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Employee Employer Relationships

https://hbr.org/2019/01/research-when-being-close-to-your-employees-backfires

An article in the Harvard Business Review, titled “Research: When Being Close to Your Employees Backfires,” explores how too strong of a relationship, that is when both parties have a very close split of power, between an employee and an employer may have harmful results. The authors, Zhenyu Liao, Wu Liu, and Zhaoli Song, base their research on the “social exchange theory,” in management which expresses that through repeated transactions, each party offers and obtains work-related resources. These interactions are meant to shape the strength of their relationship, which in turn drive future behavior. Over time, this relationship should become more about long-term mutual goals and benefits. The value of these relationships, instead of being a set monetary amount like we used in class, would be based on social and economical factors. 

The authors explain that when a manager makes an employee feel like he is being given more resources, the assumption is that the employee will be more engaged and work harder. However, this assumption does not always hold true, since employees may not be motivated to return a favor right away since his relationship with the employer is already strong, and may instead focus on tasks with bigger implications. Clearly, the relationship between an employer and an employee is unbalanced when they have an equal split of the value, since the employee may have outside options from which he could gain more value and the employer has other employees from which he can gain more value.

The authors conducted a study from 73 pairs of managers and employees working in a company in Northern China, and found that when managers gave more only in a certain interaction, employees would generally immediately feel obligated to put in more work effort and contribute more next time. So, when an employer had more power, more split of the value than an employee, the employer would work harder to please him, possibly to gain a greater share of the value. However, when employees had stronger working relationships with their managers they would be less engaged in work and  seemed to take advantage of the good relationship they had with their boss. So, when an employer and an employee had an equal share of power, the employee generally took advantage of the employer. 

There is no clear Nash Bargaining outcome for the split of value between an employer and employee, their relationship seems inherently unstable and unbalanced. Still, the authors explain managers should consider how to make even their strongest work relationships more effective. They can do so through very clear expectations for tasks.

 

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