The Four Corners show ‘Tough Calls’ telecast Monday dealt with the introduction of new management styles in Telstra call centers. The show made me rethink. As an economist I teach the principles that are being employed by Telstra but, to be honest, I have never been in a call centre and in fact I have never had what my country-based relatives describe as a ‘real job’ - I’ve always been an academic who teaches people what do based on what he can see, feel and read in books and in supposedly learned journal articles.
The basic theory of agency, on which management theory develops, adopts a pessimistic view of people. It teaches that humans are essentially lazy, slackers. Bosses (‘principals’) direct workers (‘agents’) to do certain things but workers have different objectives to their principals and have an impulse to be slack and to deceive. The boss wants profit while the worker wants to earn his wage but to otherwise loaf or enjoy the quiet life. It’s a ‘cat-and-mouse’ game view of the world where the worker is a sneak who seeks to evade his contractual obligations.
Because workers cannot often be continuously monitored the boss must come up with incentive contracts that reward the worker well only if he/she works hard. This often means coming up with output-related measures of performance. Basically this is what Telstra is now doing. This is supposed to enhance economic efficiency – firms produce more and workers are better-paid.
The monitoring and measuring behavior that seems to occur in the Telstra call centers– counting toilet breaks and so on – is only distantly related to the notion of providing incentive contracts. It is more like a conventional work contract with some Taylorist embellishments since it basically rewards maximum effort and punishes anything that falls short of this maximum.
The tragic suicide deaths of two highly-productive (and very attractive) Telstra employees and the negative impressions many had of the work-culture under the new Telstra should force us all to think carefully about the value of this theory.
What do I conclude? Well the situation isn’t as negative as Four Corners suggests but there are problems that fair-minded people need to consider. Here are some provisional thoughts. Comments (of course) are welcome.
1. Ultimately workers need to be more productive if they are to sustainably derive better incomes. Incentive contracts increase worker productivity and hence allow some workers to be better remunerated.
2. Some people who fail such reward systems may be better suited to other forms of employment. Not all those who fail to succeed in such systems provide evidence against the use of incentive contracts.
3. Low-skilled jobs in call centers will end up being outsourced internationally unless high productivity standards are met. An excellent wikipedia entry on call centers is here. There are advantages in Australians processing decision problems faced by Australians but ultimately competition from other countries will drive work conditions in these types of service industries.
4. It is difficult to design good contracts. If productivity depends on a measurable output (‘widgets produced’) and a non-measurable output (‘quality of widgets produced’) then evaluating workers on the basis of the measurable output alone might not work.
5. Thus some contracts may fail to improve productivity (defined to include output quality) and might need to be replaced by non-incentive related schemes or schemes with lower incentive gradients.
6. That most of the theoretical work underlying such contracts comes from theoretical economists (like me) with limited understanding of real workplace environments and with only a smattering of psychological insight. Mr. Leon Dousset, the Telstra technician for 32 years who killed himself this year, clearly valued doing a job well. He did things ‘slowly’ because he took pride in his work – maybe the work wasn’t slow in the sense that it avoided the need for future work.
5. Work is important to us individuals and it helps us achieve feelings of self-worth. Having creepy, business school types checking on our toilet breaks detracts from what it means to exist in a free, liberal society. As an academic I would despise such treatment. Why should I expect that those in other occupations should find it less obnoxious?
6. In the same way subjecting individuals to verbal abuse and demeaning rituals is unwarranted and probably counter-productive. Telstra needs to rethink its attitudes to those who don’t met pre-set expectations. Issues of work culture are important and influence productivity throughout the workplace – it is noteworthy that the two Telstra workers who suicided were success stories not those failing to achieve targets.
6. The important issue is to secure good productivity from those who can provide it but to not damage and destroy the lives of those who cannot. This will be best supported in a free labour market where workers have the maximum range of options to contract with employees. Uniform wage rates and minimum wages will tend to work against the interests of less productive workers.
Competitive labour markets offer the best protection to workers who receive unjust or abusive treatment. They can then leave and go elsewhere. These supply constraints limit the ability of creative business school types to come up with unrealistic incentive schemes.
7. Social justice is important in determining the distribution of income in society but this is a responsibility of government and the tax-transfer mechanism not of business firms. Society is better-off as a whole in the sense of yielding high net wages and a high redistributable tax surplus if the workforce operates with high productivity.
8. Productivity is important but so too is decent treatment of people in the workforce.