8/13/2019 Summary-Which Comes First-Employee Attitudes or Organizational Financial and Market Performance

1/3

Analysis of the Reading Which Comes First:

Employee Attitudes or Organizational Financial

and Market Performance?

Nishant Agarwal

September 17, 2013

Objective

The objective of this paper, in simple words, is to establish the direction ofcausality between an organizations financial and market performance measuressuch as ROA and EPS and its employees attitudes, such as overall job satisfac-tion, satisfaction with security, pay etc.

Gaps in previous research Finding Opportunities

for contribution

The authors Schneider, Hanges, Smith, and Salvaggio primarily contribute byfinding certain gaps in research previously conducted on this topic. They ob-served that researchers micro-orientation towards the job attitude-performancerelationship is somewhat surprising; given that the interest in employee atti-tudes had much of its impetus in the 1960s when organizational scientists suchas Argyris (1964), Likert (1961), and McGregor (1960) suggested that the wayemployees experience their work would be reflected in organizational perfor-mance. Majority of the researchers exploring employee attitudes and organiza-tion performance always explored this relationship at an individual level. Theauthors argue that such a relationship should be analyzed at an organizationlevel, by aggregating the individual level data.

Another opportunity for a new contribution originated from the fact that most

of the research, even at a macro level, was not done across time periods. Deni-son (1990) measured employee attitudes in 34 publicly help firms and analyzedthe correlations between employee attitudes and organizational performance.Though Denisons data was time series of 5 successive years, it was not a timeseries in the true sense, because he measured only organizational performanceover 5 years, keeping the attitudes benchmarked to the first year. Schneider,Hanges, Smith, and Salvaggio therefore conducted a true time series analyses

1

8/13/2019 Summary-Which Comes First-Employee Attitudes or Organizational Financial and Market Performance

2/3

by measuring both the variables across a period of 8 years.

The final opportunity for contribution, and perhaps the most crucial one fromthe perspective of this study, was from the fact that most studies assumed aone directional causality, with the employee attitudes being the cause and theorganizational performance being the result. In this study, the authors assumeno such direction for causality, and in fact attempt to show that this causalityflows in both directions; at times organizational performance being a significantcause for a certain employee attitude.

Methodology

The authors have adopted a complex methodology for this study, though it was

necessary given the nature of the problem being analyzed. They collected datafrom a consortium of U. S. Companies. The companies in the consortium werelarge organizations, mostly featuring in the Fortunes list of most admired com-panies. The time period under consideration was 1987-1995. The number ofcompanies available for analyses varied over these 8 years, with the year 1992offering a maximum of 35 companies, while the minimum was 12 companies in1989.

The authors measured time lagged correlation between employee attitudes andROA and EPS using a two pronged approach. They first assumed one of theemployee attitudes (e.g. overall job satisfaction, security, pay etc) to be thepredictor of each of ROA and EPS, and then measured the correlation acrosstime periods. Then the roles were reversed, with each of ROA and EPS being

the predictor of the same employee attitude. The same process was done foreach of the attitudes, and the final results were compiled (Table 6 in the article).

Results

The result from the analyses conducted by the authors showed that both sat-isfaction with security and pay had a positive relationship with both ROA andEPS, with the relationship much stronger in the reverse direction, i.e. ROAand EPS proved to be a strong predictor of satisfaction with security and pay,though in case of former, the relationship was equally strong in both directions.

Results concerning relationship between overall job satisfaction and the perfor-mance criteria created a stir in the research community. The causal directional-ity from financial and market performance to overall job satisfaction proved tobe very strong. This does not however mean there is no relationship in the otherdirection; just that in one direction it is stronger. This research demonstratesthat employees can derive satisfaction in their work from the fact that theirorganization is doing well financially as well as in the stock market.

2

8/13/2019 Summary-Which Comes First-Employee Attitudes or Organizational Financial and Market Performance

3/3

Strengths and Weaknesses: The critique

The biggest strength of the analyses is the longitudinal design of the research.With a proper time series data on both predictor and predicted variables, thebidirectional relationship could be analyzed. Also, the fact that the data wasaggregated at the organizational level proved to be beneficial, since it enforcedthe macro outlook of the research.

The biggest limitation of the research is also the most obvious one. The cor-relation between two variables does not necessarily imply causality. For estab-lishing a significant causal relationship, one needs to dive further into the dataand possibly build a regression model between these variables. There is a lotmore complexity surrounding the EPS and ROA of a firm, with these outcomesdepending on a host of other factors. Such complexities have been ignored in

the research.

Authors have self admitted other limitations, such as lack of Generalizabilityof the results to smaller companies, and the lack of information about how thesurvey was conducted

Opportunities for future research

As mentioned previously, a deeper relationship between various variables canbe explored through regression analysis, moderator mediator analysis and otherstatistical techniques. Another interesting research study could be the analysisof changes in employee attitude with time, and the demonstration that financial

performance has changed in the similar direction in the same time period.

3