DECISION MAKING AND GROWTH OPPORTUNITIES IN AMERICAN AND JAPANESE ORGANIZATIONS AND THEIR IMPLICATIONS ON EMPLOYEE
TURNOVER
Master thesis, Msc HRM
University of Groningen, Faculty of Management and Organization November 16, 2007 LI ,YAN Student number: 1671189 Korreweg 131a 9714 AG, Groningen Tel.: +31 (0) 642063431 E-mail: liyan_a9a9@yahoo.com.cn Supervisor Peter van der Meer
Second Supervisor Hans van Polen
A COMPARATIVE STUDY: FAIRNESS OF REWARDS, PARTICIPATION IN DECISION MAKING AND GROWTH OPPORTUNITIES IN AMERICAN AND JAPANESE ORGANIZATIONS AND THEIR IMPLICATIONS ON EMPLOYEE
TURNOVER
ABSTRACT
The difference of employee turnover between American organizations and Japanese organizations is a focus of many scholars’ research. Pudelko (2006) suggests that the relevant socio-economic context is highly relevant for the establishment of an HR system and the application of HR practices, thus mediates the employee turnover in American and Japanese companies. This paper conducts a comparative study of three key HR practices-fairness of rewards, participation in decision-making and growth opportunities in American and Japanese organizations. The paper explains how each practice is affected by the specific contextual factors and then leads to the different implications for employee turnover in the American and Japanese organizations separately. The implications for future research are also presented.
Key words: Employee turnover; Fairness of rewards; Participation in decision-making; Growth opportunities; Context; American and Japanese organizations
TABLE OF CONTENTS
1 Introduction………..…...….3
2 Three key HR practices affecting employee turnover and related theories……….………..……….….5
3 Comparison of the contexts in the American and Japanese organizations…………...………..……….….…...15
4 Comparison of these three HR practices in the American and Japanese organizations………..……….………...……17
(1) Growth opportunities ……….……….17
(2) Fairness of rewards ……….…21
(3) Participation in decision-making………..………...25
5 Different effects of HR practices on employee turnover in the American and Japanese organizations………...…27
6 Discussion and Conclusion………...29
Introduction
Many scholars point out that the employee turnover rate in the American organizations is higher than that of the Japanese organizations (Hashimoto & Raisian, 1985; Mincer & Higuchi, 1988). Based on the data from the Establishment Surveys conducted by OECD in 1986, Blinder and Krueger (1996) suggest that the average job tenure is 11.5 years in the Japanese organizations whereas 7.2 years in the American organizations. What’s more, Hashimoto and Raisian (1985) find that the 15-year job retention rates of the male population in the 1960s and 1970s were much higher in Japanese organizations than in the American organizations in all age groups. In addition, the average job tenure of the male employees was longer in Japan than in the United States not only for large organizations but also for small organizations according to their survey (There is a huge difference of turnover rates among female employees in these two countries because of the specific culture, so it is difficult to conduct a parallel analysis). All of these data show that there is a great difference of employee turnover rate between American and Japanese organizations.
But we should also notice that the employee turnover rate is increasing these yeas in the Japanese organizations. According to Higashino (2005), accession and separation rates, which indicate labour mobility, were both around 1.6% up to the 1980s, then reached nearly 2% by 2002. And based on the report from Japanese Ministry of Health, Labour and Welfare (2005), the labour turnover rate had increased to 5.8% in 2004 compared with 5.0% in 1991 among male employees.
organizations is 12.5 years. So the difference of employee turnover rate between American and Japanese organizations is still a focus of the research on employee turnover.
Many scholars point out that the optimal employee turnover rate varies across industries (e.g., Blinder & Krueger, 1996; Dalton & Todor, 1979). Based on the previous research on the costs and benefits of employee turnover, Abelson and Baysinger (1984) argue that for every organization, there is an optimal turnover rate, which can balance the costs and the benefits of employee turnover. Blinder and Krueger (1996) argue that different jobs place different values on the vigour and freshness of youth versus the experience and wisdom of age. High employee turnover would be appropriate when the job is reutilised and requires little training, but would be very costly where the job requires long-term relationship and extensive knowledge and skill accumulation. Similarly, Dalton and Todor (1979) argue that an abnormally high employee turnover rate can usually be found in a seasonal industry or seasonal employment. High rates of turnover also can be anticipated in industries in which the cost of preventing turnover exceeds the cost of turnover itself.
However, there is also a great difference of employee turnover rate in the same industry between American and Japanese organizations. Based on the establishment surveys conducted by OECD (1986), Blinder and Krueger (1996) point out that the turnover rate of the American manufacturing organizations is around 41%, while the turnover rate of the Japanese manufacturing organizations is only 12%. Therefore, the difference of employee turnover rate between the American and Japanese organizations might stem from other deep-seated differences rather than the difference across industries. The research question about what leads to the difference of employee turnover between the American and Japanese organizations should be answered.
investigates the managerial, economic, socio-political and cultural contexts of the HR systems in the USA and Japan both through the empirical study and the meta-analysis of previous research. He finds that the socio-economic contextual factors of the American and Japanese organizations are in many ways at opposite ends of the spectrum, and through their empirical study the data show that the same pattern, USA and Japan at the extremes is valid also for the HR systems. He suggests that the relevant socio-economic context is highly relevant for the establishment of an HR system and the application of HR practices, thus mediates the employee turnover rate in American and Japanese organizations.
Inspired by Pudelko (2006)’s research, this paper aims to answer this research question from the perspective of different HR practices within the American and Japanese organizations. By reviewing the literature on employee turnover, this paper focuses on three key HR practices-fairness of rewards, participation in decision-making and growth opportunities, which greatly influence employee turnover within organizations. The logic of answering this research question is as following: The relevant socio-economic context of American and Japanese organizations leads to the different practices in three areas- fairness of rewards, participation in decision-making and growth opportunities. These different practices have different implications on employee turnover, thus lead to the difference of employee turnover between the American and Japanese organizations. What’s more, the context not only influences the specific practices, but also influences the effects of these specific HR practices on employee turnover in these three areas. This also partly contributes to the difference of employee turnover in the American and Japanese organizations.
implications on employee turnover in the American and Japanese organizations separately. The different effects of HR practices on employee turnover in the American and Japanese organizations are also explained. The paper ends with the conclusion and the implication for the future research.
THREE KEY HR PRACTICES AFFECTING EMPLOYEE TURNOVER AND RELATED THEORIES
In order to compare the HR practices that can influence employee turnover rate in the American and Japanese organizations, we should further clarify the optimal turnover rate mentioned in the introduction section. The optimal turnover rate is set to balance the costs and benefits of employee turnover within organizations, so there is a need to explain the costs and benefits of employee turnover. The well-known distinction between “functional employee turnover” and “dysfunctional employee turnover” (Dalton, Krackhardt, & Porter, 1981) is considered to be the best way to illustrate this.
The “dysfunctional employee turnover” mainly focuses on the costs of employee turnover within organizations, such as costs related with the previous recruiting, hiring, assimilation, training; replacement costs; out-processing costs; disruption of social and communication structures; loss of key skills and knowledge; productivity loss (during replacement search and retaining); loss of high performers; decreased satisfaction among stayers (Mobley, 1982; Herman, 1997; Prahalad & Hamel, 1990). A survey of American companies conducted by the consulting firm William H. Mercer, Inc. (1998) reveals that across all jobs (from custodian to CEOs), over 45% of all survey respondents are now confronting replacement costs in excess of $10,000 per resignation.
important instrument for motivation. Employee turnover generates the necessary vacancies for the internal labour market to function properly. What’s more, Kirshenbaum and Albert (1976) argue that employee turnover is a force that can make innovation move from one organization to another. They explain that employee turnover leads to replacing employees and thus makes it possible for firms to bring in new types of knowledge, ideas, experience and skills. In this way, employee turnover can be considered as a mechanism for the transfer of innovation. From the economic perspective, Dalton and Todor (1979) argue that employee turnover increases net national product and contributes to the long-term growth of the national economy. In addition, employee turnover may also be an important channel by which individuals can step from the secondary labour market to the primary labour market. From the sociological perspective, Dalton and Todor (1979) argue that employee turnover facilitates both the social and economic development of the individual. Employee turnover may provide a chance to promote individual’s career stages and a channel by which individuals can be transferred to the jobs or positions where their potential can be more fully utilized. Thus, employee turnover helps to reduce inequity in social exchange.
Considering these benefits, employee turnover is necessary both for the dynamic organizations and society. Blinder and Krueger (1996) point out that no nation should tie employees and organizations together with unbreakable bonds. It is more sensible to view the employee turnover rate objectively.
Steers & Mowday, 1981). Abundant variables influencing employee turnover have been found through decades of empirical research, such as organizational factors (e.g., pay, promotion, staffing strategies), personal factors (e.g., age, gender, education level, tenure), job-related factors (e.g., job autonomy, responsibility, team cohesiveness, job stress), etc (Bannister & Griffeth, 1986; Dougherty, Bluedorn & Keon, 1985; Hom, Griffeth, & Sellaro, 1984; Mobley, Horner & Hollingsworth, 1978; Michael & Barry, 1984).
Based on these examined variables, many practices are developed in order to reduce employee turnover. Scholars also examine these related practices as variables influencing employee turnover (e.g., Rhoades & Eisenberger, 2002; Allen, Shore & Griffeth, 2003). According to Peterson (2004)’ review of employee turnover studies, two studies are noteworthy for including HR practices among this kind of practices oriented employee turnover studies. Rhoades and Eisenberger (2002)’s model summarizes several HR practices that lead to perceived organizational support (e.g., organizational concern), which lead to affective organizational commitment (e.g., sense of belonging, attachment). These HR practices include organizational rewards (e.g., recognition, opportunity for advancement), procedural justice (e.g., communication, decision making), and supervisor support (e.g., concern for employees’ well-being). However, this model ends with commitment and does not extend to the employee turnover.
Growth opportunities
In Allen et al. (2003)’s empirical study, the sample item to measure growth opportunities is that “My organization provides me the opportunity to improve my skills and knowledge”. However, growth opportunity is a relatively abstract concept; we can derive growth opportunities from the existing job-related factors, such as the overall reaction to job content and job autonomy. According to Taylor and Weiss (1969)’s study on the relationship between overall reaction to job content and employee turnover, when the overall reaction to job content meet employees’ expectations of growth opportunities, employees can perceive the opportunity to fully make use of their abilities on the job and get improvements through the job content. Failure to meet such kind of expectations appears to be an important cause in the decision to withdraw. In Eisenberger and Rhoades (2002)’ s research on job autonomy, they argue that larger job autonomy indicates more organization’s trust on employees to decide properly how they will carry out their jobs, hence an employee can have the opportunities to fully improve his skills and knowledge. Proper job autonomy leads to more growth opportunities and thus increases the intention of employees to remain in the same organization.
Table 1
A menu of growth opportunities in the workplace
Examples of intra-functional growth Examples of cross-functional growth Examples of hierarchical growth
1 On-the-job training 1 Job rotation (temporary) or reassignment (permanent)
1 Promotion within department
2 More challenging task assignments in the same job
2 Temporary secondment across functions
2 Acting headship of department
3 Individual research projects 3 Participation in multidisciplinary project groups
3 Management development courses
4 Off-the-job educational or training courses
4 New career start in-house 4 Appoint to general management
5 Conference participation 6 Study trips to other firms
Adapted from Boxall and Purcell (2003).
According to Eisenberger and Rhoades (2002)’s review, training is considered to be the most important growth opportunity provided by the organizations. Generally, employees believe that the training opportunity provided by organizations is a kind of investment on their future career. They can develop extra capacities through these opportunities. This leads to the employees’ feeling of more growth opportunities, thus has a positive effect on employee retention. So the comparison of growth opportunities in the American organizations and Japanese organizations is made based on the differences concerning training between American and Japanese organizations.
Firm-specific training VS General training
distinctive types of on-the-job training with different implications for rewards and turnover behaviour, one is general the-job training and the other is firm-specific on-the-job training.
Lazear (1995) explains that general on-the-job training is an investment in human capital General on-the-job training is effective in raising productivity in the current firm and in some other firms by an identical amount even if the employee runs to the competitors after the general on-the-job training. As a result, previous firm will suffer a great loss. So when on-the-job training is general, workers must pay for it themselves through reduced wages according to the standard human capital theory. Firm-specific on-the-job training is at the other extreme. Firm-specific on-the-job training makes a worker more productive at the current firm, but this kind of training does not influence the productivity when the employee runs to another firm. When on-the-job training is firm-specific, workers and firms can share the cost and benefits of the training according to the standard human capital theory. This decreases employee turnover and provides incentives for both the organization and the employee to make proper investment decisions.
In conclusion, the training opportunity provided by organizations indeed has a negative effect on employee turnover. However, the distinctive effects of firm-specific training and general training on employee turnover play a more important role in explaining the difference of employee turnover within organizations.
Fairness of rewards
Procedural justice refers to the fairness of the ways of determining the distribution of resources among employees (Cropanzano & Greenberg, 1997). According to Cropanzano and Greenberg (1997), there are two aspects of procedural justice: structural aspect and social aspect. Structural aspect refers to the formal rules and policies concerning decisions that affect employees, including adequate notice before implementing decisions, receipt of accurate information, and voice (i.e., employee input in the decision process). While social aspect of procedural justice refers to the quality of interpersonal treatment in resource allocation. The social aspects include treating employees with dignity and respect, and providing employees with information concerning how outcomes are determined.
Perceived organizational politics refers to behaviours to affect others in ways that promote self-interest which usually lead to the sacrifice of equality or even the betterment of the organization (Kacmar & Carlson, 1997). Ferris and Kacmar (1992) consider there are three types of this sort of behaviours in organizations: obtaining valued outcomes by acting in a self-serving manner, supporting ill-advised management decisions to secure valued outcomes, and obtaining pay increases and promotions through favouritism rather than merit. Ferris and Kacmar (1992) point out that the widespread organizational politics strongly conflict with perceptions of fairness in the organizations.
Based on the research on fairness of rewards, we can derive that fairness is also an abstract definition; it is hard to measure the fairness of rewards in each organization. So this paper only compares the specific HR practices in the area of rewards in these two countries and derives some implications from these differences.
Performance based pay VS Seniority based pay
paying young workers less than they are worth and by paying old workers more than they are worth. So the profile of seniority based pay is much steeper than that of the performance based pay. Lazear (1995) notes that when the output is difficult to measure at the individual level or when it is too costly to make regular assessments on a frequent basis, firms would prefer seniority based-pay other than the performance-based pay.
Lazear (1995) further argues that workers who are paid less than they are worth when young can be considered as lenders. Implicitly, these workers are lending to the firm because they are accepting less than they are producing. Thus the employee recognizes that shirking risks the loss of very high wages that they deserve. As a result, the steeper the profile is, the less the incentives to shirk. By making the profile steep enough, the employee turnover can be prevented.
Oshio (2005) points out that the seniority based-pay system, in which age and job tenure largely determine employee compensation, enhances the income equality within organizations. Therefore, the seniority based pay system partially leads to the low income inequality while the performance-based pay system partially leads to the high income inequality. This indicates the distribution of rewards is fairer under the seniority-based pay system to some extent.
Participation in decision-making
In Allen et al. (2003)’s empirical study, the sample item to measure participation in decision-making is that “I am allowed to participate in decisions regarding my job.” In order to deeply understand the participation in decision-making, we need to view other scholars’ studies.
major disagreements existed between them and their supervisors on job goals. These problems are mainly resulted from the improper actions of participation in decision-making. According to these findings, the supervisor should encourage employees’ participation in decision-making by improving their communication with the workers on the job requirements and methods for performance improvement to obtain a better relationship. So the main content concerning the decision-making is related with job requirements and methods for performance improvements. Because the content of the decision-making is difficult to compare in the organizations, this paper only focuses on the different styles of participation in decision-making within organizations.
Top down leadership VS Bottom up leadership
There are two distinctive leadership styles related with the decision-making within organizations, one is the top down approach, the other is the bottom up approach. The top down approach emphasizes less participation in decision-making on employees and more on top leaders, while the bottom up approach emphasizes more participation on employees and less on top leaders (Beer & Nohria, 1998).
Conger (1998) points out the top leader’s breadth of perspective and strategy-formulation role makes the top-down way of decision making more sensible. Moreover, in many urgent situations, leaders do not have the time to build consensus through lower level’s participation. Speed is of the essence.
In contrast, Bennis (1998) argues that organizations are becoming more complex, technologically sophisticated, and knowledge intensive. It is difficult to imagine that an individual or a small group of leaders at the top can possess the knowledge and wisdom to tackle these complex, technologically sophisticated, and knowledge intensive problems. It requires the coordinated contributions of many talented employees working together.
leadership, but the emphasis of the power related with decision making is different in organizations. And many scholars point out that more participation in decision making will lead to higher job satisfaction, thus decrease employee turnover within organizations (Lee & Mitchell, 1994; Mobley, 1977; Steers & Mowday, 1981). This indicates that the bottom up leadership that involves more employees’ participation in decision-making can lead to higher job satisfaction, thus decrease employee turnover within organizations.
This section mainly introduces the specific practices in the growth opportunities, fairness of rewards and participation in decision-making within organizations. What’s more, their implications on employee turnover are also explained. According to Pudelko (2006), the differences of practices in these areas mainly result from the relevant socio-economic context. So the next section presents a comparison of the contexts in the American and Japanese organizations.
COMPARISON OF THE CONTEXTS IN THE AMERICAN AND
JAPANESE ORGANIZATIONS
Pudelko (2006) suggests that the relevant socio-economic context is highly relevant for the establishment of an HR system and the application of HR practices. He argues that the Americans uphold an individualistic, self-assertive, low power distance culture and put more emphasises on the individual freedom. This builds the basis for little government interference in the trade market. Because of their self-assertive culture, all economic players automatically pursue their own interests. Few organizations take on social responsibilities and the welfare of their employees. In addition, one feature of American organizations is the consumer orientation and shareholder orientation. As a result, the objective of management in American organizations is the short-term financial outcome, which finally leads to HR practices that stress immediate results.
Table 2
The comparison of the context
Extremes USA Japan
Cultural An individualistic, self-assertive, low power distance and
individual freedom stressing culture
More collectivistic, harmony and consensus driven
Socio-political Little government interference in the various markets;
Adversarial relations between government and business sector, employers and employees as well as owners and managers;
Little shared responsibility by, all economic players who
automatically pursue their own interests.
Extensive interference of government in the market; Cooperation between
government and business sector, employers and employees; Because of their embeddedness in society, companies have a strong sense of responsibility for the overall society.
Economic A consumer orientation, giving high importance to the
shareholder value concept
Producer logic, giving high importance to the stakeholder value
Context
Management The focus on short-term financial objectives;
Stress immediate results
Secure the survival,
independence and long-term growth of the company to the benefit of all those involved with the company
Source: Pudelko (2006)
COMPARISON OF THESE THREE HR PRACTICES IN THE
AMERICAN AND JAPANESE ORGANIZATIONS
For each practice, the paper will firstly compare the specific practices in each area in the American and Japanese organizations. Following, how the contextual factors affect the application of these practices will be explained.
Comparison of growth opportunities in the USA and Japan
According to Eisenberger and Rhoades (2002)’s review, training is considered to be the most important growth opportunity provided by the organizations. Generally, employees believe that the training opportunity provided by organizations is a kind of investment on their future career. They can develop extra capacities through these opportunities. This leads to the employees’ feeling of more growth opportunities, thus has a positive effect on employee retention. So the comparison of growth opportunities in the American organizations and Japanese organizations is made based on the differences concerning training between American and Japanese organizations.
In the previous section, we note that there are two distinctive types of on-the-job training with different implications for rewards and turnover behaviour, one is general on-the-job training and the other is firm-specific on-the-job training (Lazear, 1995). But Lazear (1995) also points out that most training is a hybrid. Generally, the firm-specific training and the general training are distinguished by the focus of the training. The reason to consider the polar cases is that the earnings and turnover behaviour differs in the two cases.
According to Marita (2001), there are two main differences concerning training between American and Japanese organizations: the amount of training provided by the American and Japanese organizations and the type of training provided by the American and Japanese organizations.
(e.g. Blinder & Krueger, 1996; Higuchi, 1987; MacDuffe & Kochan, 1995). For example, Macduffie and Kochan (1995) carry out a survey of 90 motor vehicle assembly plants in 24 countries, they find that Japanese companies’ plants in Japan offer their newly hired workers an average of 364 hours of training compared to only 42 hours in US companies’ plants in North America. They note that there is also a significant difference in the training of experienced workers. In addition, Blinder and Krueger (1996) conduct a small-scale survey of companies that operate in both Japan and the USA. Their results also indicate that Japanese companies generally provide more training than American companies, whether operating in the USA or Japan. Higuchi’s (1987) survey of Japanese organizations indicates that Japanese organizations in the USA spent about 2.5 times as much on training programs as their American counterparts. Moreover, when firms have to cut costs in difficult periods, American companies usually decrease their training programs; but Japanese companies usually increase their training programs. Similarly, Shimada (1984) also find large Japanese firms generally enhance employees’ retraining activities when they have to downsize.
(2) Concerning the type of training, Japanese organizations provide more firm-specific training for their employees than American organizations (e.g. Koike, 1988; Aoki and Okuno-Fujiwara, 1996). Koike (1988) argues that Japanese firms provide their employees with more firm-specific training by rotating them among related jobs in his comparative analysis of Japanese and US industrial relations. Aoki and Okuno-Fujiwara (1996) point out that, in Japanese plants, line workers usually solve the problems through their firm-specific skills, whereas in US plants line workers often handle the problems through general skills. What’s more, Morita (2001) find that only 34% of employees feel they have transferable skills according to a survey of large Japanese firms conducted by Daiichi Insurance Company in 1996.
Reasons for the Differences of Growth Opportunities
remain in the labour market for a long period of time. More specifically, the workers that the firm wants to train are those with low turnover probabilities. Considering the costs and return of the training program, lower turnover probabilities are important in realizing a full return on investment for organizations (Mueller, 1982).
So based on the human capital theory, the employees with lower turnover possibilities would acquire more training opportunities. According to Blinder and Krueger (1996), the existing employee turnover rates in American and Japanese organizations indeed have a great influence on the decision-making concerning training within organizations. From the perspective of standard human capital theory, workers should pay the costs of general on-the-job training. But organizations might be willing to pay if they can make sure that their employees would remain in the same organization for a long time. Japanese organizations have more confidence to believe this than American organizations do. The section concerning the comparison of employee turnover rate between these two countries proves that the employee turnover rate is higher in the American organizations. The Japanese organizations can provide more training opportunities because they can secure their full return on human capital investment. Thus the existing low turnover rate has already fostered high levels of training without considering other factors. This can partly explain why Japanese firms provide more training than American firms. And from the analysis above, we know that the firm-specific training makes the employee less productive in other organizations compared with the current organization, and it decreases the turnover probabilities. The general training makes the employee more productive not only in the current organization but also in other organizations, it increases the turnover probabilities.
Therefore, it can be derived that the training can influence the labour turnover in the American and Japanese organizations while at the same time the existing labour turnover rates in these two countries also influence the decision-making concerning training amount and training type. They are interacted with each other.
by firms. According to Pudelko (1996)’s analysis, influenced by the culture and economic context, American firms usually focus on short-term financial objectives and thus lead to HR practices that stress immediate results, whereas Japanese firms usually focus on long-term growth and continue improvement. Blinder and Krueger (1996) suggest that concerning the cost and the benefit of training, firms actually sacrifice some productivity today in order to invest in their workers to gain higher future productivity. Training is a kind of time-consuming investment and the benefits of training cannot be acquired immediately, so the American organizations which usually pursuit short-term objectives and stress immediate results have less interests in this kind of investments. Oppositely, the Japanese organizations usually harness this kind of investment to built sustainable human advantages for their organizations.
The other difference exists in orientation of the American and Japanese organizations. According to Pudelko (1996)’s analysis, influenced by the culture and economic context, one feature of Japanese organizations is the producer orientation. This promotes management principles, which are more geared toward long-term growth, quality improvements (e.g. total quality management; quality circles) in the management context. In contrast, the American organizations are more focused on their consumers thus put less emphasises on the quality improvements.
Hayes and Abernathy (1980) suggest that ‘technological assets’ play an important role in the firm’s long-term competitive success. And according to their research, Japanese organizations particularly attach much importance to this kind of ‘technological assets’. They point out that Japanese organizations get the high standards of product quality by means of a policy of continual technology improvement.
Doering and Piore (1971) explain that the firm-specificity of technology requires continues process improvement involving a number of small changes and modifications, which are mostly unobservable from outside the firm. Therefore, if a firm conducts continues product improvement, a degree of specificity is introduced into the firm’s technology. This further requires the firm to provide firm-specific training to their employees, because only after the employee masters the improved technology, this continues process improvement can yield higher productivity. Hence, the more employees remain in the firm and the longer employees remain in the firm, the higher the benefit of continuous process improvement. This also leads their employees less productive in other firms, thus reduce their turnover intention. Similarly, Koike (1988) explains that by giving their employees more firm-specific training, firms can make their employees more valuable to them than to other potential employers. Thus employees can better understand the firm’s production process and are better able to contribute to high productivity. If both employees and competing firms understand this, there will be lower employee turnover in both in the organizations and in the whole labour market.
In conclusion, besides the impacts of the existing employee turnover rate, there are also two main differences of the contextual factors influence the decision-making of training provided by the American and Japanese organizations. The first one is that the American organizations focus more on the short-term finical objectives while the Japanese organizations focus more on the long-term growth of the organization and their employees, which lead to the different decision of investment on training. The other one is that the American organizations focus more on the consumer orientation while the Japanese organizations focus more on the product orientation, which lead to the different types of training provided by organizations. At last, these different amount of training and types of training lead to different implications on employee turnover in American and Japanese organizations.
Comparison of rewards in the USA and Japan
must be distinct. But Lazear (1995) also points out that most of the compensation systems in organizations are hybrids. Generally, the performance based pay and the seniority based pay are distinguished by the emphasis of the compensation system. Blinder and Krueger (1996) argue most American companies always emphasize merit and performance rather than seniority in the area of compensation. In contrast, most Japanese companies choose the seniority-based pay as their primary method of compensation. And according to the report from Japanese Ministry of Finance, Policy Research Institute in 2002, more than 60% Japanese organizations admit their adoption of seniority based pay system (Higashino, 2005). Higashino (2005) points out in spite of the changing environment, there has been no fundamental change in the predominance of seniority-based pay that so characterize large Japanese corporations. The reason that it is important to consider the polar cases is that the turnover behaviour differs in the two cases. The figure blow is an example of this difference.
Figure 1
Estimated Wage-Tenure Profiles in Japan and the USA
Adapted from Mincer and Higuchi (1988).
Mincer and Higuchi (1988) present this graph, which displays wage-tenure profiles for male workers in the American and Japanese labour market in the early 1980s. The graph
shows a much steeper slope of the wage-tenure profiles in the Japanese labour market, thus indicates much greater importance of job tenure in Japanese organizations on employees’ compensation. According to Mincer and Higuchi (1988)’s estimates, for the employees’ compensation, 10-year ’of tenure with the current firm is worth 45 per cent to a Japanese employee versus only 12 per cent to an American employee. Similarly, Blinder and Krueger (1996) argue that the great difference between the Japanese and American wage-tenure profile stems from the different focuses on employees’ compensation. According to their survey, most American companies always emphasize merit and performance rather than seniority in the area of compensation. In contrast, most Japanese companies choose the seniority-based pay as their primary method of compensation.
Reasons of difference of fairness of rewards
The first reason to explain this difference is based on the difference of training between American and Japanese organizations mentioned earlier in the paper. Mincer and Higuchi (1988) argue that Japanese firms offer more training than their American counterparts, which both steeper the wage-tenure profile and reduces employee turnover. According to Mincer and Higuchi (1988)’s analysis, the link between greater on-the-job training and steeper wage profiles is direct: training is a kind of investment, considering its costs, organizations actually sacrifice some productivity today in order to invest in their employees to get higher future productivity. According to this logic, the slope of the wage-experience profile indicates the amount of on-the-job training. Thus the steeper wage profile of Japanese organizations stems from the different amount of training provided by the American and Japanese organizations. Hashimoto and Raisian (1985) also hold the same opinion.
greater amount of training provided to employees and seniority based pay system make the wage-age profile steeper in Japanese organizations.
The second reason stems from the different contextual factors of American and Japanese organizations. According to Pudelko (2006)’s analysis, influenced by the culture and economic context, American firms usually focus on short-term financial objectives and thus lead to HR practices that stress immediate results, whereas Japanese firms usually focus on long-term growth and continue improvement. Blinder and Krueger (1996) suggest that concerning the cost and the benefit of training, firms actually sacrifice some productivity today in order to invest in their workers to gain higher future productivity. Based on this, American firms would prefer performance-based pay which can reflect the immediate results thus get greater progress on the short-term performance while Japanese firms would prefer seniority-based pay which emphasizes the long-term and continue progress both for employees and organizations.
The different methods of compensation in the American and Japanese organizations can be considered as an important factor explaining the different turnover rates in the two countries (Blinder & Krueger, 1996). By offering a wage profile that rises steeply with seniority, the firm dangles future benefits in front of its employees - benefits that can be acquired only by staying put.
According to the analysis above, it only can be derived that different contexts lead to the different focus on the compensation, and then lead to the different impacts on employee turnover. Because of the different context of the organization, it is difficult to tell which compensation system is fairer. The different focus of the compensation system indeed influence the income equality of the USA and Japan, which can be related to the fairness of rewards in the American and Japanese organizations. The following paragraph gives a further explanation.
inequality is often regarded as an important aspect of the fairness of the society we live in (Jones, 2007). According to the report about the gross earnings inequality across OECD countries from OECD (2004), the ratio of Japan is 3.1, which is around the average level. In contrast, the ratio of the USA is 4.6, which is above the average level. Jones (2007) argues that the relatively equal income distribution has been a hallmark of post-war economic development in Japan. Around three-quarters of the population identify themselves as middle class. Compared with that, the financial gap between corporate executives and the average worker is wider than ever in the America. Corporate profits and executive salaries greatly rise while employees’ wages barely keep up with inflation. Millions of Americans have to find two or three part-time jobs to keep up with bills. Employees complain that jobs in the labour market are lack of financial benefits and the security of long-term stability.
Oshio (2005) points out that the seniority based-pay system, in which age and job tenure largely determine employee compensation, enhances the income equality within organizations. So the seniority based pay system partially contributes the low income inequality in Japan while the performance based pay system partially contributes the high income inequality in the USA. This indicates the distribution of rewards is fairer in Japanese organizations to some extent.
Comparison of the participation in decision making in the USA and Japan
Pudelko (2006) and Faulkner et al. (2002) suggest that concerning the participation in decision-making, most American firms adopt the top-down way, whereas most Japanese firms adopt the bottom-up way. Similarly, Aoki (1988) points out that typical Japanese firms employ a horizontal information structure, in which workers have substantial decision making power and determine how to cope with irregular events and exceptional operations through horizontal information exchange and coordination. In contrast, typical US firms employ a vertical information structure, in which such decisions are made at higher hierarchical levels.
Reasons for the difference of participation in decision making
There are two main reasons to explain this difference. The first one stems from the difference of training between these two counties. The second one stems from the different culture of their society.
Dunphy (1998) argues that both perspectives have merit. The key is to determine who has the relevant knowledge. Firstly, as for the Japanese firms, they provide their employees with more training opportunities, especially firm-specific training by rotating them among related jobs whereas such practice is less common in US firms (Koike, 1988). Morita (2005) further argues that the employees in Japanese firms then can obtain a better understanding of the firm’s entire work process through their on-the-job trainings. This enables the firm to conduct continuous process improvement by inducing its employees to participate actively in quality control circle activities. The firm can take further advantage of its employees’ improved knowledge by employing a horizontal information structure, a more bottom-up way, in which more decision making authority is delegated to employees at lower hierarchical levels, because employees are familiar with the whole work process, in this way they can make better decisions concerning how to cope with irregular and emergent events. Most Japanese firms have the producer orientation, and focus on continues improvement of their technology. It is sensible for them make the better firm-specific trained employees involve in the decision-making process related with sophisticated technological problems.
consensus driven; their HR practices stress the inclusion, involvement and appreciation of every company member, from the assembly-line worker to the CEO. This also enhances employees’ participation of decision-making. Compared with the Japanese society, the American society stresses an individualistic, self-assertive, and respect of heroes. They trust more on top leader’s breadth of perspective and strategy-formulation role. And because of their consumer orientation, they have to make quick adjustments according to the external environments; the speed is the essence for them. Usually leaders do not have the time to build consensus through lower level’s participation.
And many scholars point out that more participation in decision making will lead to higher job satisfaction, thus decrease employee turnover within organizations (Lee & Mitchell, 1994; Mobley, 1977; Steers & Mowday, 1981). As mentioned earlier in the paper, most American firms adopt the top-down way, whereas most Japanese firms adopt the bottom-up way. So this difference in participation in decision making also contributes to the different employee turnover in the American and Japanese organizations.
DIFFERENT EFFECTS OF HR PRACTICES ON EMPLOYEE
TURNOVER
IN THE AMERICAN AND JAPANESE
ORGANIZATIONS
The relevant socio-economic context of American and Japanese organizations leads to the different practices. And the different HR practices are indeed greatly influencing employee turnover and thus lead to the different employee turnover in the American and Japanese organizations. We should also notice that there might be varying conditions under which these practices are more or less likely to affect employee turnover. The context not only influences the specific practices in these three areas, but also affects the effect of these specific HR practices on employee turnover in these areas. This also partly contributes to the difference of employee turnover in the American and Japanese organizations.
one contextual factor- power distance has a great influence on the reactions of fairness of rewards. There is a big difference of power distance between American and Japanese society, the Americans show a low power distance while the Japanese show a high power distance (Pudelko, 1996; Faulkner, Pitkethly & Child, 2002; Kim & Leung, 2007). According to Hofstede (1980), power distance refers to “the extent to which a society accepts the fact that power in institutions and organizations is distributed unequally”. Gudykunst & Toomey (1988) point out that for individuals with higher power distance, “inequality and injustice are expected and taken for granted, while they are not expected or seen as acceptable in lower power distance individuals”. Kim and Leung (2007) further suggest that, Japanese may differ from Americans in their reactions to fairness of rewards because of the different power distance. In Japan, where people show a stronger power distance, they tend to be tolerant of unfair treatment from the organization. In contrast, individuals with low power distance, like the Americans are less willing to accept unfair treatment from authorities. So Japanese employees rather than American employees might accept a less fair reward system in which managers may use personal, unfair criteria for reward distribution. In Kim and Leung (2007)’s empirical study, the cultural differences in power distance are proved to have a moderating influence on reactions to overall fairness. Kim and Leung (2007) also suggest that fairness of rewards is more strongly related to intention to leave an organization in the US, compared to Japanese organizations. Based on these studies, the different power distance also has a great impact on employee turnover besides the different HR practices in the area of rewards.
employees might put more emphasis on the inclusion, involvement and appreciation within organizations. This also enhances employees’ desire of participation of decision-making. So the needs of participation in decision-making might be higher among the Japanese employees. The dissatisfaction of participation in decision-making might be more strongly related to employee turnover in the Japanese organizations, compared to the American organizations, but these conclusions still need empirical studies to make a further prove.
DISCUSSION AND CONCLUSION
Employee turnover is a challenge faced by many organizations worldwide. The difference of employee turnover between American organizations and Japanese organizations is a focus of many scholars’ research. Pudelko (2006) conducts a comparative analysis of the HR practices of American and Japanese companies. He suggests that the relevant socio-economic context is highly relevant for the establishment of an HR system and the application of HR practices. Inspired by Pudelko (2006)’s study on the comparison of contexts in the USA and Japan, this paper focuses on explaining how these contextual factors affect these three HR practices by linking the specific HR practices in fairness of rewards, participation in decision-making and growth opportunities with their socio-economic context in American and Japanese organizations. In addition, how these specific practices lead to the different implications for employee turnover in the American and Japanese organizations is also explained.
return on human capital investment. Therefore, the existing low turnover rate has already fostered high levels of training in Japanese organizations. Secondly, the American organizations focus more on the short-term financial objectives while the Japanese organizations focus more on the long-term growth of the organization and their employees. And training is a kind of time-consuming investment and the benefits of training cannot be acquired immediately, so the American organizations which usually pursuit short-term objectives and stress immediate results have less interests in this kind of investments. Oppositely, the Japanese organizations usually harness this kind of investment to built sustainable human advantages for their organizations. Thirdly, the American organizations focus more on the consumer orientation while the Japanese organizations focus more on the product orientation. As a result, Japanese organizations particularly attach much importance to the high standards of product quality. This leads to a policy of continual technology improvement, which requires more investments on firm-specific training. At last, these different amount of training and types of training lead to different implications on employee turnover in American and Japanese organizations. And as for the effect of growth opportunities on employee turnover, it might be concluded that the Americans uphold an individualistic, self-assertive attitude, and put more emphasises on the individual interests, so the needs of growth opportunities might be higher among the American employees. The dissatisfaction of growth opportunities might be more strongly related to employee turnover in the American organizations, compared to Japanese organizations, but it still needs empirical studies to make a further prove.
immediate results thus get greater progress on the short-term performance while Japanese organizations would prefer seniority-based pay which emphasizes the long-term and continue progress both for employees and organizations.
However, it is difficult to tell which compensation system is fairer because of the different context of the organization. The different focuses of the compensation system indeed influence the income equality of the USA and Japan, which can partially reflect the fairness of rewards in the American and Japanese organizations. The seniority based pay system, in which age and job tenure largely determine employee compensation, enhances the income equality within organizations. So the seniority based pay system partially contributes the low income inequality in Japan while the performance based pay system partially contributes the high income inequality in the USA. This indicates the distribution of rewards is fairer in Japanese organizations to some extent. And as for the effect of fairness of rewards on employee turnover, scholars point out the fairness of rewards is strongly related to intention to leave an organization in the US, compared to Japanese organizations because of the different power distance in the American and Japanese society.
work process. In this way they can make better decisions concerning how to cope with irregular and emergent events. What’s more, most Japanese firms have the producer orientation, and focus on continues improvement of their technology. It is sensible for them make the better firm-specific trained employees involve in the decision-making process related with sophisticated technological problems.
The second one stems from the different culture of their society. Japanese society is more collectivistic, harmony and consensus driven; their HR practices stress the inclusion, involvement and appreciation of every company member, from the assembly-line worker to the CEO. This also enhances employees’ participation of decision-making. Compared with the Japanese society, the American society stresses an individualistic, self-assertive, and respect of heroes. They trust more on top leader’s breadth of perspective and strategy-formulation role. And because of their consumer orientation, they have to make quick adjustments according to the external environments; the speed is the essence for them. Usually leaders do not have the time to build consensus through lower level’s participation. And as for the effect of participation of decision-making on employee turnover, it might be concluded that Japanese society is more collectivistic, harmony and consensus driven, thus the Japanese employees might put more emphasis on the inclusion, involvement and appreciation within organizations. So the needs of participation in decision-making might be higher among the Japanese employees. The dissatisfaction of participation in decision-making might be more strongly related to employee turnover in the Japanese organizations, compared to the American organizations, but these conclusions still need empirical studies to make a further prove.
still lots of complex issues to be solved related with these practices in these three areas. Because the growth opportunities, fairness of rewards and participation in decision-making are relatively abstract definitions, this paper only focuses on the training, compensation system and leadership style separately. For example, as for the growth opportunities, this paper only focus on training, but the promotion is also one important indicator of growth opportunities in organizations. And there are few studies comparing the fairness of rewards and participation in decision-making in the American and Japanese organizations, which is important to guide the HR practices in organizations.
In order to further address these issues, rigorous empirical research is needed. The research question can be focused on how the promotion affects employee turnover within the American and Japanese organizations or measuring the fairness of rewards in the American and Japanese organizations, etc. These studies should survey a large number of organizations in different national and industrial contexts thus might help to present a more strategic analysis.
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