The Campaign for Sustained Leadership

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How and when did all of these changes occur? The death of the man in the gray flannel suit began in the 1980s, when the nation was taken aback by a phenomenon that had previously affected only blue-collar jobs: widespread layoffs. Company after company, citing the need to "restructure," fired thousands of white-collar, mid-level managers throughout the decade. It was a time of fear for many professionals, who realized for the first time that despite their education and years of experience, they were now perceived as expendable. A recession in the late 1980s fueled the insecurity, and resentment and mistrust toward corporations grew.

In the early-to-mid 1990s, data show that white-collar job displacement continued, particularly for long-time employees, even as the economy took off. Cappelli cites a Conference Board survey showing that 84 percent of large companies polled acknowledged efforts to articulate a new relationship with employees, one explicit in its intent to eliminate long-term commitment to employees and the responsibility for identifying and developing their skills.

But by the end of 1996, labor markets had significantly tightened and the "deal," as Cappelli calls it, had once again begun to change. This time employees had the power, as firms realized their problem was not getting rid of workers, but finding and keeping them. Companies such as GTE Corp., for instance, shifted toward marketing themselves as "employers of choice" with perks and professional development opportunities designed to lure and keep talented employees.

"What's important about all of this back and forth is that it's now clear that employment has become market driven," Cappelli says. "And the most important connection employees today have is not to their employer, but to the market.

"So the new employment relationship is an uneasy dance," Cappelli says. "It's an open-ended relationship that is constantly being shaped by the pull of the market. When labor markets are slack and jobs are more difficult to find, employees become more loyal to their employers and assume most of the pain of a restructuring. When labor markets tighten, the tables turn: employee commitment drops and employers are more willing to invest in employees again."

For all of their angst during the 1980s, today's employees appear to have adjusted to the new realities of the employment market better than their employers, according to Cappelli's paper. He cites the recent survey of employee expectations that found that "secure employment" ranked only fifth out of ten attributes in importance, after interesting work, open communications, opportunities for development and realistic performance management. Employers, meanwhile, still struggling against a tight labor market, listed commitment and trust as most important. And another survey by Towers Perrin revealed that most employees believe that lifetime employment is not realistic or even desirable. It also found that middle managers now see little difference between themselves and hourly workers when it comes to their relationship with their employer.

Problems for Management

Not surprisingly, the "new deal" has brought problems and perks to both employer and employee.

Employees with the right skills have options galore during tight labor markets. But generalists and mid-level managers who have not kept up with the technology boom or who lack a specific, unique talent face a much more tenuous future.

Employers, meanwhile, have great flexibility to quickly rearrange the skills of their workforce based on market forces and can limit long-term obligations and costs, Cappelli says. But they also face a host of new challenges, from employee poaching to cultivating loyalty in a work-force that's quickly learned to put its own interests first.

The practice of employee poaching from competitor firms, for example, has become rampant in recent years. A Wharton study of 70 leading life insurance companies found that competitor firms are considered the most important source of new recruits, and team poaching, as in the case of the Coopers & Lybrand executive, has also become common.

What have companies done to counter this trend? "Golden handcuffs" – compensation or stock options packages that can only be accessed after a certain time period – are one way companies have tried to keep employees from hopping from offer to offer. But recruiting firms have more recently responded to these packages with "golden hellos" – programs that simply buy out the incentives.

In the end, compensation-based retention tools are only a marginally effective solution since they are easily copied by competitors. "The better option is to create unique ties to the organization that can't easily be duplicated," Cappelli says. North Carolina-based SAS Software has an annual turnover of about 4 percent, while the industry average for software is six times higher. Cappelli cites the firm's ability to create a strong community among employees with meaningful perks and benefits, such as discounted prices for home sites and childcare, as the reason.