How Fair Are You?

Did you know that there are no bad drivers in Cookeville? There are also no bad parents. I know this because whenever I speak in front of groups, I usually ask: Are there any bad drivers in here? What about bad parents? No one ever speaks up.

Maybe they’re just reluctant to confess in front of their peers or co-workers. At least one survey, however, shows that 90% of the population believes they are above average drivers. Statistically, of course, it’s impossible for 90% of the population to be above average.

This kind of overconfidence is not restricted to driving. Research also shows that most people think they are fairer, luckier, and better investors than the average person. I guess that explains why so many people play the lottery.
The larger point here is that most people tend to overestimate their competence in a variety of areas. Most of these areas have profound implications for business management.

A few years ago, a manufacturing company in Ohio lost some key contracts and the CEO decided that a temporary pay cut would be the best way for the company to deal with the lost revenue. The 15 percent pay cut would be applied to everyone at two of the company’s plants and would only last ten weeks.

The CEO was concerned about the possible reactions to the pay cut. He knew that people would probably be unhappy. Would employees quit? Would they slack off? Would they steal from the company? What could he do to minimize the negative reactions?

The CEO contacted Jerald Greenberg, a professor at Ohio State University and an expert in the area of workplace fairness. Greenberg, being an academic, proposed an experiment in which he would write the pay cut announcement for one of the plants. The CEO would write the announcement for the other.

Honestly, the CEO’s announcement sounded like something I would have written. It was simple, straightforward, and conveyed only the necessary information. Greenberg’s announcement, however, was filled with regret, apologies, and detailed financial information justifying the pay cut. So how did people respond?

In the plant that received the professor’s announcement, theft increased by 54% during the ten-week pay cut period. That’s a lot. In the plant that received the CEO’s announcement, theft increased by 141%. That’s a lot more.
With respect to turnover, only one person (out of 64 employees) left the plant that received the professor’s announcement. In the plant that received the CEO’s announcement, 23% of the employees quit.

Without the experiment, we might have concluded that the pay cut was responsible for the huge increases in theft and turnover. The experiment reveals, however, that it wasn’t the pay cut. It was the announcement that produced the biggest effects.

I’ll bet if we asked the CEO if he thought his announcement was as sensitive and informative as it could be, he would say that it was. After all, he wasn’t trying to increase theft and turnover. He was trying to prevent it. But just like the majority of us who think we are above average drivers, most managers believe that they are above average when it comes to fairness and communicating with employees.

The best thing about the professor’s announcement is that it cost absolutely nothing to be more sensitive and provide more information. The financial effects, however, were huge. The only way to reap these benefits is to realize that you might not be as good as you think you are.