An investigation of internal marketing and its effects on employees in the banking sector in Saudi Arabia

A survey of the impact of internal marketing on perceptions of organizational commitment to employees and employee identification with their employers was conducted among a convenience sample of Saudi Arabia banking employees. The results indicate that internal marketing impacts perceptions of organizational commitment to employees (PBCMT), and rewards, employee empowerment and PBCMT impact employee identification with the organization (EBID). In addition, PBCMT partially mediates the internal communications – EBID and employee empowerment–EBID relationships, and it fully mediates the training – EBID and rewards–EBID relationships. Research and managerial implications are discussed, as are limitations and suggestions for future research.     

The Economics of Organizational Architecture

Drawing on the work of Michael Jensen and William Meckling, the co‐formulators of “agency cost theory,” the authors argue that there are two main challenges in designing the structure of organizations: (1) the “rights assignment” problem—that is, ensuring that decision‐making authority is vested in managers and employees with the “specific knowledge” necessary to make the best decisions; and (2) the “control” or “agency” problem—designing performance‐evaluation and reward systems that give decision‐makers strong incentives to exercise their decision rights in ways that increase the long‐run value of the organization. The authors provide a number of instructive applications and extensions of the Jensen‐Meckling organizational framework. Using a series of short case studies that range from the Barings Brothers' debacle in the early 1990s and the decade‐long restructuring of ITT to the cases of McDonald's and Century 21, the authors demonstrate the importance of designing performance‐measurement and reward systems that are consistent with the assignment of decision rights. In so doing, the authors also work to dispel the widespread notion, popular among advocates of Total Quality Management, that the widespread use of performance measures and incentives undermines efforts to promote teamwork within large organizations. A number of brief case histories of companies like Xerox and Mary Kay Cosmetics are used to show the critical role of performance measurement and individual rewards in reinforcing a quality‐centered corporate culture. As the authors conclude, “It is a mistake to think of the ‘soft’ and ‘hard’ aspects of organizations as mutually exclusive or even as competing.”     

Using Organizational Architecture to Lead Change

Effective leadership involves more than developing and communicating the right strategic vision for the company. To encourage employees to carry out the corporate vision, companies must ensure consistency among the following three main components of their organizational architecture: (1) the allocation of decision‐making authority; (2) performance measurement systems; and (3) reward systems. The authors illustrate the application of this framework with the case of Xerox's (eventually) successful attempt to create a customer‐oriented workforce in the 1980s. But a more effective demonstration of the importance of these principles, as the authors go on to suggest, might well be the same company's well‐known failure to harvest the commercial promise of the many inventions by its research group in Palo Alto, one of which became the basis for Steve Jobs' success at Apple. This organizational framework is especially useful for evaluating the likely effects of major corporate initiatives such as “Six Sigma” or the “Balanced Scorecard.” For example, it could be used to help top management determine whether, and under what circumstances, decentralization is likely to improve decision‐making and performance, as well as the changes in the firm's performance management and incentive systems that would be required to make decentralization work. Finally, the authors apply the framework to another important leadership issue: corporate ethics. Since the scandals of the early 2000s and the passage of Sarbanes‐Oxley, many, if not most, U.S. companies have issued formal codes of conduct, appointed ethics officers, and instituted training programs in ethics. But a key question for top management is whether the incentives established by the company's organizational architecture reinforce or undermine the code of conduct. Ensuring consistency in organizational design is an important leadership function—one that is critical to encouraging ethical behavior as well as the pursuit of shareholder value.     

New development: A new principle—the higher the position,the broader the view

ABSTRACT

The Peter Principle, introduced over 50 years ago, refers to an organizational phenomenon where employees in a hierarchy are promoted to positions for which they are not well qualified (Peter & Hull, 1969). It has been a topic of debate and empirical research in organizational theory and management literature ever since. This article does not seek to prove or disprove the Peter Principle. Rather, it provides an alternative explanation of promotion within an organization based on employee experience. The research presented here demonstrates that the role inhabited by an employee greatly influences their perspective, which may change based on their location within an organizational hierarchy. In other words, people’s horizons depend on their place within that hierarchy.     

Using Organizational Architecture to Lead Change*

Effective leadership involves more than developing and communicating the right strategic vision for the company. To encourage employees to carry out the corporate vision, companies must ensure consistency among the following three main components of their “organizational architecture:”

• ? the allocation of decision‐making authority (that is, who in the organization gets to make what decisions);
• ? performance measurement systems (for evaluating the performance of individuals as well as business units); and
• ? reward systems (the rewards for success, both financial and otherwise, and the consequences of failure).

The authors illustrate the application of this framework with the case of Xerox's (eventually) successful attempt to create a customer‐oriented workforce in the 1980s. But a more effective demonstration of the importance of these principles, as the authors go on to suggest, might well be the same company's well‐known failure to realize the commercial promise of the many inventions by its research group in Palo Alto. This organizational framework is especially useful for evaluating the likely effects of major corporate initiatives such as “Six Sigma” or the “Balanced Scorecard.” For example, it could be used to help top management determine whether, and under what circumstances, decentralization is likely to improve decision‐making and performance, as well as the changes in the firm's performance management and incentive systems that would be required to make decentralization work. Finally, the authors apply the framework to another important leadership issue: corporate ethics. In response to the scandals of the past decade and the passage of Sarbanes‐Oxley, many U.S. companies have issued formal codes of conduct, appointed ethics officers, and instituted training programs in ethics. But a key question for top management is whether the incentives established by the firm's organizational architecture reinforce or undermine the code of conduct. In this sense, ensuring consistency in organizational design is an important leadership function—one that is critical to encouraging ethical behavior as well as the pursuit of shareholder value.     

Integrating benefits decision making

Integrated employee benefit decision making helps employees use their benefits more wisely and identify opportunities to balance their immediate benefits needs (such as health care) and future benefits needs (such as retirement). This article discusses how employers can overcome employees' behavioral barriers to making integrated employee benefit decisions by changing the ways benefits are communicated and employees are presented with action decisions. Undertaking these steps allows employers to not only improve their employees' overall financial perspectives, but also furthers plan sponsors' goals of actively promoting personal responsibility with respect to retirement funding and changing employee behavior with respect to controlling health care costs.     

Institutional Investment in Listed Private Equity

This paper examines institutional investors’ propensity to invest in a relatively unknown asset class of listed private equity. Based on data provided by LPEQ, Preqin and Scorpio Partnership covering 171 institutional investors in Europe in 2008–2010, we find allocations are primarily a function of size, type, location, decision‐making authority and liquidity preferences. Investment in listed private equity is more commonly made by institutions that are smaller, private (not public) pension institutions, institutions that have a preference for liquidity, quick access, and administrative and cash flow management simplicity, and institutions that are based in the UK, Switzerland, Sweden and the Netherlands. As well, institutions are less likely to invest in listed private equity when investment decision‐making is empowered to an alternative asset class team.     

The Impact of Position Difference on Employees’ Organizational Commitment After the Merger of Life Insurance Companies

We investigate the impacts of job position and survey time period on employee’s organizational commitment of insurance company after the merger. Our results show that both job position and survey time period are significant determinants to employee’s organizational commitment. Results also show that there is no interaction effect between survey time period and job position. For each year, during the survey time period, the mean of organization commitment of agent employees is significantly higher than staff employees. The mean difference of organizational commitment between agent and staff employees shrank year by year during the survey time period.     

How I learned to let my workers lead

In 1980, Ralph Stayer owned a successful, growing sausage company that had him badly worried. Commitment was poor, motivation was lousy, the gap between performance and potential was enormous. Over the next five years, Stayer turned the company upside down, but only by turning himself upside down first. For years he had insisted on his own control, made all decisions, delegated nothing. But when he tried to picture what the company would have to look like to sell the most expensive sausage and still enjoy the biggest market share, he saw an organization whose employees took responsibility for their own work. After several false starts, he finally began in earnest by making himself give up much of his own authority. Stayer turned quality control over to the workers on the production line. Workers also began answering letters of complaint from customers. Rejects went from 5% to 0.5%. Employees thrived on their new responsibility and asked for more. Gradually, people on the shop floor took over personnel functions as well, followed by scheduling, budgeting, and capital improvements. Managers came to function more as coaches than as bosses. Stayer--a little to his own dismay--began to find himself superfluous. In mid-1985, the company faced a watershed decision--whether or not to accept a massive new order that would make huge demands on every employee and strain the company's capacities. Stayer asked the employees to make the decision. They accepted the challenge, and productivity, profits, and quality all rose dramatically. By the late 1980s, Stayer had reached his goal of working himself out of a job.     

A Model of Equity Based Compensation with Tax

In this paper, we develop a two‐stage continuous time model of employee stock option (ESO) valuation under different tax regimes. We show that tax rules can have significant effects on ESO exercise behavior. In addition, we find that incentive stock options (ISO) are the optimal form of compensation for all levels of employees in the UK. In the US, restricted stock plans are preferred, and tax breaks offered by incentive schemes are only beneficial to employees with high liquid wealth (or small option holdings relative to wealth) or low risk aversion. We also analyze 83b elections for restricted stock plans in the US and find that making an election is a sub‐optimal decision for both the employee and the firm.     

Share Repurchases and Pay-Performance Sensitivity of Employee Compensation Contracts

I show that share repurchases increase pay-performance sensitivity of employee compensation and lead to greater employee effort and higher stock prices. Consistent with the model, I find that after repurchases, employees and managers receive fewer stock option and equity grants, and that the market reacts favorably to repurchase announcements when employees have many unvested stock options. Managers are more likely to initiate share repurchases when employees hold a large stake in the firm. Moreover, since employees are forced to bear more risk in firms that repurchase shares, they exercise their stock options earlier and receive higher compensation.     

Can Wages Buy Honesty? The Relationship Between Relative Wages and Employee Theft

In this study, we examine whether, for a sample of retail chains, high levels of employee compensation can deter employee theft, an increasingly common type of fraudulent behavior. Specifically, we examine the extent to which relative wages (i.e., employee wages relative to the wages paid to comparable employees in competing stores) affect employee theft as measured by inventory shrinkage and cash shortage. Using two store‐level data sets from the convenience store industry, we find that relative wages are negatively associated with employee theft after we control for each store's employee characteristics, monitoring environment, and socio‐economic environment. Moreover, we find that relatively higher wages also promote social norms such that coworkers are less (more) likely to collude to steal inventory from their company when relative wages are higher (lower). Our research contributes to an emerging literature in management control that explores the effect of efficiency wages on employee behavior and social norms.     

What it means to work here

What distinguishes a company that has deeply engaged and committed employees from another one that doesn't? It's not a certain compensation scheme or talent-management practice. Instead, it's the ability to express to current and potential employees what makes the organization unique. Companies with highly engaged employees articulate their values and attributes through "signature experiences"--visible, distinctive elements of the work environment that send powerful messages about the organization's aspirations and about the skills, stamina, and commitment employees will need in order to succeed there. Whole Foods Market, for example, uses a team-based hiring and orientation process to convey to new employees the company's emphasis on collaboration and decentralization. At JetBlue, the reservation system is run by agents from their homes, a signature experience that boosts employees' satisfaction and productivity. Companies that successfully create and communicate signature experiences understand that not all workers want the same things. Indeed, employee preferences are an important but often overlooked factor in the war for talent. Firms that have engendered productive and engaged workforces address those preferences by following some general principles: They target potential employees as methodically as they target potential customers; they shape their signature experiences to address business needs; they identify and preserve their histories; they share stories--not just slogans--about life in the firm; they create processes consistent with their signature experiences; and they understand that they shouldn't try to be all things to all people. The best strategy for coming out ahead in the war for talent is not to scoop up everyone in sight but to attract the right people--those who are intrigued and excited by the environment the company offers and who will reward it with their loyalty.     

Board directors’ preferences – What are good aggregation rules?

I analyze how boards of directors with heterogeneous preferences can affect the information shared with the CEO with the help of a cheap-talk model that allows for large groups of receivers. This paper provides new insights on how heterogeneity of boards can change the way of communication between the board and the CEO, related to different ways of decision making. I also indicate how coalition forming in the boardroom can be influenced by heterogeneous preferences. Finally this model gives a possible answer why board of directors’ heterogeneity differs for shareholder representatives if there are any employees on the board.     

A path model examining the relations among strategic performance measurement system characteristics,organizational justice,and extra- and in-role performance

Economic theory suggests that multiple financial and non-financial measures (i.e., a strategic performance measurement system “SPMS”) be used in compensation contracting to properly direct employees’ attention and motivate behavior aligned with organizational goals. Conversely, linking incentives to the SPMS can result in various dysfunctional behaviors, including game playing by employees, the achievement of unbalanced performance, and the potential of basing compensation on an incomplete performance measurement system. Prior literature has investigated the use of subjectivity in compensation contracting as a means of potentially mitigating these problems; however, subjectivity can introduce other problems including claims of favoritism and bias. Economic theorists have recently begun expanding the traditional agency model to include the notion of fairness or justice. In this study, we obtain data from an organization that uses an SPMS as the basis for the allocation of bonuses and investigate whether characteristics of the SPMS are associated with perceived organizational fairness. Specifically, we hypothesize and show that the extent to which employees perceive that the SPMS reflects a strategic causal model and the degree to which it is technically valid are positively associated with their perceptions of organizational justice. We also provide evidence that heightened levels of organizational justice are the mechanism though which the perceived characteristics of the SPMS are associated with employee performance. The implication is that firms do not necessarily need to introduce subjectivity into the incentive contracting system, but can enhance performance by linking incentive contracts to their SPMS if the system contains characteristics that enhance employees’ perceptions of justice.     

Do Firms Use Time‐Vested Stock‐Based Pay to Keep Research and Development Investments Secret?

I find that executives’ unvested equity holdings are larger when executives are employed by R&D‐intensive firms in industries that rely more on secrecy to profit from R&D. Moreover, I find that this relation is more pronounced for executives with a greater ability to exploit R&D‐related information and also holds for nonexecutive employees. In addition, I find that these firms use option grants with longer vesting periods and that unvested equity holdings reduce the likelihood that their executives leave to find employment elsewhere. Overall, my findings are consistent with firms using time‐vested stock‐based pay to reduce the leakage of R&D‐related information to competitors through employee mobility.     

EMPLOYEE STOCK OWNERSHIP IN ECONOMIC TRANSITIONS: THE CASE OF UNITED AIRLINES

This article argues that employee stock ownership transactions (ESOTs) may have decisive advantages in addressing the transition problems associated with significant economic change. Equity ownership by employees can increase value not only because of the better incentive alignment achieved by making employees major stockholders, but also because equity has special value in solving some of the bargaining (i.e., information) problems that can make it especially difficult to renegotiate the em-ployees' contracts with the firm in volatile economic environments. One important question raised by ESOTs is whether they produce a merely transitional organizational form or a relatively permanent form for managing economic change. Do they amount to simply a set of one-time adjustments of economic claims so that we should expect a reversion back to public shareholder ownership? Or do these transactions produce a durable organizational form that proves more effective in negotiating an ongoing series of transition problems? After a general analysis of the potential advantages of ESOTs in cases of economic transition, this article explores this question by examining one particularly interesting example, the recent employee acquisition of majority equity in United Air Lines. The parties in the UAL transaction, which can be traced to the transition shock of airline deregulation in 1978 and the series of competitive struggles that followed, contemplated employee ownership as more than a transitional device. The deal is structured to lock up employee stock in an ESOP and to provide strong employee governance rights for the next 20 years. One of the objectives of the ESOT was to catalyze a cultural change in UAL's operations so that the airline could become more competitive, not just through wage reductions but through operational efficiencies that would require a higher level of employee cooperation. The evidence to date suggests that UAL has become a more efficient competitor, but also that governance pressure from the employees where their economic interests are directly at stake is potentially destabilizing. The UAL case shows that adjustment to prosperity can raise problems almost as difficult as adjustment to economic adversity.     

Reporting to Employees: Identifying the Areas of Interest to Employees

This paper identifies the areas of information of interest to employees and the attitudes of accounting executives and employees towards what information was considered to be of interest to employees. Accounting executives felt that employee informational needs were limited to their job security and short-term material benefits from employment. Employees, on the other hand, indicated that their informational needs were far greater and related to their job security, financial matters affecting them, their conditions of employment, and the organizational structure of their employee companies.     

Promote Internally or Hire Externally? The Role of Gift Exchange and Performance Measurement Precision

Managers often face the choice between promoting an internal employee and hiring an external candidate. Using an interactive experiment, we examine the drivers of managers’ promote/hire decisions and internal employees’ behavior before and after those decisions. Consistent with gift exchange theory, we find that employees exert costly effort to increase the chance of being promoted, and they raise their effort level as the promote/hire decision becomes imminent. Managers respond by promoting those who exert high effort, despite employees’ inferior ability compared to external candidates. Results suggest that managers view employees’ past effort as both a gift to reciprocate and a signal of their future effort. Moreover, we find that managers are more likely to promote internally rather than hire externally under a less precise performance measurement system, and this result is driven by managers who observe low employee output. Finally, we find that total effort is significantly higher when managers promote internally versus hire externally.