Chapter 1

Studying the Relationship Between Employee Ownership and Absenteeism and Turnover Rates

Employee ownership is a type of firm construction that has been linked to everything from increased productivity to better working conditions.  One type of link is the connection between employee ownership and reduced absenteeism and turnover rates.  Employees who own and run the firm are happier than those who labor under different constructs.  A manifestation of this happiness is that employees want to be at work and don’t choose to leave.  Therefore, it is logical to assume that employees who own a firm and run it would have reduced absenteeism and turnover rates. 

The benefits of low absenteeism and turnover rates are substantial.  Consider the costs to an organization simply from absenteeism.  If a firm has an absenteeism rate of 7% [1] , what are the associated costs?  Let us assume the following [2] : the average wage is $12.50, the number of hours worked per day is 8, the number of employees is 250, the company offers paid-sick leave, and the company pays overtime.   The number of employees times the absenteeism rate is 17.5.  The labor cost per day for one employee is $100.  The cost of 17.5 labor days at a rate of $100 per day is $1,750.  The money is spent with no return.  Now, consider the impact of absenteeism on productivity.  The reduction in productivity is not regained somewhere else.  Sure enough, a manager could ask/compel others to work more, but the increase in hours by other workers is another increase in costs via overtime. 

            Let us consider the cost of turnover.  Turnover cost is much harder to compute than absenteeism.  The reason is that the costs of a new employee vary greatly from firm-to-firm.  However, let us create a scenario.  Taking the assumptions from above, let us say that the return on investment from a new employee only occurs after the first year. Therefore, the money spent on a new employee is equal to the yearly salary of an employee [3] .  From the above numbers, the average salary of a person would be $26,000.  Using a turnover of 7%, the costs of that turnover would be $455,000.  Why is the number so large?  With a turnover of 7% resulting in 17.5 employees per year going through the firm, then there are 17.5 new people each year.  These people cost a person’s first-year salary.  Kind of shocking, isn’t it?  If business is about being profitable and the bottom line, then performing actions that ensure a positive bottom line should be center stage. 

There are obvious benefits to low absenteeism and turnover.  They are important and worthy of study given that absenteeism and turnover rates are largely controllable within the firm.  Additionally, they directly reduce the firm’s earnings before interest, taxes, depreciation, and amortization (EBITDA).  Therefore, if the firm’s EBITDA is 20% of sales, the company must sell $5 in additional product in order to recoup $1 in costs for absenteeism and turnover. 

The connection between absenteeism and turnover rates, which are the dependent variables within the study, and a culture of participatory ownership, which is the independent variable in the study, is that employee involvement supported by the organizational culture lowers absenteeism and turnover.  Past research found the following results.  Employees who perceive themselves as influential into the affairs of the firm have a better attitude than those who do not perceive themselves as influential (Buchko 1992a).  As a result of employees having positive attitudes, the firm experiences lower turnover (Buchko 1992b).  Having a ‘sense of ownership’ is important, because a feeling of possession is associated with higher levels of commitment (Pendleton, Wilson, and Wright 1998).  Job satisfaction and raised commitment may be attributed to team working programs (Wright and Edwards 1998).  Focusing, workers in cooperatives have superior commitment to their employers (Wetzel and Gallagher 1990).  Additionally, group norms favoring productivity are greater in worker coops (Rhodes and Steers 1981) [4] .  Financially, firms that have share-ownership plans have reduced absenteeism and turnover rates (Long 1978 [5] ; Buchko 1993; Festing, Groening, Kabst, and Weber 1999; Brown, Fakhfakh, and Sessions 1999; and Long 2000). 

The literature shows a link between employee involvement and reduced absenteeism and turnover.   Absenteeism and turnover are very costly to the firm.  Methods for reducing this additional burden need to be sought.  An internal firm culture of participatory employee ownership may reduce them.  In order to analyze the relationship between participation and turnover and absenteeism rates in employee-owned firms, I will look at the literature on participation and its connection to absenteeism and turnover in chapter 2, investigate the literature on organizational culture and how to identify it in chapter 3, and explore how I identified the organizational culture of the surveyed firms in chapter 4.  These three chapters form the context of the survey performed, the results of which are reported in chapter 5.

Prior to discussing the study, allow me to explicate some differences between past research and the present study.  I argue that past research that shows a link between mechanisms for participation and reduced absenteeism and turnover does not illustrate the existence or absence of involvement.  The problem with comparing the absence or presence of a mechanism against the dependent variables is that it does not describe the culture in which employees may have to participate.  Disassociation occurs because participation may be inhibited by such factors as habit, history, and culture (Levine 1992, Footnote 2). The following two scenarios elucidate the point.

Scenario 1.  Imagine that there is a meeting between management and labor.  Within this meeting, management just finished their presentation on new directions that the firm will pursue.  Management laid out the plans, described the implementation, and told labor how the firm will change.  At this point, the main discussant asked the members within the meeting if there were any questions or comments.  The main labor leader spoke.  As the labor leader spoke, the main discussant began sifting through some papers, wrote some notes, and looked at the clock on the wall.  Just then, the plant boss entered the room and walked straight to the main discussant.  As the boss walked to the main discussant, the labor leader stopped speaking.  The main discussant looked askance at the labor leader.  The boss, seeing what was occurring, told the labor leader that this is a minor intrusion and handed the main discussant some papers; after which the boss turned around and proceeded to the door.  As the boss departed, the boss looked at the labor leader and spoke.  The voice had a twinge of sarcasm and aggression, “Oh!  Excuse the interruption.  Far be it from me, the boss, to intrude.”  At this point, the boss was at the door and exited.  Upon the boss’s departure, the main discussant asked, “Is there anything else?”  Everybody in the room “knew” that it was time to go.  The people in the room readied themselves and then left.

After the meeting, the management staff returned to their offices, and the labor leaders returned to the shop floor.  Both grumbled about the presence of the other.  The management complained bitterly about having to go to these “management/labor meetings” and dealing with “those laborers.”  The labor members said that going to these meetings was a waste of time given that management failed to listen anyway; didn’t care what labor thought; and had already made their decision as to what the firm would do irrespective of labor’s thoughts, concerns, demands, or objections.

Scenario 2.  On the other hand, imagine members of a committee entering a room.  A person says, “This is the third meeting that we had on the topic of shift production.  I think that we hammered out some details about where we would like to go.  From the discussion, I feel fairly confident that we all reached about the same decision.  While there may be some minor differences on the details, we are all pretty much in the same boat.  Does anyone else have anything to add?”  There is some minor debate, and the conversation moves forward.  After the members voiced their opinions, the first speaker said, “At this point, I would like to vote on the issue, and that we move to implement the plan.”  A vote proceeds, is tallied, and passes.  After meeting, the members exit.  Upon departure, a member, from management, sees the “boss.”  The boss motions to the management member.  The management member walks toward the boss.  The boss asks, “How did the meeting go?”  “Very well,” responds the management member.  “We passed the resolution, and we voted to implement a new direction for the firm to alter production around to other shifts.”  The boss replies, “Great.”  A pause ensues.  Both take a minute to ensure that the other did not have something else to add.  After making sure that both did not, the boss states, “I did have some things that I would like to show you.  I saw that you were in the meeting.  Now that you are done, I would like to go over those with you.  Do you have time?”  The management member answers, “Yes.”  The two leave together and discuss the matter.

Upon all members exiting from the meeting, the labor and management members return to their spaces.  They all report to their fellow colleagues about the nature of the meeting, the decision to implement a plan, and how the decision affects the firm and the firm’s employees.  All listen, and the delegation of tasks begins.

From these two scenarios, there are some apparent similarities and differences.  In terms of similarities, there is a meeting.  There is a mechanism for participation.  Both labor and management are present.  There is an opportunity for each to speak.  A conversation between a boss and a management member occurs.  Labor and management return to their fellow colleagues and discuss the nature of the meeting.

The differences between the two, however, could not be starker.  In the first scenario, there is no participation occurring.  In fact, the attempt to participate is met with harshness and aggression.  Management and labor view each other with contempt.  In the second scenario, there is participation.  Both work together, and there is a sense that labor can, and does, express their views in a positive environment.

The implications of these differences are important.  By conducting research to determine if there is a link between employee participation and absenteeism and turnover rates, then only viewing mechanisms for participation may yield confounding results.  It is true in both examples that there is a mechanism for participation.  However, actual participation occurs in only one.

Given this gulf that exists between the two scenarios, there is a need to study the culture within a firm.  The research question at hand is: Does the organizational culture allow for participation?  Now, from the two scenarios presented, it seems obvious that having mechanisms for participation is not the same as using those mechanisms for participation successfully.  Employees need evidence that they matter (Maaløe 1993, 143).

A firm that promotes participation should have a coordinated plan that ensures that members participate.  In other words, it is not enough to have components in place for participation.  However, the first step in seeing if a firm culture is participatory or not is that the firm must have mechanisms for participation, training to ensure that employees know how to use those mechanisms, and the information necessary to participate.  For a participatory culture to exist, there must be means.  The next step, though, is to determine if the culture is conducive for participation.  This second step entails getting inside the rooms where interaction occurs and determining if the atmosphere is caustic or conducive for participation.  In essence, one must be the veritable “fly on the wall” to determine what is going on in these meetings.

By being an observer, a researcher can understand the climate of the firm.  The importance of this research is that it moves beyond studying whether or not a firm has a suggestion box, joint labor/management committees, or “meet the president” days and comparing the absence or presence of those activities against absenteeism and turnover.  Rather, this is a more intimate look at the mindset of the firm to determine whether or not the firm commits itself to participation by ensuring that the environment supports involvement. 

The following elucidates and clarifies the logic of the study.  The argument is that an organizational culture exists.  This culture structures how the firm operates.  Utilizing a participatory culture as a benchmark, the firm either promotes involvement or does not.  If the firm promotes participation, then how does that sponsorship correlate with absenteeism and turnover rates?  Likewise, how does the failure to promote a participatory culture relate to absenteeism and turnover rates?

            Stated more formally, the purpose of this thesis is to explore the relationship between culture and two factors of productivity—absenteeism and turnover—in employee-owned firms.  The main hypothesis is to determine if a participatory culture correlates with low absenteeism and turnover rates.  The limitation of this research is in determining if the two, culture and productivity, work in concert, not how and why they work.

            The catalyst for this research was a discussion among human-resource managers in employee-owned firms in November 1999.  The managers indicated that research fails to identify what types of arrangements can aid in issues that affect them and their interests.  Specifically, they wanted to know if a participatory culture correlates with absenteeism and turnover.  This research addresses their concerns.  The intended recipients of this work are human-resource managers and other leaders in employee-owned firms who can utilize this research in order to guide their firms so as to achieve their maximum potential.  Based on the discussion of the human-resource managers, a survey was designed to measure variables that are of interest to them in terms of how employees interact within a firm. 

Employees interact within a firm along three spectra (or poles): technical, political, and cultural (Tichy 1983, x).  The technical pole would measure employee participation within the production process.  For example, if an employee determines that there is an assembly problem, then does the employee have the ability to stop production?  Next, the political pole would measure the power relations within the firm.  For example, does the employee have the ability to approach a “superior” with a problem?  Finally, the cultural pole would measure the climate within the firm.  For example, does the culture within the firm allow for participation, or is there a “fear of speaking up”?  This research focuses primarily on the cultural pole.  It concentrates on the climate of the firm and whether or not it is conducive for participation. 

            The type of research conducted here is that of evaluation inquiry.  There are three types of evaluations.  First, a process evaluation identifies the method by which something is delivered.  Second, an impact evaluation shows the amount of change given some intervention.  Third, a policy evaluation determines whether the theory used to address a problem is appropriate.  The type of evaluation work done here is a process evaluation.  Therefore, I investigate how a firm coordinates its activities of operation. 

            The remainder of this chapter clarifies this research.  First, I discuss employee ownership, my rationale for studying the topic, and what is meant by studying employee participation within the cultural spectrum.  Second, different types of evaluation are presented.  Third, the methods used within the study are identified.

Employee Ownership

            Employee ownership is defined as an organizational structure in which employees own part, or all, of the company in which they work.  The rationales for employee ownership can differ greatly.  In this section, there are two camps presented that offer divergent views on the reasons for promoting employee ownership.  I will present them both, and then I will state the direction from which I approach employee ownership.  Following this presentation, there is a clarification of what is meant by employee ownership and how one can study it in terms of operationalizing these concepts.  After terms and direction are defined, this section concludes by providing further detail on what this study aims to do.

            There are two views that exist within the employee-ownership literature: the humanists and the productivists.  The humanists argue that employee ownership is desirable given that the outcomes produced are superior to conventional firms in terms of equity.  The productivists argue that an employee-owned firm is superior to conventional firms given that the productivity output of an employee-owned firm is greater than firms constructed on different lines.

The Humanists

            The most influential book of the humanists is that of Carol Pateman (1970).  In her path-breaking book, Participation and Democratic Theory, she argues cogently and decisively that the employee-owned firm is superior in that it allows people to express their true talents. [6]   Additionally, in her book, she cites writers, such as John Stuart Mill, to provide support for her argument that participation by the masses is an underpinning of democracy.  Participation is the necessary and sufficient condition for the actual existence of a true democracy.  Pateman then focuses her argument into the context of the workplace.  She states that workers must be able to participate in the affairs of the workplace in order for democracy to thrive. 

            In Robert Dahl’s 1985 book, A Preface to Economic Democracy, he argues that economic democracy is an appropriate extension of political democracy.  Drawing heavily on Alexis de Toqueville, he argues for the benefits of political democracy within the economic sphere.  His argument boils down to the following: If political democracy is worth fighting for, then economic democracy is worth fighting for.

            Moving from large, abstract ideas to more mechanistic changes, we find the arguments of Shann Turnbull and David Ellerman.  Turnbull (2000) [7] states that the traditional system of employment is unfair given that workers do not receive the fruits of their labor.  The people who receive the disproportionate share of the profits are the investors.  Turnbull is not against investors reaping profits, though.  He states that they should receive a proportionate share of their investment through limited return.  He would limit investors to some equitable return on their money (usually limited to 15 years).  After this time period, profits would go to the workers.

            Ellerman (1990) would go even further.  He believes that the labor contract, which is the agreement between a firm and an employee through which the employee agrees to sell labor power to the firm for a determined amount of compensation, is what inhibits workers.  Therefore, he would eliminate the labor contract.  In its substitute, he would have workers rent capital.  This would unshackle labor from the constraints and bounds of the labor contract, and this would allow workers to reap the fruits of their labor. [8]

The Productivists

            Moving from humanism to productivity, we find that employee ownership within the current system of capitalism can have profound effects on the companies in which employees work and own.  According to the 1987 Government Accounting Office (GAO) report, employee ownership, when coupled with employee participation, results in the firm being 52% more productive than firms that exist under other arrangements. [9]   Going across the Atlantic, one finds similar outcomes.  As found in the 1996, Promotion of Participation by Employed Persons in Profits and Enterprise Results (PEPPER) II Commission Report to the European Union (EU), bringing employees into the business increases productivity despite how employees are brought into the firm. [10]   What this means is that bringing employees into the business has tangible benefits to the firm and to the employee.

            The theory that best aids in understanding how to bring employees into the business and have them serve as productive participants in the firm is that of binarian economics. [11]   Binarians dichotomize the work place into humans and capital.  Humans are the means by which everything else occurs.  Humans build shovels, airplanes, computers, pencils, chalkboards, digital cameras, etc.  Capital is everything else.  Capital can be money, land, manufacturing equipment, computers as a tool to aid humans, etc.

            The real distinction between humans and capital is that humans are the means by which everything else exists.  Capital serves as a tool for humans.  For example, a human may use a computer to build a better computer, but the human had to build the initial computer for it to exist at all.  Against this backdrop, it becomes obvious that to get better products, one should expand the human mind fully.  The primary method for development is through education.

            Educating a work force allows the work force to work smarter—not harder. [12]   This adage becomes particularly salient when considering employee participation.  Having employees participate by giving uninformed opinions is of little value.  However, having a workforce that is educated and knowledgeable about the production process, machines on which they work, the affairs of the company, economics, finance, etc. allows employees to make meaningful contributions to the company and to themselves.  Likewise, letting the knowledge of employees sit idly as the company makes moderate profits or falters is also a waste.  Employees should be at the heart of the decisions in the firm, because they are the ones with the clearest and closest sense of what works and what does not because they perform the basic activities of the firm day-in and day-out.

            The distinction between those who advocate employee ownership on humanistic grounds and those that do so on productivity grounds should be clear.  For humanists, employee ownership offers a more equitable system that empowers the worker through evenhandedness.  For the productivists, the worker is a member of a team who must contribute, and the current system of capitalism affords employees the opportunity to enjoy the fruits of their labor via participation in an employee-owned firm.

            In defining the differences and stating where I stand, the intent is to identify my personal biases, which could shape the research performed.  I agree that both camps offer good reasons for studying and promoting employee ownership, but they do differ.  For the most part, I side with the productivists.  This is because I think that the capitalist system exists more as a result of historical tradition than anything else.  In fact, the current legal system relies on a long history that makes the existence of capitalism possible (Commons 1995).  Also, it is not entirely clear that altering the current system of capitalism in favor of another system, albeit one that could be more equitable, is a good idea.

            Also, it is important to note the distinction between inputs and outcomes.  The inputs for the humanists can become the outputs of the productivists.  It is not surprising that the humanistic argument falls on deaf ears.  The current system of capitalism is one that promotes economic efficiency at the demise of equity among people.  However, if the productivists are able to promote their form of employee ownership, meaning that firms should become employee owned and participatory because there are real benefits to the firm in an economic sense, then the goals of the humanists could be achieved as well.  If employees own the firm and participate in the functioning of the firm, then the employees are doing what the humanists want them to do: own a firm and participate in a firm.  The desired outcome of the humanists is achieved via employee ownership through the productivist’s rationale.

            The point is that I do think that the productivists have a leap on having their ideas and ideals promoted given the capitalist environment in which we all exist.  I do think that promoting employee ownership is important and should be done from a productivist’s viewpoint because other arguments often fall on deaf ears.  However, the humanists do provide very decent and worthy arguments that should not be pushed aside.  Promoting a culture of inclusion, equity, and justice provide the first indications that a firm “cares about the employee.”  As we will see later, the firm determines whether or not the employee has commitment.  By promoting what ultimately could be described as fairness in the workplace, the firm takes the first step in promoting a culture conducive to participation.

Defining Terms

            Although the use of the terms “employee owned” and “participation” have already been used, the following presentation clarifies what is meant by these and other key terms.  According to Geoffrey Moss (1991), there are four perspectives [13] , or frames, of employee-owned firms. [14]   First, the structural frame is how democracy is coordinated within the company.  The largest distinction made is that employee ownership is not synonymous with employee control (Rosner 1983). [15]   What this means is that the employees can in fact own the firm without having power to influence the direction of the firm, or without having any say in how the firm is operated.  All the employees, great and small, should have the ability to influence decisions within the company that “they all own.”

            Second, there is the human-resource frame, which recognizes that employees should be in appropriate positions.  It is the human-resource function to determine employee placement.  This frame answers the question: How do employees fit in the organization?

            Third, is the political-analysis frame.  This frame analyzes the political obstacles that exist within the employee-owned firm.  For example, what are the primary obstacles to co-operation between labor and management, supervisor and subordinate, and employee-to-employee?

            Fourth, there is the symbolic frame of employee ownership.  This perspective compels a researcher to analyze how employee control can be a symbolic phenomenon, which serves to allow labor and management to accept positive myths of organizational democracy.  The phenomenon does not have to be insignificant even if it is symbolic.

            The type of frame utilized within this research is that of the first frame: the structural frame [16] .  Employees should have meaningful ownership of the company and the ability to influence decisions made within that company.  In other words, employees should hold shares of their company and have meaningful control over the decision-making apparatus of the firm.

            Shifting slightly from the viewpoint of how to study employee ownership, let me now present a short vocabulary list.  Let us define participatory mechanisms as joint management/labor committees, problem-solving teams, self-directed work teams, etc.  What these mechanisms allow is for the opportunity to participate.  While these mechanisms do not assure that actual participation occurs, without them participation fails to occur, except in very small firms.

            A participatory culture is one that allows and fosters an environment in which employees participate.  From the firm’s perspective, a participatory culture is what the company does to make people feel apart of the organization.  In examining a participatory culture, the researcher investigates the climate, the atmosphere, or the values that permeate the organization. [17]

            Absenteeism will be defined as the rate of previously unannounced employee absence from work.  Absenteeism measures the amount that employees are not present at work as compared to total days for which the employee should be at work.  This definition would exclude occurrences such as jury duty, military-reserve activity, or other scheduled time absent from work.  Turnover is the proportion of employees permanently departing a firm for reasons other than disability, death, or retirement.  It should be noted, however, that the words, absenteeism and turnover, were not defined on the survey.

Vocabulary, as I discovered, is an area steeped in confusion.  Often, people seem to utilize words to describe something, everyone thinks that everyone else shares the same definition, people think they agree, and then problems arise given differences.  I was particularly shocked to discover that there is no established norm for reporting absenteeism statistics.  This may have an impact on the findings of this study.  I assumed that my above definition was shared universally.  I was wrong.  Likewise, even the notion of participation differs from person to person.  I hope to address some distinctions within this research.

It is also worth noting that vocabulary was actually a starting point for me in doing this research, because I wanted to state that having mechanisms for participation does not ensure involvement.  People within an organization must know that the organization desires input.  This solicitation aspect is really the essence of a participatory culture.  Before getting too far ahead of myself, allow me to present the study.

The Study

When the emotional climate is right, employees are ready to use their information and skills to contribute to better integration and functioning of all levels of the firm’s work process, whether that involves a rearrangement of the production line, redesign of the product or even pressuring a fellow worker to pay more attention to the job.  (Logue and Yates 2001, Chapter 5, 13, Italics mine) [18]

The focus of this investigation is to determine if the emotional climate is right.  This inquiry takes the type of research performed by Jacquelyn Yates and John Logue in The Real World of Employee Ownership and expands it by exploring the emotional climate; the atmosphere in which employees work; the ability of employees to participate in the firm and know that their contributions are accepted.

In the pioneering book by Logue and Yates, The Real World of Employee Ownership, they studied how employee ownership manifests itself in the real world.  They investigated and provided findings, for better or worse, on how employee ownership affects business operations.  Some of their findings were inspiring; some were confounding; and some might compel employee owners to forgo ownership and return to a conventional firm.

What Logue and Yates did not do was to try and show one side or the other.  They did not try to paint a rosy picture of employees joyfully going to work after they kissed their loved ones goodbye from a beautiful house with a white, picket fence.  Nor did they provide only findings showing employee-owners acting as drones or cogs in a wheel and that employees are horrible owners who have no business sense.  In the words of Logue and Yates,

This is not a book about abstractions.  We will not demonstrate on the basis of impeccable, deductive reasoning from the rational theory of the firm, supported by mathematical equations that employee-owned companies are bound to succeed ... or bound to fail.  If you want equations, please look elsewhere.  Nor are we going to describe how to overcome the sad plight of alienated labor in post-modern society through employee ownership.  If you are looking for a Marxist deconstructionalist, or post-modern feminist analysis of human alienation from creative activity, you should look elsewhere as well.  This book is a doggedly inductive account of what employee ownership is in practice:  successes and failure, the good, the bad, and the indifferent.  In short, it is about the real world of employee ownership.  (Logue and Yates 2000, Chapter 1, 28)

This research follows that line of reasoning and attempts to build upon the work of Logue and Yates.  In their book, they discovered findings that seemed to be bewildering and confusing (Chapter 3, pages 20-30).  For example, Logue and Yates found that having non-management employees on the board who were elected by the employees had better financial success than firms who had non-management employees on their board appointed by the firm.  Likewise, having non-management employees on the board who were elected by the employees had better financial success than firms without non-management employees on the firm. [19]   Logue and Yates then ask: Why would it matter if the employees elect or if the firm appoints the non-management members?  The answer, they say, is quite complex.

            This research aims to address that complexity and seeks an answer in organizational culture, which can be considered as the customs and practices of an ordered people.  What this research investigates is the whole climate of the company; in lieu of looking at one, or multiple variables in isolation.

            The logic for this research stems from that of Rob B. Briner and Shirley Reynolds (1999).  In their study, they investigated papers in which researchers considered isolated variables of organizational stressors or alleviators and their impact on organizational factors of production—like turnover and absenteeism.  Briner and Reynolds found that the link between isolated stressors or alleviators and factors of production is tentative at best, and, more than likely, causation is impossible.  Their points are that researchers should focus on general conditions in a firm and determine relationships between organizational stressors or alleviators and their impact on organizational factors of production.

             In following the theme identified by Briner and Reynolds, this research endeavors to understand the link between a participatory culture and absenteeism and turnover.  The following are the hypotheses of the research:

Hypothesis 0: There is no relationship between culture and rates of absenteeism and turnover.

Hypothesis 1: Firms that have an employee-participatory culture have lower rates of absenteeism and turnover.

Hypothesis 1A: Firms that do NOT have an employee-participatory culture have higher rates of absenteeism and turnover.

Fundamentally, the model is the following:

Model for Research

Figure 1

            Mediating engagement is the culture of the firm.  I hypothesize that if the culture promotes participation, then the firm will have lower rates of absenteeism and turnover.  I do find support for my hypothesis.

            It is important to state that my initial model for understanding culture later became inappropriate based on the findings.  My initial understanding of culture, as identified by the figure, was that the culture of the firm existed, but that culture was a point along a continuum in a process.  This proved incorrect.  Given my research, literature review, and subsequent consideration, I now understand culture in a more spherical manner.

            When I say that I now understand culture in a spherical manner, what I mean is that culture wraps around all entities, and the employees and the firm all interact together with the organizational culture shaping that interaction.  Culture is not part of a process.  Rather, culture, ultimately, dictates how people interact.  This molding aspect of culture is the essence of this research.

Evaluation

            There are three types of evaluation methods: process, impact, and policy. [20]   Within each of these methods, there is a set of tools that the researcher can employ to investigate the desired phenomenon.  The purpose of this section is to highlight the types of assessments and tools in order to clarify and distinguish the type of investigation conducted.

Process

            A process evaluation identifies the method by which something is delivered.  The goal of a process evaluation is to see if the process works, and if it works, how and why it works (Sidani and Sechrest 1999, 234).  There are various tools researchers can employ to study a process within firms or other organizations.  The tool employed by this researcher is that of investigating the firm along three poles: technical, political, and cultural [21] (Tichy 1983, x).

            The technical pole is how the employee contends with production issues.  For example, if the employee determines that the production process ran afoul, then does the employee have the ability to participate such that the employee can halt the production process and correct the problem?  This issue should not be taken lightly.  The following, anecdotal story highlights the ramifications of inaction.  A windshield mounter at a car assembly-line process knows that the installation procedure allows for water leaks.  However, the employee lacks the ability to halt production.  The ramification of inaction is the production of cars known to have defects despite employee knowledge.

            The political pole measures how the employee interacts with superiors.  What this pole highlights are the power relations within the firm.  For example, are superiors power-hungry individuals—homo políticus—and do employees lack the ability to approach them? [22]   Or, are the power relations such that employees can approach them, and superiors can utilize their power to solve employee-found problems?

            The cultural pole describes the climate of the firm.  For example, is the firm a place where people feel comfortable presenting problems to superiors, or do they feel as if the “boss” condescends employees who “only bring problems to the boss”?  Utilizing another example of the car manufacturer, the point becomes clearer.  Employees at a car manufacturing plant have the ability to halt production.  However, they fear doing so, because halting production results in a caustic exchange between “management” and the line worker.  The result is that employees allowed known problems to go unaddressed during the production process, because they did not want to be harassed.

Impact

            The second type of evaluation is impact evaluation.  An impact assessment determines the amount of change given some intervention.  This type of investigation answers the question: Are we making a difference?  Often, people assume that this type of evaluation is simply mathematical.  For example, one could perform a p-test [23] to determine the difference between pre and post implementation.  While undoubtedly it is important to do the math the impact of an intervention (Schaloch and Thornton 1988, 31), it is equally important to consider the ramifications of intervention.

            As Frank Fischer explains, there are multiple types of program evaluations: technical, contextual, and systemic (1995).  Fischer agrees that technical, meaning quantitative analysis, is important.  However, he also argues that understanding the implications of intervention within the context of the intercession is important as well.  For example, if implementing program x results in a huge upsurge of some, quantitatively significant, numerical value but the people affected believe they are negatively impacted, then has the program been beneficial?  According to the math, one would easily argue yes—there is a huge increase of some measure.  Taking this a step further, and beyond the immediate impact of the context, Fischer argues for analysis at the systemic level.  What this means is that the implications of intervention should be discussed at a level higher than those impacted to determine if intervention is beneficial to society as a whole.

            The ability to investigate the impact of intervention in technical, contextual and systemic terms is best done via both quantitative and qualitative techniques (King, Keohane, and Verba 1994).  In their pioneering book, Designing Social Inquiry, Gary King, Robert O. Keohane, and Sidney Verba state that quantitative techniques alone will only produce one view of the issue.  Investigating a phenomenon requires multiple views. [24]

Policy

            The final type of evaluation is that of policy evaluation.  A policy evaluation determines if the theory used to address the problem is appropriate.  As Jeffrey L. Pressman and Aaron Wildavsky argue, one of the greatest deaths of a policy is utilizing the wrong theory to address the problem (1984).

This Research

            The intent in presenting these various types of inquiries is to present and define the approaches available and to state clearly the type employed here.  The type of investigation to be done is that of a process evaluation to determine the nature and extent to which employees partake in the management of the firm.  The purpose of performing the process evaluation, within the context of the cultural pole, is to determine if the created culture is advantageous for the firm by minimizing absenteeism and turnover.  Therefore, this research lies at the intersection of three concepts: a process evaluation within the context of the cultural pole to determine if the process works for the firm—as measured by rates of absenteeism and turnover.  The method by which I will determine if the culture works for the firm is to uncover the relationship between culture and two factors of productivity via quantitative and qualitative techniques.

            The method for identifying the culture of the firm and its relationship to absenteeism and turnover is a survey.  In a focus group with 15 human-resource managers in November 1999, the managers stated that employee satisfaction, as measured by low absenteeism and turnover rates, could affect higher corporate performance.  Given the knowledge gained from this focus group, a survey was constructed and then conducted in March 2000 to measure employee satisfaction and how the company can deliver it.

            The data utilized in this research are from a survey mailed to human-resource managers at employee-owned firms.  The survey consisted of 20 multiple-choice questions and two open-ended questions (Appendix 1).  Information collected was representative of strategic, human-resource issues in employee-owned firms.  The questions asked were primarily about ownership structure, training, information, participation, and short-term incentives.  The number of surveys administered was 149.  Of the administered surveys, 67 were returned; indicating a 45% response rate.

            The recipients of the survey were human-resource managers from employee-owned companies—i.e. the percentage of employee ownership at the firm had to be greater than 0.  The surveyed firms were selected from the Ohio Employee-Owned Network, which is a program run by the Ohio Employee Ownership Center (OEOC) [25] , and the 1999 Larkspur Data Pension/Benefit DataMasterÔ [26] , which includes companies that have a qualified employee stock-ownership plan.  The solicited firms for this survey represent those firms for which the OEOC had a human-resource manager contact at the firms.  If yes, then a survey was mailed to the respective manager of the firm.  The survey instrument, frequency distribution of the responses, and my discussion of the issues in the survey itself appear in Appendix 1.

The techniques employed to study the survey are quantitative and qualitative.  Quantitative techniques are used to elucidate general trends.  For example, how many companies have an absenteeism rate of 0-5%, 6-10%, 11-15%, 16-20%, or 20% and higher?  Also, quantitative techniques can provide information about the correlation between absenteeism and turnover rates and whether or not the firm offers, for example, an attendance bonus.  Qualitative techniques, or qualitative inference, are the use of theory, trends, and inference for analysis.  Qualitative techniques are used to understand what is the culture of the firm. 

Understanding the differences between these companies requires both a quantitative and qualitative assessment in order to provide a holistic depiction of the surveyed firms.  The quantitative technique illuminates general trends.  A qualitative technique allows the researcher to put the pieces together in terms of the overall picture that emerges and answers why two companies can be similar in construction but different in outcome.  The basic logic for this stance stems from the work of King, Keohane, and Verba (1994), who state that quantitative and qualitative techniques can complement each other so that the researcher can gain a better grasp of the studied phenomenon [27] .  For our purposes here, quantitative analysis shows correlations between, for example, participatory mechanisms, incentives, or training to absenteeism or turnover.  Qualitative analysis, which would be better described as qualitative inference, begins where quantitative analysis ends by uncovering the relationship as to why there is, or is not, a correlation between two variables; why one firm can construct itself similarly to another but have vastly different absenteeism and turnover rates; or why one company reaps rewards while the other flounders [28] .

            At this point it is necessary to state how the two techniques employed shed light on the studied phenomenon.  This next section details the theory used to guide the research, and how the techniques will be employed to study the subject.

Theory and Analysis

            The purpose of this section is to explain how I plan to utilize both quantitative and qualitative techniques in order to investigate the relationship between participatory culture and absenteeism and turnover.  The method of explaining how the methods are used within this research is to present the theory behind the investigation, and then present how the techniques will be used to analyze the surveys.

            The theory that drives this research stems from the Department of Labor’s (DoL, 1993) investigation on high-performance workplaces [29] .  The DoL defines a high-performance workplace as a place where businesses integrate incentives, information, skills, the ability to make decisions essential for innovation, quality improvement, and change with human-resource functions.  The following characteristics are endemic to high-performance workplaces:

·        Give workers a stake in the performance of the organization through employee ownership and gainsharing;

·        Create employment security strategies that recognize the value of workers to long-term economic performance;

·        Push responsibility down to front-line employees, often by organizing work into self-managing teams;

·        Provide workers with the information necessary to exercise a high level of autonomy and discretion;

·        Build worker-management relations on trust, mutual interest, and cooperation;

·        Focus on satisfying customers, not simply shareholders; on improving quality, not simply reducing costs; and on building organizations that adapt easily to market change;

·        Encourage workers to learn new skills through skill-based pay and pay-for-performance compensation systems;

·        Invest in training and retraining to develop workers as critical business assets, rather than treating them as costs to be minimized; and

·        Provide workers with safe and supportive work environments.

As one can see from this theory, the inclusion of the worker into the affairs of the business is essential for success.  The employee is not a cog in a wheel.  Nor is the employee a factor of production in terms of inputs similar to that of raw materials or machinery.  Rather, the employee is a vital part of the process.  The employee is involved with management for the purpose of organizing the firm.  The employee is to be a part of management in order to determine how operations are conducted at the “shop level.”  In order to be a part of this team, the employee must have training, access to information, and have the support of the firm.

The human-resource survey utilized within this research identifies information about the firm along the lines presented by the DoL.  The first portion of the survey analyzed is done through quantitative techniques.  How are the presence of training, access to information, mechanisms for participation—such as joint labor/management teams or self-directed work groups—or financial incentives related to absenteeism and turnover?

The second part of the analysis concerns the culture within the firm.  Studying the relationship between workers and management simply through measuring which, if any, mechanisms for participation exist does not illustrate the rapport between the two groups.  Therefore, a different method of analysis is required.  I employ qualitative techniques.  I look at each survey, the comments made on the survey, the number and type of mechanisms available for participation, and I then infer a culture.

The guiding principle for understanding culture and its importance stems from Noel M. Tichy’s work on the cultural pole.  He provides the following guidance for researchers, and top-management, on the importance of culture:

One of the most important and difficult tasks of top management is to decide the content of the organization's culture; that is, to determine what values should be shared, what objectives are worth striving for, what beliefs the employees should be committed to, and what interpretations of past events and current pronouncements would be most beneficial for the firm. Having made these decisions, management's next task is to communicate these values in a memorable and believable fashion which will not be instantly forgotten or easily dismissed as corporate propaganda.  (Tichy 1983, 133)

Based on this presentation, one can see that culture is what shapes the firm.  The culture of the firm guides action by constricting and constructing action in terms of goal pursuit, obligations by employees, and in what beliefs employees commit themselves.  Identifying this culture is important, because it has such an important effect on employees.  For example, if the firm espouses employee involvement, then the employee is apt to want to be involved.  However, if the firm provides no training, mechanisms, and thwarts all activities by employees to be involved in the firm, then there is likely to be resentment because of the divergence between words and actions.

            Before proceeding to the summary, allow me to diverge a little in order to identify a critical point—the small sample.  Given that there are 67 companies that responded to the survey, then there are likely to be questions regarding the validity of the findings.  The overall purpose of this research is to identify different types of culture and see how those cultures relate to absenteeism and turnover.  However, given that there is a small sample from which I am basing my research, making larger claims about all employee-owned companies would be extremely unwise. 

In Summation

            At this point, we have covered a fair amount of ground.  Therefore, the purpose of this section is to summarize the points made previously.  First, this research is conducted in order to provide human-resource managers in employee-owned firms with information that they can utilize in order to understand the relationship between a participatory culture and absenteeism and turnover rates.  Second, this research is different from previous research on employee participation, because previous research measured the relationship between mechanisms of participation and other factors.  This research considers mechanisms of participation as important, but they are but one piece in the entire puzzle.  The other part of the puzzle considered is that of a participatory culture.  What this means is that the firm must support employee involvement in the firm.  In the absence of support, then the existence of employee mechanisms for participation can become a moot point.  Third, this research utilizes both quantitative and qualitative methods.  The quantitative analysis of the research concerns itself with numerical analysis.  For example, does having an attendance bonus correlate significantly with lower absenteeism?  The qualitative analysis, or qualitative inference, ensures that factors identified by the DoL for a high-performance organization exists for the firm.  Coupling all of the information together, I can infer the firm culture and group similar firms together.

            Now that it has been stated from where the investigation begins, let us see where we are going.  The next chapter identifies an employee-participatory culture and factors that affect absenteeism and turnover rates.  The third chapter describes the methods of understanding and studying culture.  The fourth chapter provides a synopsis of the techniques employed within the research.  The fifth chapter presents the data and analysis of it.  The sixth and final chapter closes the thesis by highlighting significant findings and areas for further research.

            In closing, I would like to note that the reason for studying this topic is to provide leaders with information they can use to guide their organizations.  Leaders focus on movement, direction, and change (Owen and Lambert 1998, 357). [30]   Evaluators need to provide strategic information to leaders so that they can guide their organization to achieve their highest potential.  I hope that I will provide useful information to them and yield intrinsic data about organizational learning and change.