Trust is the currency of business, and companies need to build strong relationships with different parties. Fairness is one of the reasons for trust. After all, a sense of fairness is inherent in us and it comes almost from birth. About fairness in business, this material, based on the book “The Power of Trust.
In a 2017 article published in Scientific American, researchers reported that child development is closely tied to an unconscious notion of fairness.
Even one-year-old toddlers expect resources to be divided equally between two characters in a scene [played out in front of them]. By preschool age, children protest when they receive less than their peers. Sometimes they even give up something themselves so that a peer does not get more. Growing up, children are ready to punish injustice, both when they are victims of injustice and when they see others being treated unfairly. As they get even older, children show … that they would rather get nothing than get more than their peers.
How, you ask, do researchers guess what one-year-olds are thinking? Here’s the answer: by paying attention to what babies are looking at and for how long. It turns out that infants and toddlers spend more time looking at things that don’t meet their expectations or surprise them. This is what they do when they see someone being treated unfairly.
Companies that are trusted for the way they do business have work processes in place that ensure fair decisions are made with all parties in mind. It’s more complicated than it sounds.
Often CEOs go along with shareholders: prioritizing financial returns over, say, the well-being of employees. Part of that has to do with CEO payroll. In 2018, CEOs earned, on average, 278 times more than rank-and-file employees. This statistic shows a huge disparity between the incomes of top executives and rank-and-file subordinates.
Presumably, CEOs make “more money” because their jobs are hard (they are hard indeed). There is no simple criterion to determine how much more they should be paid for their work.
But the real injustice is seen in the rate of growth that each group has seen in their earnings.
It is this statistic that reflects who gets the bigger piece of the pie over time. For example, the average U.S. employee’s salary increased by 11.9 percent over the forty years from 1978 to 2018, while the average CEO’s salary increased by 1,007.5 percent over the same period. What reasonable justification could there be for a CEO’s contribution entitling him to such explosive earnings growth – a hundred times that of regular employees?
And it is the innovation and productivity of rank-and-file employees that increases the value of the company and creates the profits that both the company and its executives enjoy.
Being fair to employees is difficult because often the consequences are indirect and not immediate. To learn more about what unfair treatment of employees leads to, European researchers conducted an experiment in 2017.
They set up a call center and recruited 195 people. Then they fired a few employees to see if it would affect the productivity of the rest. Companies conduct similar “experiments” in real life all the time. But in this case, the researchers wanted to see how unfair layoffs would affect other employees.
They randomly selected 20% of the employees to be fired. The team was told that the selection was random and that such measures were necessary to reduce costs. The productivity of those who stayed was immediately reduced by 12%. On the face of it, that doesn’t seem too bad, but imagine what a drop in profits that would lead to in real life.
After studying the question, the researchers concluded that the “survivors” were most outraged by the randomness of the choice, which they found completely unacceptable. This was only a scientific study, but such layoffs are all too common in life as well.
Company executives should take note of the results of the experiment. A drop in productivity will affect company performance and profits. It’s not as noticeable as a drop in stock price or sales volume, so unfairness to employees is easier to hide or ignore.
Four Categories of Fairness
Jason Colquitt is a management researcher who has worked on the problem of managing employees from a fairness perspective. In 2001, he established four categories of organizational fairness that have been widely used ever since:
The first category is procedural fairness, that is, fairness in decision making: consistency, accuracy, and the voice of those affected by the decision.
The second category is informational fairness: how clearly managers justify their actions and how honest they are in communicating with their subordinates.
The third category is distributional fairness: assessing how fair the results of decisions and actions are. This is what so infuriated participants in a study with layoffs: the decision on such an important question of whether a person would keep their job or lose it was based on a random choice.
The fourth category is fairness in dealing with people, that is, how company representatives treat individuals and groups in face-to-face interactions.
Analyze which of these is required to ensure that your company’s work processes are based on principles of fairness.
Prepared from the book Power in Trust.
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