The Changing Employer-Employee Relationship

Bad times affect expectations on both sides. But managers can turn downturns into an opportunity to build employee loyalty

By Stephen A. Miles and Nathan Bennett

The public is all too aware of the controversy surrounding AIG's (AIG) collapse due to its exposure in credit default swaps, the scope of the government investment to bail out the company, the outrage over generous bonuses paid to many of the same executives responsible for the poor business decisions that derailed the company, and the efforts from many quarters to recover those bonuses.

Beyond these executives, however, are thousands of AIG employees in more than 100 countries who can't entirely avoid being tarred with the same brush. In the U.S., employees have been advised not to display the company logo while out of the office. In advance of a planned demonstration at the New York headquarters, employees with offices on low floors were advised to close the shades on their windows for their protection. Angry, even threatening e-mails have been sent to the company.

A Challenge for AIG's Leaders

AIG—a company that until recently was portrayed on Web sites such as vault.com as a very solid employer—now faces a situation where the company's relationship with its employees has fundamentally changed. Negative comments outpace the positive on jobvent.com by a 2 to 1 margin. Clearly, the team that will be assembled to lead AIG forward faces a tremendous challenge. However, the recession has similarly affected the employer-employee relationship at all companies—not just those grabbing headlines.

To attract, retain, and motivate employees, employers made promises that really could be kept only if the pace of growth in the business continued. Expected growth in profitability and in opportunities were the fuel that fed the "deal" that employers were able to offer employees. At many companies growth plans have since been shelved in favor of retrenchment plans. This recasting of the employment context raises a number of important questions, among them:

• How should we expect the nature of the employer-employee relationship to evolve?

• How have the tools employers have to attract and reward employees changed, and what does that mean for how managers must manage?

One way to characterize the exchange between employers and employees is as a series of promises. Employers promise some level of safety and security, adequate resources to perform jobs, opportunities for development and advancement, and so on. In return, employees promise their experience and effort. The recession effectively has forced employers to defer delivery of all sorts of promises to employees. Economic uncertainty is creating a situation where employees no longer see a direct link between how hard they work today and how their employer will respond.

The resulting challenge for managers is to find ways to stay credible and trustworthy in an environment where promises may be seen as empty. Effectively this means employers find themselves more frequently asking employees to trust the company—assuring employees that better days are ahead and their efforts today will not be forgotten tomorrow. Of course, if the recession is a fairly short one, then less forgetting will occur. Employees can be expected to endure a rough patch. When emotions like fear and frustration become a new normal, though, it is tiresome. How long can employers rely on "trust me" as a way to encourage employee engagement?

Loyal Workers in Bad Times

What can employees fairly expect from their employers in times like these? In tough times true character is revealed—this is just as true for companies as it is for individuals. The way employees are treated when the chips are down says a great deal about what really matters to employers. Ironically, these difficulties provide opportunities for employers to earn tremendous loyalty from their workforce. Of course, if the cards are misplayed, the damage in employee relations can take years to repair.

Employers need to communicate tirelessly and strive for transparency. It may be all they have to offer employees in such resource-constrained times.