to take the next step and provide Money Management training to their employees. While many believe this is an invasion of the employees’ personal lives and an unnecessary expense, I believe it will benefit the companies through increased productivity and a healthier economy.  

JUSTIFICATION OF POSITION

By providing financial management training, companies can offer more security to their employees. When the employees are more secure in their economic status, their productivity will increase. Also, the overall economy of the country will benefit as people become more responsible with their finances.

IMPLEMENTATION

In order to provide financial management training for its employees, companies must choose between In-House Training and providing compensation for employees to attend training provided elsewhere.

In-House Training:

Advantages: Providing training within the company would make it more convenient for the employee to attend the classes. If courses were offered before or after the employees are scheduled to begin work, they could either arrive early or stay late. This also keeps the company foremost in the employee’s mind as the benefactor in the program.

Disadvantages: In order to provide In-House training, the company will have to either contract with a Personal Finance Consultant or create a position for a Personal Finance Position. Some companies may be tempted to simply rely on the expertise of their own management team. Unfortunately, expertise with company finances does not necessarily indicate expertise with Personal Finances, and even expertise with personal finance does not indicate the ability to train others in that area. Also, some employees will feel that this is simply another intrusion into their personal time if the courses are taught onsite.

 Compensation for Outside Training:

Advantages: Providing compensation for Outside Training allows employees more control over choosing who they want to receive their training from. This also protects the company from liability in the case of ineffective or inaccurate training. Finally, allowing employees to seek Outside Training provides assurance that the training is objective and will help restore the employee’s trust in their company.

Disadvantages: The Company will have to set up a security system to guarantee the funds are being spent properly. One possibility would be to provide a list of approved sources, and then provide reimbursement when the employee presents receipts and Outcome Evaluations.

Whichever method the company chooses, the benefits of providing Personal Finance Training far outweigh the costs. As employees become more secure in their financial positions, they will become more productive on the job.  

CONCLUSION

The current economic downturn has created an atmosphere of concern and distrust among members of the workforce. This insecurity has been compounded by the fact that most employees lack Personal Finance Management skills. In order to improve productivity, companies must become more involved by providing training in this area. Providing Finance Management training will instill trust within the company, improve productivity, and benefit the overall economy of the area in which the company performs.

REFERENCES

 Beccerra, M. and Gupta, A. K. (1999). Trust within the organization: Integrating the trust literature with agency theory and transaction costs economics. Public Administration Quarterly. 177-203. Available through ProQuest. This article discusses the connections between performance and trust, and how this affects the economics of a company.

Gerson, R. F. (1999). Performance Management: What’s wrong with it and how to improve it. The Human Resource Professional, 12. 16-19. This article discusses a change in attitude needed in Corporate America. The author argues that, if companies will make the employees feel more important, they will benefit from an increase in productivity.

Williamson, G. E. (2000). The new institutional economics: Taking stock, looking ahead. Journal of Economic Literature 37 (3) pp. 595-613. This article provides a summary of economic approaches used by businesses in America

Dr. Hassan Yemer, PhD ,MBA, MPA, MED-A is Senior Strategy consultant for Man­agement Decision Sciences Global Consulting, Inc. (MDSGC) (www.mdsgc.biz), a professional services company that specializes in leadership, management training and research. He has more than 20 years of organizational behavior, leadership, and stratagic management experience for the private and public sectors, as well as international organizations, and is a professor at Strayer University. He can be reached at info@mdsgc.biz.

 
   
 
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