The road to more sustainable firms in the face of a pandemic: Changes needed in employment relationships

Abstract

The COVID-19 pandemic has changed the way we operate at work. Dealing with these changes may require new ways of thinking about our models of employment relationships, to create more sustainable organizations during troubled times. Sustainability can be understood as an attempt to strike a balance between the economic, social and environmental goals of companies—a balance that could drive a global recovery from the pandemic crisis. This essay focuses on the employer’s perspective and considers how firms can use different employment models to improve sustainability during the crisis. We propose two alternative employment models which we label “Oversustainability” and “Mutual Sustainability” that depend on the choice of the firm’s competitive strategy (proactive/innovative vs analyzer/following). We considered the contributions expected from employees and the inducements they were offered under each model. We believe these employment models can be advantageous for companies seeking to adopt proactive and analyzer-type sustainability strategies.

JEL CLASSIFICATION M1

Keywords

Sustainability employment relationships innovative and proactive strategy analyzer strategy

Introduction

The Covid-19 pandemic has forcibly induced changes in the way company employees work, promoting teleworking and greater work day flexibility. But these changes have also challenged traditional conceptions of the employment relationship. It is more difficult to monitor the activities of employees who are working at a distance; it is harder for supervisors to provide feedback and direction to employees who are teleworking, and it is more awkward for employees to engage with other employees remotely (Carillo et al., 2020). These shifts mean that employees have been subject to new levels of stress and anxiety, which are potentially problematic for both the future of the firm and the well-being of the employees themselves (Sewell & Taskin, 2015).

As a result, the discipline of Human Resource Management (HRM) should reflect on the impact of these workplace transformations and conceive a more sustainable model of employment relations. This matter is key, not only because such a reflection could generate improved models, but also because implementing more suitable employment relation models could help to recover from the current global crisis caused by the Covid-19. As Bansal et al. (2020) suggest, the pandemic has both exposed hidden inequalities due to poor working conditions and created new inequalities. Although such disparities may be resistant to change, we must try to address them to build HRM systems that will allow for the sustainable development of organizations.

The idea that organizations should contribute to sustainability is, therefore, not new. But what does this concept of sustainability entail and why is it important in the current context? Elkington (1998) pointed to the three principles underlying sustainable development: environmental integrity, social equity, and economic prosperity, known as the “Triple Bottom Line” (TBL). the notion of TBL has been getting more attention from scholars and practitioners, and the idea that firms can “do well by doing good” has substantially gained in popularity (Guerci et al., 2018; Santana & Lopez-Cabrales, 2019). In the current pandemic context, the pressures to survive economically could imply that economic goals prevail, but firms that ignore environmental and social objectives during the crisis may actually suffer more in the long term (Bansal et al., 2020).

Therefore, sustainability researchers can better understand the business implications of Covid-19 considering that over the last century, management studies have helped businesses amass enormous wealth, but in doing so, have created system imbalances. A key, then, is to seek ways in which firms, adopting different competitive strategies in the light of the pandemic, can use employment relationships to contribute to sustainability and reduce system imbalances (Ehnert, 2009; Santana & Lopez-Cabrales, 2019).

As a consequence of the Covid-19 crisis, organizations are changing their employment relationships, consisting of incentives offered to employees in exchange for their contributions to the organization. Generally speaking, a company’s offered incentives vary depending on whether they are monetary or non-monetary, and an organization’s expectations regarding the behavior and contributions of its employees may also differ, according to in-role/extra-role performance or even ethical behavior in the company (Wang et al., 2003). Specifically, in response to the crisis, companies expect more flexibility and adaptability from their employees, but in return, they must offer more than merely economic incentives to develop a more sustainable work environment (Beltran-Martin & Roca-Puig, 2013; Guerci & Pedrini, 2014). In this essay, we reflect about the changes that are affecting such employment relationships, depending on the firms’ specific competitive strategies resulting from the pandemic: first, seizing opportunity strategies, behaving in an innovative and proactive form versus analyzers/ followers, or second, reactive and defensive strategies (Aragon-Correa & Sharma, 2003; Lopez-Cabrales & Valle-Cabrera, 2020). We believe that finding ways in which the employment relations model can be modified to move toward sustainability can help organizations to survive and even thrive during the current global crisis.

Employment relationships from the perspective of employers

Employment relationship models always play an important role because they define how employers interact with employees. But improving our understanding of these relationships is even more essential in the current context of crisis, where companies are facing increasing pressures to optimize their resources—even though their responses to such pressures negatively affect their employees. The concept of employment relationship refers to an exchange agreement between employer and employee whereby the employer hires people to contribute to the production of goods and services that generate benefits based on their manual/intellectual work, provided in exchange for compensation (Boxall, 2013; Torka et al., 2005).

As employers and employees are both part of this relationship, the analysis of their exchanges will largely depend on which party we choose to focus on: employer or employee level (Díaz-Fernández et al., 2020). Employers regard the organization’s role mainly as an incentive provider, believing that if the organization provides the proper incentives, employees will respond with behaviors that produce the desired outcomes and levels of performance (Guest & Conway, 2002). The employee views the employment relationship as a psychological contract between the employer and the employee (Rousseau, 1989, 1990).

In this essay, we analyze the employment relationships from the employers’ perspective. One of the most effective employment relationship models was proposed by Tsui and Wu (2005), based on some earlier work (Tsui et al., 1997; Wang et al., 2003), and adapted to a wide variety of contexts (e.g., Jia et al., 2014). Their proposal also underlies the inducement-contribution model of March and Simon (1958) and they define employment relationships as the set of managers’ expectations regarding employees’ contributions to the firm in response to organizational inducements. The model considers the two basic dimensions of the employment relationship—the level of incentives offered by an organization and the contributions that an organization expects from its workers—and identifies the four possible types of relationships, upon which we base our discussion below.

A first employment model named “Quasi-Spot Contract ” is characterized by an “economic-utilitarian” approach: the organization hires a group of workers, for a limited period of time, and with very specific performance objectives and tasks. As Tsui and Wu (2005) recognize, employees do not expect long-term job security, only the promised rewards once they meet the output expectations. In return, managers are primarily interested in the workers’ task performance, their commitment is not necessary.

In a second employment relationship presented by Tsui and Wu (2005), no balance is maintained between the offer of incentives and the expectations of contributions to be made. It is named “Underinvestment ” and occurs when a firm offers a narrow set of inducements but in return expects a broad set of contributions from its employees. This imbalance is typical during an economic downturn and slow recovery, increasing employee workload, labor conflict, high turnover, absenteeism, and it cannot be sustained in the long term.

Tsui and Wu (2005) explicitly state that “organization performance was the best when firms adopted the mutual investment employment relationship” (p. 117). The latter represents a balanced employment model: investing in high inducements directed toward employees who are expected to make the greatest contributions and who play a key role in the company’s future. Firms that exercise this employment relationship develop a long-term and open-ended relationship with employees who are expected to broadly contribute to their organization, rather than focusing on their job tasks only.

A last type of possible employment relationship based on the inducements-expectations tradeoff is “ Overinvestment.” In this model, an organization offers incentives that exceed employees’ contributions, maybe because the firm expects or has faith in their potential, perhaps due to the need to incorporate certain resources, or because such incentives are necessary, given the scarcity of those resources in the labor market. The employer offers open agreements and broad rewards (training, career progression, job security) while the employee carries out only what is specified in the job description (Wang et al., 2003).

The model offers several advantages. First, it centers on the employer’s viewpoint, since the employer is usually the one who defines the core contracts in employment relationships—although some negotiations may and do occur. In addition, the model uses the concept of “balance” instead of “equity,” as equity refers to employee perceptions, and the model is focused more on the relative balance between the employer’s inducements and the contributions expected of employees (Tsui et al., 1997). Nevertheless, the Tsui and Wu (2005) model requires further modifications to help us to understand how organizations can use the employment relationship to face the challenges of the Covid-19 pandemic. Specifically, addressing balanced versus unbalanced relationships is insufficient because the pandemic has brought about a fundamental change in the nature of traditional inducements and expected contributions. Instead, organizations must think in new ways about strategic responses to build more sustainable work environments. We propose such an approach in the section that follows.

New types of employment relationships to build more sustainable workplaces as a consequence of the COVID-19 pandemic

The Covid-19 pandemic is changing organizational priorities and is demanding new responses which affect the contracts between employers and employees discussed above. Furthermore, current discussions about sustainability in organizations is also at a crossroad, as firms may give priority to economic survival, postponing social, and environmental issues (Bansal et al., 2020). The lockdowns imposed by governments as the pandemic intensified caused supply-and-demand shocks across all sectors.

There are two ways in which companies can generally react to these shocks. Some firms may view these upheavals as opportunities for growth, expansion, and increased competitiveness. A recent analysis suggests that firms in the technology, cybersecurity, pharmaceutical and e-commerce sectors are most likely to regard the recent pandemic as an opportunity (Chinn et al., 2020). Indeed, they all belong to industry sectors in which demand has recently increased and which can rely more heavily on digital business models. On the other hand, this same analysis suggests that industry sectors such as manufacturing, retailing, and air transport have suffered the most during the pandemic because of deceasing demand for their products or services. Firms in these sectors are therefore more likely to view the pandemic as a threat and to react defensively, trying to hold on to whatever advantages they have. Naturally, some firms operating in a growing industry sector will still view the pandemic as a threat and act accordingly, just as some firms in a shrinking industry sector will view the pandemic as an opportunity and act accordingly.

We reflect on how to address the pandemic’s challenges based on strategic choices and the need to develop new employment relationships to support such strategies. The proposed models are detailed in the following sections.

Proactive/innovative strategies and oversustainability employment relationships

A first strategic scenario is one in which firms are leaders in their sectors, possess sufficient resources, and are able to view the pandemic as an opportunity. They adopt a proactive and innovative strategic stance toward sustainability, according to Lopez-Cabrales and Valle-Cabrera (2020). They act as pioneers and seek to go beyond strict compliance, anticipating actions in the spheres of sustainability as part of their culture and the way they compete (Adams et al., 2016).

An employment relationship referred to as “Oversustainability,” which is oriented toward innovation, proactiveness, and that constantly looks to the future should support these firms’ strategic orientation. This form of employment relationship potentially holds the key to dealing with the pandemic crisis. It may seem paradoxical, but during a major crisis such as the one we have all been experiencing, companies should in fact step up their investment efforts in their employees, who are ultimately the ones who can provide a better response, product or service to the end customers. One possible lesson learned from the Covid-19 pandemic is the need to invest in workers so that they honor their commitment and improve their performance even in challenging times. That is why the incentives offered by an organization could even exceed the level of response expected of employees. In a context of pandemic crisis, an organization can choose to stand out, not only in terms of the economic offer or salary paid to its employees, but also through other innovative investments made in their training and development, seeking to position itself as a leading firm with regard to its approach to sustainability (Guerci & Pedrini, 2014; Martinez-del-Rio et al., 2012).

Thus, organizations with superior competitive advantages and resources could support their workers, offer alternative and innovative kinds of inducements that would lead to high levels of employee engagement in the future. Based on the three dimensions of sustainability mentioned above, it could be assumed that given the Covid-19 crisis pandemic, firms are undergoing survival pressures and economic sustainability comes first: yet they should be considering the social and green environmental impacts after the crisis, that is, in the recovery phase to come.

In an Oversustainability employment relationship, current contributions from employees are low and the level of inducements offered by the organization surpass the level of responses expected of employees. This issue has a direct effect on the current Covid-19 context: it could be a logical consequence of the crisis, because employees feel high level of stress, burn-out and anxiety. Nevertheless, as suggested by Tsui et al. (1997), overinvestment is not “gratuitous” and it should result from a manager’s perceptions of the employees’ potential to overcome and reverse the situation in the future. In other words, managers are more flexible in terms of their employees’ current performance because they expect greater involvement, commitment and outcomes in the near future, and because the firm’s financial and competitive situation allows it.

The oversustainability employment relationship is also characterized by the large number of inducements offered to employees, as a consequence of the firm’s availability of resources and the strategic proactive approach. First, Employer Branding practices would be appropriate (Ehnert, 2009), as these companies would be concerned with attracting and incorporating potentially more qualified employees into the organization. Hence, the company would convey its commitment to sustainability in clear terms within its recruitment and selection process, so that it attracts candidates who are motivated by these issues, and deters those who are not. This approach would be consistent with the signaling theory in recruitment and selection, allowing the candidate to anticipate the company’s future intentions and actions through its commitment to sustainability (Renwick et al., 2013).

Within this employment relationship, the company would also seek innovative sustainability-oriented training formulas, thus encouraging employees to reflect on the impacts of the company’s activities (Bansal & Roth, 2000; Mariappanadar, 2003). The latter would involve increasing employees’ knowledge and skills in the face of new processes and actions, which would seem consistent and desirable in the context of the Coronavirus pandemic crisis (Jabbour & Santos, 2008).

Performance management systems would also have to be adapted to sustain these changes. Appraisals would need to focus on evaluating behaviors consistent with sustainability, as well as on outcomes leading to sustainability. Once baseline levels of desired behaviors are established, performance management centers on all the organization’s efforts to increase the frequency of the desired behaviors (e.g., Pulakos, 2004), that involve both feedback and reward systems. Regular feedback should be provided to employees, along with information on how to improve, and goals for improvement, both of which are critical for feedback to be effective (DeNisi & Smith, 2014; Kluger & DeNisi, 1996). In addition, an environment of open communication needs to be established so that employees can seek feedback (cf. Ashford et al., 2003) when they feel they are not receiving the information they require.

Incentives to improve desired behaviors are also a key component of any performance management system. The links between behaviors related to improving sustainability and rewards must be clear to everyone, and these links must be strong. Furthermore, it is important to incent all employees to adopt these behaviors, not only executives or middle managers (Merriman & Sen, 2012; Renwick et al., 2013). Thus, each employee should have a clear line of sight to see how his or her behaviors affect the firm’s sustainability. The actual reward systems could also include non-monetary remuneration linked to employee contributions to sustainability such as extra vacations, flexible working time, or certificates of recognition. However, further research is needed in this field to determine innovative reward mechanisms consistent with the crisis context.

Analyzer-types strategies and mutual sustainability employment relationships

A second strategic orientation for firms that still consider the Covid-19 pandemic as an opportunity to seize can be found in the case of companies that focus on competitor performance and adapt by making changes and innovating as followers. These types of companies would follow Analyzer-type strategies (Lopez-Cabrales & Valle-Cabrera, 2020; Miles & Snow, 1984), studying the context and the responses of other companies to the pandemic. In this case, an employment relationship that we might call “Mutual-Sustainability” would make sense for its content, long-term orientation, and for the behaviors it seeks to promote, aimed at monitoring competitors.

In this second employment relationship, managers do expect a high level of commitment and performance from employees who are involved in providing sustainable solutions. The level of expected contributions is high, including both in-role and extra-role behaviors (also referred to as “contextual performance; Borman & Motowidlo, 1993)—asking employees to do their best to overcome the current situation. Firms adopting a Mutual-Sustainability employment relationship undergo performance pressures as their competitive position is not as advantageous as firms in the first Oversustainability scenario. This situation explains their analyzer strategic choice for passing the crisis, concentrating on copying the best practices of sector leaders, instead of adopting more proactive and innovative strategies (Miles & Snow, 1984).

Unlike the Oversustainability model, the Mutual Sustainability employment relationship values employees’ behaviors that are directly linked to commitment and involvement in sustainability issues, provided the latter are in demand in the market and among competitors. In this Mutual Sustainability employment relationship, the organization expects employees to do their utmost to prevent the company from losing its competitive position. Employees will react positively to this form of employment relationship because it is balanced, and the high level of expected behaviors is compensated by the firm’s high level of investments in employees (Lopez-Cabrales & Valle-Cabrera, 2020).

Resulting from this Mutual Sustainability approach, companies that are asking employees to provide additional efforts must also offer high inducements. However, inducements should be different from the ones defined in the Oversustainability model, due to the Analyzer strategic orientation. For example, recruitment and selection processes should focus on hiring employees who are potentially ready to implement and develop the “best” sustainability practices of other competitors more efficiently within the organization. This will allow the company to detect inefficiencies and even correct errors of practice, which would make the company even more successful than the firm that pioneered these sustainable practices.

For these companies, rather than merely ensuring the employees’ regulatory compliance (of an environmental, social, health and safety, etc. nature), the key point is to convince them that these practices are positive and will benefit everyone so the company does not lose its competitive position. To do this, the empowerment and engagement practices favored by the company’s management and supervisors would appear to be adequate. This would generate a “Supportive culture for Sustainability” that would lead the company to accept and internalize the principles of long-term sustainability, seeking excellence in their application (Stone, 2000), which could be considered as a positive way of responding to the coronavirus crisis.

Performance evaluation, performance management and rewards and remuneration should be aimed at recognizing and rewarding success and efficiency at applying and developing practices that facilitate sustainability. Thus, here, as with the previous case, it is necessary to identify the kinds of specific behaviors required, communicate them to employees, center evaluations on those behaviors and ensure that behaviors are rewarded when they occur. This employment relationship would not reward innovation or leadership in these sustainable policies—as it would in the Over-Sustainability employment relationship—but rather improvement and excellence in their implementation. As a consequence of the pandemic’s pressures, the focus would be task efficiency, but social and environmental sustainability could play a role once the economic situation in the recovery phase allows it, such as the identification and rewarding of successful departments in the implementation of policies that foster respect and recognition of diversity through equity and distributive justice—management of diversity, (social sustainability) (Jabbour & Santos, 2008)—or by ensuring the reduction of emissions at a lower cost and more efficiently (ecological sustainability) (Wehrmeyer, 1996), to give but a few examples.

Finally, in times of crisis, such as that we are experiencing, many firms consider the pandemic as a threat and they adopt reactive and defensive strategies, focusing solely on the strict compliance of legal norms and mandatory rules (Dubois & Dubois, 2012). In accordance with this strategic orientation, firms may employ utilitarian or transactional economic models, relating to Underinvestment or Quasi Spot Contract type employment relationships (Tsui & Wu, 2005). We consider that these employment models are not appropriate because of the low levels of investment in workers and their negative effects on motivation and satisfaction. These aspects would make it difficult to increase sustainability (Lopez-Cabrales & Valle-Cabrera, 2020), so they are ultimately useless in the current context of global crisis and change.

Thus, we argue that the key to surviving the current pandemic crisis is to develop employment relationships that are tied to a firm’s strategic orientation to face the crisis, considering the Covid-19 pandemic as a strategic opportunity to be seized. The relationship models called Oversustainability and Mutual Sustainability are, in fact, the best options for firms to survive. But the choice of one model versus the other will also depend on an organization’s competitive strategy. For firms adopting an innovator strategy, Oversustainability should work best, but for firms adopting an analyzer strategy, Mutual Sustainability would be the best fit.

Discussion and conclusions

This essay sought to provide a reflection and conceptual model that allows the incorporation of the concept of sustainability into the strategic analysis of human resources, as a way of emerging from the coronavirus pandemic crisis. We proposed that firms could undertake the challenges of the pandemic situation by adopting opportunity-seizing strategies (innovative and proactive or analyzer type strategies, depending on their competitive position and resource availability) while other firms considered the pandemic as a threat and reacted defensively. In accordance with Lopez-Cabrales and Valle-Cabrera (2020), who identified new models of employment relationships tailored to sustainable human resource strategies, we revised different employee incentives and demands, which are reflected in human resource management practice orientations, and we considered two such employment relationship models (“Oversustainability” and “Mutual Sustainability”) as valid options for analyzer or proactive strategies to emerge from the global crisis.

We believe that this proposal contributes to research on the perception and impact of sustainability strategies in the field of HRM. The Covid-19 crisis is increasing survival pressures on firms, but as Bansal et al (2020) pointed out, firms should not forget their social and environmental impacts in the near future. Our proposal of investing in workers by means of Oversustainability and Mutual Sustainability employment relationships is a way of involving human capital in core activities and providing innovative solutions that can help companies to build successful competitive edges. However, firms that focus on short-term employment relationships such as quasi spot contracts or even underinvestment, will fail to engage employees in this critical context, and as Tsui and Wu (2005) explicitly recognize, such firms will experience lower performance.

Therefore, firms must provide innovative solutions to survive under the many pressures of the current pandemic situation. One of these innovative edges is to change the range of employees’ expected contributions and inducements offered to build a more sustainable workplace and obtain their workers’ full commitment. Firms that are industry leaders are able to implement more innovative and proactive strategies, while other firms may focus on following and adopting successful analyzer-type practices.

However, before bringing this essay to a close, we should first reflect on other necessary changes to modify and adapt employment relations to the context of sustainability and the crisis caused by Covid-19. To begin with, new competencies, linked to the sustainability strategy, need to be defined and promoted within these employment relationship models. Employees must adapt their competencies to respond to changing competitive conditions (Ulrich et al., 2012) and, in our case, encourage innovative responses to the current crisis by continuously planning and adapting to changing circumstances (Sawang & Kivits, 2014). In particular, employees must possess and apply new skills such as strategic decision-making, sustainability advocacy, organizational culture support, change management, innovation and optimization of new technologies, among others (Ulrich et al., 2012; Yong & Mohd-Yusoff, 2016 ).

Moreover, a debate must take place today around new ways of working and the disappearance of many jobs as we know them today. In this sense, the virtualization of many jobs has changed the rules of business, which has become even more patent with the Covid-19 pandemic and decisions regarding lockdown. Research needs to tackle the orientation of the human resources system required to explain the relationship between these technological developments and sustainability in the organization.

The study and in-depth analysis of these changes in employment relationships resulting from the pandemic is of great practical interest to businesses. First, we believe that the perceptions of both players (employers and employees) should be ascertained to understand the company’s employment relationship (Díaz-Fernández et al., 2020; Tsui et al., 1997). Adopting this dyadic analysis would enrich this study by identifying which policies should be adopted in the field of human resources management to promote the behaviors desired by the organization, consistent with the sustainability demanded, in response to the crisis. A second contribution to the business world would be the study of the role of strategic leadership in our proposed model. Indeed, strategies, employment relationships and HRM practices do not arise spontaneously, but are strongly conditioned by the company’s leadership style. Therefore, strategic leadership would also help to change the organization’s employment relationship resulting from the Covid-19 pandemic.

The current coronavirus crisis has put companies in a major quandary. They can choose to disinvest in employees based on Underinvestment or Quasi Spot Contract employment models, which would perpetuate the negative impacts of the crisis. Or, they could adopt a strategic approach to sustainability and take advantage of the crisis to shift either Oversustainability or Mutual Sustainability models that involve employees in innovative or analyzer ways of emerging from the crisis. Let us hope that organizations, using their discernment and analysis of the situation, will make the right decisions to overcome the crisis.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Financial support for this article was provided by FEDER/ Ministerio de Ciencia, Innovación y Universidades-Agencia Estatal de Investigación (ECO2017-82208-P).

ORCID iD

Alvaro Lopez-Cabrales

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