Leadership & Management

Jeffrey Pfeffer: Why Companies No Longer Reward Loyal Employees

Repaying favors is the norm in our personal lives, but not in the workplace.

February 20, 2015

| by Eilene Zimmerman


A work table and employees shaking hands

Employers often don’t reciprocate employee loyalty and effort. | © iStock/mediaphotos

There was a time in the not-so-distant past when the American workplace operated under an implicit agreement: Employees who worked hard at their jobs and stayed loyal to a company were rewarded with job security, health benefits, and other perks. This bargain is an example of what’s known as the norm of reciprocity — repaying one kindness with another —and reciprocity is a universal component of the moral code that governs human behavior. Yet in today’s work world, reciprocity operates with less force.

Indeed, says Stanford Graduate School of Business professor Jeffrey Pfeffer, “Implicit contracts are violated in the corporate world on a daily basis. Workplaces not only fail to acknowledge past employee loyalty and contributions, but they also renege on what has been implicitly or explicitly promised, such as pensions and retiree health care.”

An employee getting rewarded

Yet outside of the work world, reciprocity is almost an automatic reaction, founded on social expectations that good deeds should be repaid. Why, wondered Pfeffer, do we still adhere to that norm in our personal lives but not at the office?

To answer that question, Pfeffer and doctoral student Peter Belmi, who will become an assistant professor at the University of Virginia in the fall, conducted five studies to determine whether people feel less obligated to reciprocate in an organizational context than they do in a personal one, and if so, why. “We wanted to learn why reciprocity, which is a fundamental moral imperative that affects so much of our social behavior, often seems to be completely lacking inside the workplace,”says Pfeffer. The research looked at how people responded to favors in business settings compared with how they responded in personal settings. The types of favors people were given included dinner invitations, rides home from the airport, and lottery tickets.

Work Favors Are More Calculated

The results, which will be published in Academy of Management Discoveries, shows that at work, people make decisions about reciprocation based on how important the favor-doer is to them professionally.“People operating in organizations generally have a business mind-set, which is more calculative and oriented toward the foreseeable future. They tend to make decisions that maximize the benefits to them personally while minimizing the cost,”says Pfeffer. In deciding whether to reciprocate workplace favors, study participants tended to be more strategic and calculating about whom they would help, basing that on how instrumental the favor-doer would be to them in the future.

Participants also felt less obligated to reciprocate workplace favors, in part, because they questioned whether the motivation of the person bestowing the favor was sincere and genuine.

In contrast, the studies show that when people receive a personal favor, their motivation to reciprocate has nothing to do with the future usefulness of others. In their personal lives, participants were actually more inclined to return a favor from those who were unlikely to do much for them in the future. “If you do a favor for me, as one human being to another I feel a normative obligation to repay the favor, even if you aren’t going to be very useful to me in the future,”says Pfeffer. “But we found almost the exact opposite in an organizational context. There, it’s all about calculations. If we don’t feel repaying the favor will benefit us much in the future, we won’t do it.”

This explains why employers often don’t reciprocate employee loyalty and effort — if there is no potential benefit to the company, the company has no compelling reason to reciprocate. “That calculative, future-oriented mind-set means we shouldn’t expect companies to be as strongly bound by moral norms,”says Pfeffer.

Not Reciprocating Brings Risks

Yet there are negative consequences for companies that violate perceived reciprocal obligations. Studies have found that when employees feel their employer fails to deliver on what was informally promised, they are more likely to quit. Reciprocity is also important in building cooperative relationships, which are a key component of successful organizational functioning. Some studies even suggest that people who feel they have been treated unfairly in one setting, such as the office, are more likely to engage in deviant behavior in other settings.

Companies would be wise to build less calculative cultures, says Pfeffer, where there is greater emphasis on morality and ethics, and where the norm of reciprocity still operates. “Research shows that when people believe implicit agreements have been violated, they are more likely to be dissatisfied, less engaged, less committed to work, and less productive,”he says. “There are hard consequences to breaching these norms, and yet we breach them all the time.”

Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford Graduate School of Business. “How ‘Organization’ Can Weaken the Norm of Reciprocity: The Effects of Attributions for Favors and a Calculative Mindset” will be published in the inaugural issue of Academy of Management Discoveries.

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