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Human Resource Management in Media and Communications

Rough Draft

April 2011

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Table of Contents

I. THE HRM FUNCTION AND ITS ORGANIZATION

1. General

A. HR Mistakes

B. The Changing Role of HRM

2. Case Discussion: Disney

3. What’s Special about HRM in Media and Information

Industries?

II. “HARD HRM”

1. Human Capital Theory

2. Internal Labor Markets

3. Finance Theory: Risk-Sharing Models

4. Contract Theory

III. TOUGH LABOR

1. Industrial Workforce

A. Communications Labor Unions

2. The Crafts (Skilled) Media Workforce

A. Craft Unions

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1) Cost Impacts

2) Rules

B. Craft Union Conflicts

3. Creative Workforce

A. Unionization as Risk Reduction

B. Case Discussion: Disney

4. Unions in the “New Economy”

5. Productivity in the Media

A. Measurement

B. Trends

IV. SOFT CONTROL

1. The Creative Workforce

A. Creative Class Values and Traits

2. Motivating & Managing Creatives

A. Motivation Theories

(1) Intrinsic Motivation

(2) Extrinsic Motivation

(3) Expectancy Approach

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B. Hierarchy of Needs

(1) Physiological Needs

(a) The “Caring Sweatshop”

(2) Security Needs

(a) Fairness

(3) Social Needs

(a) “Us” vs. “Them” Identification

(b) Freelancers Part of the Family

(4) Esteem Needs

(a) Peer Recognition

(b) Encouragement

(5) Self-Actualization

(a) Skill Advancement

(b) Job Sculpting

(c) Communicate Significance

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(d) Avoid Cultural Dissonance

V. CONCLUSIONS AND OUTLOOK

1. Issues/Tools Covered

2. Challenges for HRM

3. HR Management in the Information Sector

4. Industry Structure and Talent

5. The Information Workforce of the Future

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This chapter deals with a major input for media activities: people, and

the management practices and principles to manage them. Other chapters

cover the three other major inputs: money (finance), and technology.

Historically, the main sources of value for business companies have

been their hard assets,1 such as machines, assembly lines, buildings, and

land. The industrial age was characterized by factories built with vast

capital investments in machinery and equipment provided by ‘capitalists’

and operated by armies of unskilled or semi-skilled workers who were

mostly interchangeable.2

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1 Surowiecki, James. “Net Worth.” The New Yorker, March 14, 2005. 2 Martin, Roger L. & Moldoveanu, Mihnea C. “Capital Versus Talent: The Battle That’s Reshaping Business,” Harvard Business Review 81, no. 7, July 2003. 3 http://www.threedonia.com/wp-content/uploads/2009/10/ford-assembly-line.jpg

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In the knowledge economy, however, things are different.4 Capital is

not as scarce as it used to be, but there is often a shortage of talent.

Companies cannot generate profits without the ideas, skills, and talent of

knowledge workers.5 As has been observed, the main assets of a firm leave

the company every evening to go home, and, increasingly, they do not even

leave home.

A knowledge-based firm’s productivity greatly depends on the

success of managing its human resources. Microsoft earned over $200,000

in profit per worker in each year between 1994-2004.6 In Hollywood, Silicon

Valley, Madison Avenue, Wall Street, hard assets matter far less than

people.7 The employees - the knowledge workers, content producers,

engineers - represent the difference between success and failure.

Investors in Hollywood film studios have historically earned small

returns when compared to actors and directors. In 1991, the then chairman

of Walt Disney Studios, Jeffrey Katzenberg, wrote a famous memo about

what he termed a ‘spiraling irrationality’ of payments in the movie

4Surowiecki, James. “Net Worth.” The New Yorker, March 14, 2005. 5 Martin, Roger L. & Moldoveanu, Mihnea C. “Capital Versus Talent: The Battle That’s Reshaping Business,” Harvard Business Review 81, no. 7, July 2003 6 Bryan, Lowell. L. and Michele Zanini. “Strategy in an Era of Global Giants.” The McKinsey Quarterly 4 (2005). 7Surowiecki, James. “Net Worth.” The New Yorker, March 14, 2005

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business.8 He stated, “The talent class has declared war on shareholder

capitalists.”9 He argued that studios put up all the capital and took all the

risks, but that movie stars, scriptwriters, and directors (the “talent”) stripped

off most of the profits.10

Is Katzenberg correct? Does the “talent” take no risk? Actually, few

careers are riskier to the individuals in terms of likelihood of success than

that of ‘talent’ in the film business. In contrast, the studios have become

adept at reducing risk through diversification and risk shifting. The same six

studios have been dominant for many decades. Katzenberg is correct,

however he refers only to the tiny percentage of stars who indeed earn high

returns on their special status. No one however, forces film producers to hire

stars who will strip the profits. And indeed, the high compensation for stars

is an incentive for struggling and entry-level talent to accept low

compensation, high-risk positions.

When the main sources of value depend on the talent of the people

involved rather than the productivity of the company’s hard assets, effective

human resource management becomes at least as important as a firm’s

management of its financial assets. 8 Martin, Roger L. & Moldoveanu, Mihnea C. “Capital Versus Talent: The Battle That’s Reshaping Business,” Harvard Business Review 81, no. 7, July 2003. 9 Surowiecki, James. “Net Worth.” The New Yorker, March 14, 2005. 10 Martin, Roger L. & Moldoveanu, Mihnea C. “Capital Versus Talent: The Battle That’s Reshaping Business” Harvard Business Review 81, no. 7, July 2003.

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Dealing with the people of the enterprise is the realm of Human

Resource Management. “HR” Management deals with a multitude of issues

hiring, promoting, training, firing, compensating, supervising, evaluating,

negotiating, providing benefits, and generally matching firm needs and goals

with human resources.

Human Resource Management is responsible for hiring and placing

the right person in the right job, for starting new employees in the

organization (orientation), and for protecting employee’s health and physical

condition.11 HRM is also concerned with creating and maintaining morale,

developing abilities of each person, controlling labor costs, and interpreting

the company’s policies and procedures.12 The basic role of HRM involves

developing smooth work relationships, improving each person’s job

performance, and training employees for new jobs.13

Failure to successfully carry out a human resource strategy will

inevitably leads to problems. The wrong person will be hired for the job,

there will be a high turnover of employees, motivation will dwindle, and

inefficiencies and underperformance will develop. Failure to comply with

various employment laws and regulations will open the company up to

11 B. Wolff & S. Lucas - Human Resource Management, Dessler 200. 12 B. Wolff & S. Lucas - Human Resource Management, Dessler 200. 13 B. Wolff & S. Lucas - Human Resource Management, Dessler 200.

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lawsuits and bad publicity.14 HRM mistakes will demoralize employees,

undermine productivity, and create wrong incentives.15

The Changing Focus of HRM

Human Resource Management underwent significant changes since

its birth in the late industrial era. During the 1900s, HRM was primarily

concerned with hiring, firing, and managing payrolls. Beginning in the

1930s, the focus of HRM broadened to include working with unions.

Starting in the 1960s, HRM’s responsibilities were increased considerably

by anti-discrimination legislation, and starting in the 1970s, the

administration of benefits plans became important.16

When the industrial workforce predominated in the economy in the

past, the HRM approach was shaped by two corporate functions: “Industrial

Relations,” which focused on the management of blue collar workers, and

“Personnel Management,” which focused on white collar management.

In the 1990s, HRM shifted from solely an administrator/screener to a

change agent that actively reshapes the corporate culture and employee skill

composition and behavior, as part of implementing a company’s strategy.

14 B. Wolff & S. Lucas - Human Resource Management 15 B. Wolff & S. Lucas - Human Resource Management 16 B. Wolff & S. Lucas - Human Resource Management Source: Dessler 200

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The traditional style of HRM has been “soft”, i.e. people oriented, and

run by personnel specialists who emphasized hiring, training,

communication, motivating, and promoting.

More recently, a “hard” HRM style has gained a following. This style

incorporates financial type analysis and the overall company strategy into

the HR environment. But this also conflicts with the need of managing

creative people, as will be discussed later in this chapter.

The HRM Organizational Structure

How are HRM departments organized structurally? It varies, of

course. Typically, the top officer is now titled the “Chief Human Resource

Officer” (CHRO). This function was formerly known as the “VP for Human

Resources“, and before that, it was called the ‘Personnel Director.’ The

upgrade in title reflects the increase in scope and responsibility.

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In a typical HRM organizational structure, the Chief Human Resource

Officer oversees four general functions: 1) labor relations; 2) dealing with

compensation, benefits, unions, grievances, and pay records; and 3) training.

And 4) employment/recruitment selects new hires. These functions are

generally managed by function-specific specialists.

HRM functions are often divided into relatively routine activities and

more administrative duties. Routine activities, such as payroll, benefits

administration, and workers’ compensation, are increasingly being

outsourced to external providers. The more administrative functions, such as

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hiring and promotions, are run by core HR specialists, often on the

divisional level.17 But the strategic direction is often guided by a corporate

level HR Group. Today, Human Resource Management is supported by

computers and softwares of increasingly complex Human Resource

Information Systems (HRIS).

HRIS are often outsourced to specialist firms. But such as for in-house

HRIS, there are vendors SAP, PeopleSoft, SABA BrassRing (hiring), and

Intuit (payroll).18 HRIS executes various functions, including:

§ Payroll

§ Benefit administration

§ Performance analysis

§ Recruiting

§ Training of new hires

§ Personnel records

§ Skills inventory

§ Screening applicant pools

§ Complying with hiring regulations

§ Monitoring time worked by irregular employees

17 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 18 Srinivas, Prabha, “ERM Solutions -- Are they Complete?” HR.com. April 8, 2004 <http://www.hr.com/HRcom/index.cfm/133/50AAB9EA-ABAE-4955-90D76297598CE1BC?ost=feature>.

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§ Qualifying/quantifying employee skills

§ Rating individual performance, issuing checks

§ Generating income/tax reports

The vast amount of data generated and stored in HRIS over time can

be used for many types of internal HR (and academic) studies and efforts of

a more efficient system. For the first time ever, management can have

almost real-time tracking tools for its workforce, cost, performance,

productivity, and individual progress. Management has only scratched the

surface of the potential applications of such tools.

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I.3 What is Special about HRM in Media and

Information Industries?

Creative media industries such as film, television, and theater are notable

for:

§ High fixed costs

§ An excess supply of creative talent

§ The difficult nature of measuring and raising productivity in the

creation of their products, partly due to their intangible nature which

defies easy measurement.

§ A work environment characterized by high risk and unstable

employment relations.

§ Strong incentives for outsourcing

§ An environment better suited for freelance work rather than for

regular employment.

§ The presence of participants with artistic and non-commercial

motivation, with strong emphasis on personal satisfaction

§ The attempts by many participants to lower risk of employment

through unionization

§ Strong elements of government intervention, regulation, and

protectionism

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The telecom industry provides its own set of unique challenges for human

resource management.

The economic characteristics of the industry with a market power and to

“natural monopoly structure”, lead to reduced incentives to lower cost.

§ The industry or hierarchically organized, with structure, high labor

costs, and a public service culture.

§ Low job mobility

§ A cultural and managerial shake up by the emergence of competition,

and, with convergence, transition to a competitive high-tech industry

§ A strong regulatory (and often ownership role) by government

The Information Technology industry is characterized by

§ An increasingly offshore and outsourced manufacturing production

model

§ High job mobility

§ A role for government in the creation of white-collar jobs

The Internet Industry has some of the following HR characteristics:

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§ Non-hierarchical structure with a great amount of fluidity between

management, employees, and owners

§ High upside and high risk

§ High sense of individualism.

§ High mobility

§ Great informality

I. “Hard HRM”

In the traditional “soft” approach of HR, personnel specialists deal

with hiring, training, communicating, motivating, and promoting. “Soft”

HRM is analytically based on the study of individuals and organizational

behavior.

But more recently, “hard” HR research has been introduced. This

trend has led to the development of a human resource management strategy

based on economics and finance that analyzes people as assets, through the

tools of asset analysis.

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II.1 1st Element of “Hard HR” Analysis: Human Capital

Theory

Human capital theory sees human capital not only as input to

production, but also the output of a production process in which the

organization invests time and resources.19 The approach sees human

resource decisions as investment decisions that can be analyzed in the same

way investments in machines and other capital goods is modeled. Research

in this field resulted in work to noted economists Gary Becker and Theodore

Schultz.20

21 22

Hard HRM helps establish a causational link between personnel

investment and bottom-line business performance.23 This is of critical

19 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 20Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 21 http://www-news.uchicago.edu/resources/nms/becker.jpg 22 http://nobelprize.org/economics/laureates/1979/schultz.gif 23 Gary, Loren. “The New ROI: Return on Individuals.” Harvard Business School Working Knowledge. September 2003.

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importance because 60 to 70 percent of most firms’ expenditures are now

labor related.

Measuring ROI

And yet, according to a study by the consultancy Accenture24, 70% of

executives said they rarely measure the impact of HR expenditures such as

training initiatives on innovation. Nearly 60% of executives never or rarely

measure their effect on employee turnover or employee satisfaction.25

By not evaluating the effects of HR initiatives of performance, these

companies forgo the knowledge of the return on investment (ROI) on one of

their largest investments, human resources.26 27 54% of managers know the

return on investment on their companies aggregate investment in human

capital not at all, or only to a minimal extent.28 Only 10% claim to know it to

a great or considerable extent.

24Gary, Loren. “The New ROI: Return on Individuals.” Harvard Business School Working Knowledge. September 2003. 25 Gary, Loren. “The New ROI: Return on Individuals.” Harvard Business School Working Knowledge. September 2003. 26 Casey Ichniowski, K. Shaw, and G. Prennushi, “The Effect of Human Resource Management Practices on Productivity,” American Economic Review, 1997, vol. 87, 291-313 27Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 28 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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The reason for this lack of knowledge lies in the inability of

companies to measure and assess the effects of investments in the labor

force. 29

The return on direct and indirect human capital investment (HCROI)

can be defined as:

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HCFCC is Human Capital Cost Factor = Pay + Benefits + Contingent labor

costs + Absenteeism costs + Turnover costs.31

In practice, measuring HRM’s effect on business and linking direct

effects of HRM practices to bottom-line results can be difficult. One can try

to determine the impacts of HR initiatives on measurable items such as time

savings, quit-rates, productivity, and customer satisfaction, and then assign a

specific monetary value to the gains or losses in each area.

29 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 30 Fitz-enz, Jac. The ROI of Human Capital. New York: AMACOM, 2000, pp. 46-49. 31 Fitz-enz, Jac. The ROI of Human Capital. New York: AMACOM, 2000, pp. 46-49.

1)expensesother (−

+−=

HCCFHCCFrevenueHCROI

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Time savings can be calculated by multiplying the number of hours

saved by the workers’ average hourly salary. Production gains are valued at

the monetary value of the extra goods produced. 32 33 34

Some values are measured indirectly. For example, a study at a

telephone company showed that every 1% improvement in employee

satisfaction boosted customer satisfaction by 0.5%. Customer satisfaction is

in turn associated with lower churn and greater consumption. One could

therefore measure the cost of raising employee satisfaction and link it with

the estimated value of customer satisfaction in terms of added revenues, and

then estimate an ROI.35

The pharmaceutical firm Merck designed tools to measure the

causation between its investment in employees and results. It developed a

system that assigns a dollar value to a measured performance of an

employee undergoing training, and could therefore determine the ROI of

specific training programs.36

32 Bartel, Anne. “Productivity Gains from the Implementation of Employee Training Programs,” Industrial Relations 33, 1994, , 411-425 33 Ichniowski, Casey, K. Shaw, and G. Prennushi, “The Effect of Human Resource Management Practices on Productivity,” American Economic Review 87, 1997, 291-313. 34 Mitchell, D.J.B., D. Lewin, and E. Lawler. “Alternative Pay Systems, Firm Performance and Productivity,” in A. Binder (ed.), Paying for Productivity (Washington, DC: Brookings Institution, 1990, 15-88). 35 Using GTE Gary, Loren. “The New ROI: Return on Individuals.” Harvard Business School Working Knowledge. September 2003. 36 Gary, Loren. “The New ROI: Return on Individuals.” Harvard Business School Working Knowledge. September 2003.

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In one analysis, Forbes magazine calculated movie stars’ “payback

figure” (in terms of sales of theater tickets and DVDs) as a ratio of the film’s

box office revenue with the actors’ salary. Forbes got a lot of mileage out of

this analysis: an entire cable TV show focused on the Forbes study. In 2007,

Matt Damon had the highest payback figure with $29 of gross income per

dollar of salary, and Jennifer Aniston had the highest payback figure among

female actors with $17 of revenue per dollar of salary.37 On the other hand,

according to Forbes, Russell Crowe was 2007’s worst investment with the

lowest ROI, averaging a mere $5 of revenue per dollar of salary.38

Forbes calculated these figures by this ratio:

ROI = revenues of film salary of star

This methodology, however, is problematic. It excludes, on the one

hand, income to stars generated from profit participation rather than direct

salary, which can be considerable. I.e., the ROI denominator is too low. But

it also excludes the indirect costs of a movie star on other elements of a film

production that must match the star’s “A-list” status. I.e., the ROI numerator

37 Pomerantz, Dorothy. “Ultimate Star Payback.” Forbes. 06 August 2007. Last accessed on 28 June 2010 at http://www.forbes.com/2007/08/03/celebrities-hollywood-movies-biz-cz_dp_0806starpayback.html 38 Pomerantz, Dorothy. “Ultimate Star Payback.” Forbes. 06 August 2007. Last accessed on 28 June 2010 at http://www.forbes.com/2007/08/03/celebrities-hollywood-movies-biz-cz_dp_0806starpayback.html.

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is too high. Also, the film’s revenues in aftermarkets such as pay TV,

airlines, or network TV are not included. I.e. ROI numerator is too low. But

it also attributes the film’s revenues to the star, while it may be the script, the

director, the marketing, and other stars who contributed (ie. ROI numerator

is too high).

Lastly, the calculation is problematic because its time horizon is short

term. Stars who generate high ROI for the studios rarely remain so for long,

since their demands for compensation rise rapidly. This is one of the reason

why even successful TV series often fold: the salary demands of the stars

rise dramatically, and the show, though still popular, becomes unprofitable.39

Applied HR Models

The ROI approach has been applied in a variety of specialized HRM

models. For example, Spencer Stuart Human Capital Market Index (HCMI)

combines the financial and labor market factors; the Watson Wyatt Human

Capital Index establishes the relative value of executive talent; and the

Boston Consulting Group’s Workonomics compares workforce and

accounting measures.40

39 Casey Ichniowski, K. Shaw, and G. Prennushi, “The Effect of Human Resource Management Practices on Productivity,” American Economic Review, 1997, vol. 87, 291-313 40 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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The Spencer Stuart Human Capital Market Index (HCMI) establishes the

relative value of executive talent over time. The index consists of four major

components41:

1) The number of open executive jobs relative to the number of

unemployed executives. This is an indicator of the competitiveness of

the labor market for executive talent.

2) The ratio of the gross domestic product (GDP) relative to the

number of people in the workforce between the ages of 35 and 55.

Executive talent is primarily located in that age bracket.

3) The difference between the high and low stock prices , divided by

the average stock price – this works as an indicator of company-

specific volatility and the value of management is said to increase

with volatility.

41 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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4) The ratio of market value to book value (expression of the value of

intangible human capital). Changes in any of these four main

components leads to changes in the overall index. For example, if the

number of people in the workforce between the ages of 35 and 55

declines, the value of executive talent rises, all else remaining equal.

The Watson Wyatt Human Capital Index (HCI) correlates the

effectiveness of a company’s human capital management with its market

value.42 43 This index collects data from individual surveys to report a

correlation of the index with the financial measures of a company’s

performance.44

The study above identifies 49 specific HR practices that play the

greatest role in creating shareholder value, divided up into six dimensions.

The research quantifies how much an improvement in each practice could be

expected to increase a company’s market value.

The company found the following impacts on the firm’s market value

associated with a one-standard deviation improvement in the following

Huffman capital dimension.

42Watson Wyatt. Watson Wyatt’s Human Capital Index. Human Capital As a Lead Indicator of Shareholder Value. Washington: Watson Wyatt, 2002. 43 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 44 Watson Wyatt. Watson Wyatt’s Human Capital Index. Human Capital As a Lead Indicator of Shareholder Value. Washington: Watson Wyatt, 2002.

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45

Boston Consulting Group’s Workonomics aims to identify workforce

(intangible assets) measures that are the counterparts of traditional (tangible

assets) accounting measures. For instance, a workforce development plan is

the counterpart of a capital investment plan. 46 Workonomics links traditional

measures of employees’ productivity (for example, sales per employee or

employee turnover) with the financial performance of stores and regions,

and with various corporate functions. 47

45 Wyatt, Watson. Watson Wyatt’s Human Capital Index. Human Capital as a Lead Indicator of Shareholder Value. Washington: Watson Wyatt, 2002. 46 Barber, Felix et al. “Quantifying Employee Contribution.” Shareholder Value Magazine: May-June 2002. 47 The Boston Consulting Group. Workonomics: Helping Retailers Value Human Capital. Duesseldorf: The Boston Consulting Group, 2001.

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The method to look at employees’ value-added (EVA) is as follows: 48

§ VAP (Value Added per Person) is a measure of average productivity,

similar to individual ROI

§ ACP is the average cost per person.

The difference is the average profitability per person. Multiplying their

difference by the number of employees, P, gives the profits earned after

deducting the cost of capital. The resulting product is the EVA (Economic

Value Added) or CVA (Cash Value Added) of employees, sometimes

referred to as residual income. 49 50

The Internal Labor Markets Perspective

The 2nd Element of “Hard HR” analysis is the analysis of intra-

company labor flow.

An Internal Labor Market (ILM) map visually shows the internal

mobility patterns in the human capital structure , and the entries and exits

48 The Boston Consulting Group. Workonomics: Helping Retailers Value Human Capital. Duesseldorf: The Boston Consulting Group, 2001. 49 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 50 Barber, Felix, et al. “Quantifying Employee Contribution.” Shareholder Value Magazine: May-June 2002.

EVAPACPVAP =•− )(

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from a company 51 For example, an internal labor market pattern may reveal

the effectiveness of the company’s compensation structure. A compensation

system is likely to be too low if many mid-level and low-level employees

leave in order to work elsewhere, especially at comparable organizations.

One such analysis, by the HR consultancy Mercer, maps the flow of

the workforce. This can be seen in the figure below, of a real company,

anonymized as TechCo.

52

51 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 52Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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What does the map show? The horizontal bars show the number of

employees at that particular level. For example, there are 333 employers at

the bottom level (1). Of this, many move up to level 2. In that level, there are

also 299 other people, while 181 employees leave from level 2 to other

employment, but recruiting it from the outside. The large bulge in the middle

bars indicates that the largest group, 2093 people, (comprised of mostly

engineers in level 3) is mid-level. Level 3 is a career “choke point”, as the

probability of moving up is low at 5.8% per year and even less when

demotions (2.2%) are taken into account.53 One can also observe that a high

share of employees at levels 4 and 5 are new hires from the outside. This is

a sign that the company is not developing managerial talent internally, but

recruiting from outside.54

Other ILM maps could be developed to show the proportions and

mobility of employees at each level according to gender, race, and

profession (e.g. engineering). Similarly, these kinds of maps can be used to

statistically analyze turnover, promotions, pay levels, and impacts of

individual performance.55

53 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 54 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 55 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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The 3rd Element of “Hard HR” Analysis: Finance Theory

II.3 Risk Sharing Models

An employee’s compensation is based on four factors. The last two will be

covered now, the rest later.

1. Supply and demand for the skill

2. Organized employee bargaining

3. Risk

4. Incentive structure

Risk is allocated across an organization and all the stakeholders within

the organization bear some of it. Investors may lose money, while

employees may lose jobs, buyers may get a faulty product, and suppliers

may not be paid. It is the role of negotiations and transactions to allocate

how much risk should be borne by various stakeholders.

The risk of financial securities can generally be decomposed into 3

components: overall market risk, industry specific risk, and firm-specific

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risk.56 Market risks cannot be reduced by either investors or employees.

They are given. The economy may crash. Energy prices may go up. A war

may start. In contrast, Industry and firm-specific risks, are at least partly,

subject to managerial control.

The three components of volatility can be decomposed. General

market volatility can be readily measured from an index of stock market

performance (e.g., Standard & Poor’s 500). Industry volatility can be

measured by an index of peer group stock market performance. Company-

specific volatility is the remaining “residual” volatility.57

We can use this approach to UK media companies. The chart below

shows the composition of risk of media companies in the UK.58

56 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 57 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 58 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

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59

The chart149 shows that of UK media companies, Sky, WPP, Granada,

and Reuters exhibit high levels of market and industry risk, but relatively

low levels of firm-specific volatility. This would argue against a

compensation mix with stock-based rewards by these companies.60 There is

no point in rewarding or punishing employees for performance that is

significantly linked to the overall economy or to the industry, rather than the

performance of the firm itself.

In contrast, the media firms Reed and EMI have high levels of firm-

specific risk, and stock or stock options would provide more effective

59 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 60 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

0

40

80

120

160

200

Daily Mail Pearson Reed Granada WPP Sky EMI Reuters

Volatility and Decomposition in FTSE 100 Media Companies

Market Volatility Industry Volatility Firm Specific Volatility

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incentives to employees.61 The performance of employees at these

companies would have a close link to the rewards they receive.62

Where there are high levels of market risk, the effectiveness of variable

rewards will be low. Things like bonuses or stock options will be costly but

will not be strong incentives.63

Thus, companies must develop risk-adjusted measures of performance

and determine how much systematic risk they want their employees to bear.

The question is then, whether all of the systematic risk, both the economy-

wide and the industry-wide, should be borne by investors. Employees face a

greater risk than most shareholders, because their jobs are at stake, not just

their investment. But allocating risk completely to investors would give

employees no incentives to perform well and lead to the problem known as

moral hazard.

61 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 62 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004. 63 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

34

The 4th Element of “Hard HR” Analysis

II.4 Contract Theory

Research in the field of optimal employment contracts64 65 focuses

looks at the effectiveness of fixed wages vs. commission, and the

relationship between group incentives and individual rewards. 66 67 68 Also of

interest is to explain the differences in pay across levels of a company’s

hierarchy.69

“Tournament Theory” is a tool to analyze internal incentives of

promotions.70 This theory provides a way to think about the entire structure

of compensation. Determining a firm’s compensation structure to get

maximum incentive is much like determining the optimal prize for the

winner in a tennis tournament. If the reward for winners is too low, the

incentive to win will be reduced, and top players will not show up. But if the

reward is too high (“winner take all”), the participation incentives will be

reduced.71 Tournament theory looks for the optimal wage spread within an

64 Lazaer, Edward P. Personnel Economics. Cambridge, MA: MIT Press, 1995. 65Spence, A.M.. “Job Market Signaling.” Quarterly Journal Economics 87, 1973, 355-374 66Stiglitz, J.E. “Risk, Incentives and Insurance: The Pure Theory of Moral Hazard,” The Geneva Papers on Risk and Insurance 8, 1983, 4-33 67 Bartel, A. “Productivity Gains from the Implementation of Employee Training Program.” Industrial Relations 33, 1994, 411-425. 68 Ichniowski, C., Shaw, K., & Prennushi, G. “The Effect of Human Resource Management Practices on Productivity.” American Economic Review 87, 1997, 291-313. 69 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.. 70 Edward Lazaer and S. Rosen, “Rank Order Tournaments and Optimum Labor Contracts.” Journal for Political Economy, no. 89, October 1981, 41-64. 71 Edward P. Lazear, Personnel Economics. Cambridge: MIT Press, 1996.

35

organization. The size of this spread depends on the amount of risk

associated with the production environment.72

The wage spread is typically designed to pay young employees less

than what they worth in terms of their contribution, and pay senior

employees more than their value added.73

Workers who are paid less than what they are worth when young are

implicit lenders to the firm.

72 Edward P. Lazear, Personnel Economics. Cambridge: MIT Press, 1996. 73 Edward P. Lazear, Personnel Economics. Cambridge: The MIT Press, 1996.

36

The difference, V0-W0 is an implicit loan that the employee provides

to the firm. The firm will pay it back after t0 when the employee receives

more than he/she is worth.74

One reason to overpay senior employees is not superior performance

when they are older, but rather because this later high compensation was

earlier a motivation factor during the early years of their career. 75 This

implicit deal has increasingly been broken by the firing of older employees

once the value of their product is lower than their compensation. This

results in angry older employees and but it also means a greater need to

reward younger employees to keep them as motivated as before. This is an

extra cost of firing older employees, which rarely gets factored in when the

firm decides to fire the higher-priced senior employees.

Firms in risky industries must offer a large spread of rewards in order

to motivate employees.76 If career risk is low in a particular industry – for

instance, in an industry where people get promoted by seniority and are

rarely fired – then there is no need for the incentive to compensate for the

risk77 and the wage spread will be small. But if the individual career risk is

74 B. Wolff/Dipl.-Kfm. S. Lucas - Human Resource Management [fix citation] 75 Edward P. Lazear, Personnel Economics. Cambridge: MIT Press, 1996. 76 Edward P. Lazear, Personnel Economics. Cambridge: MIT Press, 1996. 77 Lazear, Edward P. Personnel Economics. Cambridge: MIT Press, 1996.

37

extremely high, then the wage spread will be large in order to create

incentives for people to accept the risk.78

Large Japanese firms, which typically used to operate in a less risky –

for employees- environment of “lifetime employment”, could use a narrower

wage spread than American firms.

Steep age-earning profiles are frequent in older, more stable,

traditional firms with established reputation and in growing or stable

industries.79 Flatter age-earning profiles are seen in new firms without

established reputations, and firms in declining industries. These industries

must utilize other incentives to motivate their workforce.80

A company’s reward structure affects not just employees’ job

motivation; it also affects who works for the firm.81 Because rewards signal

what the firm values “over time, an organization becomes what it

rewards.”82

78 Lazear, Edward P. Personnel Economics. Cambridge: MIT Press, 1996. 79 B. Wolff/Dipl.-Kfm. S. Lucas - Human Resource Management 80 B. Wolff/Dipl.-Kfm. S. Lucas - Human Resource Management 81 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.. 82 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004.

38

Star Compensation

Creatives’ incomes too, are much more unequally distributed than

incomes in most endeavors. For performers, the “tournament” profile of

compensation for the vast number of aspiring/struggling performers, and the

few “A-list” stars is extraordinarily steep. To alleviate this differential on the

low end, actors in TV, film and professional theater and music performers

are paid the minimum wage negotiated by the union, called the “scale.”

Otherwise, the tournament would be still steeper. One study (though from

1979) found that artists on average earned 6% less than all employed people.

When adjusted for other factors such as education, experience, health,

regional location, and demographic properties, the average difference in

earnings increases to 10.3%. But this is not a huge difference.83

Low compensation and high risk are accepted nevertheless because of

the high level of utility of personal satisfaction inherent in their careers.

When this utility is factored into minimum acceptance pay, creatives’ pay

should average less than regular jobs. If creatives overestimate the odds for

personal success – which they usually do – then their average earnings will

be even lower.84

83 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 84 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

39

Pay differentials in media are especially high due to an over-supply of

talent, as well as due to an incentives structure where the few “winners”

receive the majority of the reward.

For example, the over-supply of creative talent can be seen in the

music field. Each year, about 14,000 students from American music schools

graduate with performance degrees, and this number is augmented musicians

who do not enroll in formal complete programs, and by many immigrant

talent. But there are only 250-350 job openings each year in symphony

orchestras.85 The number “stars” in each cohort, in terms of earnings profile,

is much smaller.

A star system exists in music and theatre since at least the 18th

century. In film, the world’s first movie star was Mary Pickford who rose to

fame in the mid-1910s.

Under the old “studio” system in Hollywood, brand-name actors were

effectively the property of the studios, popular actors had long-term

employment contracts. Back then, even top actors rarely made more than

$100,000 per film. The demise of the studio system in the 1950s essentially

made stars free agents, and overtime their salaries rose to reflect their market

value.

85 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

40

Hollywood stars’ compensation is based on bargaining strength. John

Travolta, for instance, earned a significant salary for Saturday Night Fever

in the 1970s. But his salary was a mere $140,000 for Pulp Fiction when he

was washed up. That movie catapulted him back into the limelight and he

subsequently earned $10 million per film. In 2008, his average gross per

movie was calculated to be $60.3 million.

An important element of film compensation was first used for Jimmy

Stewart in an agreement with Universal in 1950, called “profit

participation.” In profit participation, the actor gets a share of profit.86 This

system then spread. “Name” actors in a film may get shares, usually

aggregating to less than 10%.87 The director may get a fixed fee plus a

royalty of 5% or less. Profit participation transforms the stars into a kind of

equity holder or investor that share both the upsides and the downsides.

Arnold Schwarzenegger received a fixed fee of $29.25 million for

Terminator 3, $1.25 million in perks, and 20% of all the gross revenues

produced by the film worldwide after it reached its cash breakeven point.88

But do financial performance incentives matter at star level? Do they

work harder or better if they get 1% of profits? Stars do not want to fail

87 Caves, Richard E. Createive Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 88 Big Picture, The Newtions, Ltd., Inc., 2005

41

artistically and incremental financial incentives do not have a great an

impact on performance quality. But participation contracts encourage an

effort by the star in the marketing of a film by participating in TV talk show

appearances etc.

Profit sharing provides both incentives for creative employees in

addition to being a popular method for spreading risk in creative industries.

In commercial theater from the 1920s to the 1980s, a standard contract

stipulated the author receive a maximum of 10% royalty. For musicals, a

6% royalty was shared among the author, composer, and lyricist.89 Since the

mid 1980s, a new Approved Production Contract limited revenue shares

until investors had recouped.90

The theater author’s royalty is capped at 5% of gross revenue unless

that revenue sufficiently exceeds running costs.91 The director receives a

fixed fee plus a royalty of 5% or less. “Name” actors are entitled to variable

shares that aggregate to less than 10% while producers receive a small 1-2%

royalty for “office expenses.”92

89 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 90 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 91 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 92 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

42

In Buchwald v. Paramount, Hollywood’s profit accounting made

headlines. The movie Coming to America grossed $350 million at the box

office but showed an $18 million loss due to various deduction thus leaving

no profits to share.

There are various ways to depress accounting profits. Overhead

allocations, revenue allocations (such as excluding videocassette sales), and

selling a package of films to a television network with the price allocated

among the individual films all reduce accounting profits.

A profit-sharing contract creates better incentives than a flat-fee one,

but each party to that agreement would still under-investing firms of

individual effort, since they receive back only part of the benefit. Therefore,

the partner needs to contractually commit to optimal levels of effort.93

But are “stars” worth the money?

There are two competing hypotheses regarding whether or not stars

are worth the money they receive. One hypothesis states that stars capture

most of their value in salary, The second states that stars act in that of a

“signaling device” to signal the worthiness of the project to the studio, to

93 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

43

outside financiers, and to reviewers. In other words, stars add credibility to a

planned project and make it happen.

Statistical regression analysis of hundreds of films show that stars and

big budgets are associated with higher revenues but not with higher profits.

Low budget films, have an average greater returns on investment (ROI). A

star’s presence increases the expected revenue of a film but it will not reduce

the riskiness of gross profits (unless the star takes substantial contingent

compensation).

Stars also may be hired because the industry faces uncertainty and

executives wish to be “covered” in case a project fails. Executives may also

care about high visibility instead of profits. The leading reason for over-

payment of stars, however, remains that star projects have a much better

chance of getting funded.

Even the revenue contribution of a star is difficult to predict.94 For

instance, Leonardo Vicario appeared in three films in a single year: Titanic,

The Man in the Iron Mask, and Celebrity.95 Titanic grossed $900 million

worldwide while the soon-following The Man is the Iron Mask grossed a

much smaller $80 million and Celebrity a puny $3 million.96 Julia Roberts

94 Big Picture, The Newtions, Ltd., Inc., 2005 95 Big Picture, The Newtions, Ltd., Inc., 2005 96 Big Picture, The Newtions, Ltd., Inc., 2005

44

starred in My Best Friend’s Wedding, which grossed $127.5 million in

theatrical rentals. Her next movie, also a romantic comedy, Everyone Says I

Love You, earned only $12 million.97

In the music business, artists generally receive most of their

compensation on a contingent basis, as royalties. These are typically 7-12%

of revenues of records sold.98 New artists’ royalties are much lower than

those of an established artist. New artist acquisition by studios and record

companies is therefore pivotal to profitability because they get to keep less

of their earnings from their music.

Are stars paid more because of talent? Rarely is a star’s contribution

unique. In most cases, the star phenomenon is primarily the result of luck

and bandwagon effects. Stars can gain momentum by establishing a small

fan base, whose choices are then mimicked and adopted by other fans. 99

Consumers are uncertain about taste and quality, and many see other

people’s choices as an indicator of likely quality.100

In some creative areas, such as film, TV, and sports, these small differences

in talent result in extreme differences in reward. These minute talent 97 Big Picture, The Newtions, Ltd., Inc., 2005 98 Information cannot be found at source indicated (BMI) but average is in that range. 99 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 100 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

45

differences are rewarded exponentially rather than linearly, resulting in a

highly skewed distribution of rewards (money, professional reputation

etc.).101

The “skewedness” of a distribution is called its “kurtosis.” Industries

can be analyzed based on their distribution of high and low economic

success. An industry with a low kurtosis may be called a “mediocracy” and

everyone gets the average treatment. An industry with a high kurtosis can be

called a “kurtocracy.”102 Like most creative industries, Hollywood is a

kurtocracy where only a few individuals, usually top stars, have immense

power and wealth.103

III. Tough Labor

Thus far, we have discussed elements of the analytical, number-driven

approach of “hard HRM.” These incentive systems primarily target the

upper levels of media companies. We now move to lower levels of media

employment in the second theme of this chapter: “Tough Labor.”

101MacDonald, Glenn M. “The Economics of Rising Stars”. The American Economic Review 78. 102 De Vany, Arthur. Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry, New York: Routledge, 2004, pp. 231-254. 103DeVany, Arthur. Hollywood Economics: How Extreme Uncertainty Shapes the Film Industry New York: Routledge, 2004, pp. 231-254.

46

The media and communications workforce includes three basic types of non-

management employees:

• The industrial workforce employees who produce, install, and fix

IT and telecom hardware and media device networks.

• The crafts workforce It handles the technical skills of film and

TV crafts, print production, and telecom and IT industries.

• The creative workforce consists of content producers and

software and technology creators (“geeks and creatives”)

III.1 The Industrial Workforce

The industrial information sector workforce often involves unskilled, manual

labor working in a mass production setting. One example of this type of

workforce are assembly workers in the IT sector.

104

Employees in the industrial workforce assembling Apple computers.

104 http://www.aiccbox.org/chinaprogress/2007_photos/IMG_1499.jpg

47

One important factor within the industrial workforce is the presence of

labor unions. There are two different types of labor organization: The term

“unions” applies to technical personnel involved in crafts and industrial jobs,

referred to as “below the line” of the budget, while “guilds” represent of

creative personnel who are “above the line”.105 We will discuss the latter

further below.

Furthermore, labor unions within the industrial workforce come in two

types:

• Industry-based labor unions, which represents many workers in

companies within related industries, such as the Communications

Workers of America representing telecom workers in many

companies, and beyond.

• Company-based unions, which represent workers within one

company, regardless of specialty

In the U.S, there are four major “below the line” unions for telecom, IT, TV,

and film industries:

• Communications Workers of America

105 http://www.museum.tv/archives/etv/U/htmlU/unionsguilds/unionsguilds.htm s

48

• CWA includes also the National Association of Broadcast Employees

and Technicians (NABET), which is the exclusive bargaining agent

for personnel at most major, NBC TV networks (ABC, NBC, Fox,

PBS), and many local TV stations in large cities. 106 CWA also

represents journalism

• International Brotherhood of Electrical Workers (IBEW). Represents

100,000 telecom workers. IBEW is also the bargaining agent for

300,000 personnel at CBS, Disney, HBO, and several independent TV

stations.

• International Alliance of Theatrical and Stage Employees (IATSE)

500 local chapters, mainly on the West Coast.

The strength of unions, however, has declined in America, when

industrial economy transitioned to a services-based one. In the American

economy more generally, unionization has dropped from its peak in the 40s

of roughly 35% of the labor force to about 12.1% as of 2007.107 And many

of these are public employees, not private sector workers.

106 Batt, Rose; Katz, Harry C.; and Keefe, Jeffrey H. “The Strategic Initiatives of the CWA: Organizing, Politics, and Collective Bargaining” Cornell University, October 31, 1999. Last accessed on July 20, 2010 https://mitsloan.mit.edu/iwer/pdf/tfbatt.pdf 107 Freeman, Sholnn “Union Membership Up Slightly in 2007” Washingtonpost.com. January 26, 2008. Last accessed on July 20, 2010 at http://www.washingtonpost.com/wp-dyn/content/article/2008/01/25/AR2008012503076.html

49

For communications and public utility companies, the percentage of

unionized workers in has continually dropped since the early 1980s from a

high of 42.4% to 21.8% by the early 2000s. This steady decline reflects the

industry’s deregulation and the shrinking work force at the heavily

unionized traditional companies. Despite this dramatic drop, unionization in

this industry is still much higher than in the service industries more

generally, where union membership is at 5.7%.108

In 2005, about 17.3% of employees in the wireless industry were

represented by a union. In the cable TV industry, it was 4%.109

Unions protect represented workers and raise wages, and reduce

competition among workers, but they can also reduce employment

opportunities for those without jobs. It becomes more expensive to hire, and

candidates require more experience to be hired for the better-paying jobs.

The following chart shows the effect of unionization on telecom

industry compensation in the U.S, in thousands of dollars: As the chart

shows, union workers earn more than non-union workers.

108 Richtel, Matt “In Wireless World, Cingular Bucks the Antiunion Trend” The New York Times February 21, 2006. Last accessed on July 20, 2010 at http://www.nytimes.com/2006/02/21/business/21union.html?scp=4&sq=cable&st=nyt 109 Richtel, Matt “In Wireless World, Cingular Bucks the Antiunion Trend” The New York Times February 21, 2006. Last accessed on July 20, 2010 at http://www.nytimes.com/2006/02/21/business/21union.html?scp=4&sq=cable&st=nyt $10

$30

$50

$70

$90

Operator Services

Residential Consumers

Small Business

Middle Market

$39 $43

$59

$21

$34 $43

$81

Union Non-Union All

50

Higher wages also lead to lower labor mobility. 80% of telecom

technicians have worked more than 10 years with the same firm. These

workers have a much greater commitment to their company.

In contrast, the IT industry experiences greater labor mobility. An

Information Week survey indicates that the majority of IT workers had been

with their then-employer for less than four years and expected to change

jobs within three years. More than 40% of employees considered themselves

“on the market” for new employment.110

Union participation also raises work skills by engaging

apprenticeships, training and certification programs that provide members

with practical specialty skills. 111

The industrial workforce in media and communications sectors has

been facing several fundamental problems. Jobs get off-shored and

outsourced to lower-cost environments. Competition – domestic and global

– has increased pressure on labor costs.

110 Florida, Richard. The Rise of the Creative Class and How It’s Transforming Work, Leisure, Community and Everyday Life. New York: Basic Books, 2002, p. 104. 111 “Constructing the Future.” IBEW Journal, April 2000, 12-14. Last accessed on 16 June 2010 at http://www.ibew.com/articles/00journal/0004/.Ap00Future.pdf.

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The average number of employees in telecommunications industries

sector peaked in 2001 for employees in telecommunications at 1.3 million.

Telecom jobs have dropped each year, by 115,000 in 2001 and by 105,000

in 2002. Since then, the annual drop has been around 50,000 a year.

For telecom centers, the trend has been one of outsourcing. Many of

these traditionally domestic call centers are being consolidated and moved

off-shore.112 The employment level in the communications equipment sector

dropped from 250,000 to 150,000 four years later.

112

Average Number of Employess in Telecommunications Industry (Thousands)

980 973 946 942 961 976 9971060

11081180

12631302

1187

10821035 999 973

672 663 637 626 622 611 603 630 652688 719 732

651579 548 514 478

36 42 48 56 9072

144132110160 186 200192189190197201

8780767370 711029795 111 123 129 130 133 130 134 144

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Telecommunications Wired Telecom CarriersWireless Telecom Carriers Cable & Other Program Distribution

52

The boom-bust cycle, and the shrinking of wages and employment

that goes with it, often results in union unrest and strikes. For instance,

Verizon employees struck in 1998, 2000, came close in 2003.113

Employees of France Telecom went on strike in 2009 in response to

“inhumane and stressful conditions” which led dozens of employees to take

there own lives, and the company made concessions.114 In India, 300,000

workers threatened a strike in 2010 in protest of a restructuring of a state-

owned telecommunication firm, BSNL, which included in a 30%

disinvestment from the state.

III.2 The Crafts Workforce

The crafts workforce consists of skilled, technical, and artisan workers

who make creative judgments. In the early days, such unions were partly

benevolent societies that were created as learning and service organizations.

The purpose of these unions was also to maintain high standards of quality

and reduce competition within each craft.

113Jander, Mary “Verizon Strike Averted (for Now)” August 1, 2003. Last accessed on July 20, 2010 at http://www.lightreading.com/document.asp?doc_id=38044 114Gupta, Sarthak “France Telecom workers strike after wave of suicides” October 6, 2009 Last accessed on July 20, 2010 at http://www.topnews.in/france-telecom-workers-strike-after-wave-suicides-2221281

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Union-negotiated work rules can be onerous, and may involve several

specialized craft unions, all with their work rules and jurisdictions. This

affects labor costs.

Labor costs are lower in Canada and Australia than in the U.S. This,

plus the government subsidies and tax breaks, have contributed to “runaway

production”, moving from Hollywood to Canada, other countries, and less-

expensive US locations.

The share of U.S. developed film and television productions produced

abroad increased in the 1990s from 14% to 27%. It is possible to producing a

film for 40% less in non-union or flexible-union territories than in the

highly-unionized Hollywood film industry. In response, rules were relaxed

so that producers could make low budget nonunion movies and TV shows as

long as the studio has no creative control. There are also other non-union

arrangements within Hollywood itself

In the printing industry, printers in New York created a fraternal

organization as early as 1793.

Ever since, the newspaper industry has a stormy history of industrial union

conflicts. Typesetters were once powerful and were regarded as part of the

aristocracy of labor. But, the increase in automated typesetting without hot-

54

metal composing threatened employment. As a result, strikes became

frequent.

The New York newspaper strike in 1962 shot down 8 New York daily

newspapers. After almost a few months, the strike ended with the ratification

of a new 2-year contract.115 Partly as a result, several newspapers closed

down for good, such as the New York Daily Mirror and the Herald

Tribune.116

To protect their members, these unions in 1973 negotiated a new

contract, in which the printers agreed to let their jobs be phased out by

automation in exchange for the guarantee each present employee could

remain employed with their companies for life.117

In the U.K, newspaper strikes were frequent. A key battle was the

“Wapping dispute” in 1986, as 6,000 workers went on strike against Rupert

Murdoch’s News International and several other newspapers, including The

Times, Sunday Times, The Sun, and News of the World.118 The 6,000 union

workers who went on strike were immediately fired. The entire production

operations of Murdoch’s major papers were then transferred overnight from

115 "N.Y. Newspaper Strike Settled After 114 Days." The Los Angeles Times. 1 April 1963, p. 1. 116“Newspaper Strike Changed Many Habots but Left No Lasting Marks on Economy” December 8, 1963. Last accessed on July 20, 2010 at http://select.nytimes.com/gst/abstract.html?res=F40F17F83C5B1A7B93CAA91789D95F478685F9&scp=1&sq=&st=p 117 Rivera, Ray. “Bertram Powers, Leader of Newspaper Printers, Dies at 84.” New York Times, 25 December 2006. 118 Pilger, John. Hidden Agendas. New York: The New Press, 1999.

55

Fleet Street in London to a new plant at Wapping (East of London), which

had been secretly built with the pretense of being the site of a new

newspaper, and using members of another union (GG & PU).119

The other unions continued to strike for a year but lost. This

confrontation broke the power of UK print unions. Part of Murdoch’s

success was due to his supportive relationship Margaret Thatcher’s

government which was anti-union.120

In 2007, stagehands on Broadway went on strike, the longest on

Broadway since 1975. Most shows closed down during the peak Christmas

season.121 On the other side of the negotiating table was the League of

American Theatres and Producers, which bargains for employers with 17

craft unions, guilds, and other associations.122

III.3 Creatives’ Workforce in the Media Industries

In the U.S media industry, many of the artists and performers (ie. creative

talent) belong to “above the line” guilds and unions, such as:

• American Federation of Musicians (AFM),

119 Pilger, John. Hidden Agenda.s New York: The New Press, 1999. 120 Pilger, John. Hidden Agendas. New York: The New Press, 1999. 121 http://www.nj.com/entertainment/index.ssf/2007/11/11-week/ 122 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000

56

• American Federation of Television and Radio Artists (AFTRA),

• Actors Equity Association, and

• Screen Actors Guild.123

• Writers’ Guild of America

• Directors’ Guild of America

• Songwriter’s Guild (SGA).

In Australia, over 22,000 employees in the media and entertainment

industry are members of the Media, Entertainment and Arts Alliance

(MEAA). Live Performance Australia represents a variety of creatives in

the live entertainment sector, including performers in dance, theatre, and

opera. 124

Theater guilds originated in the 19th century , often to assure an

escrow arrangement by which managers guaranteed the payment of salaries,

even if a show closed down. In the past, actors became regularly stranded in

in distant towns when a show closed down unexpectedly.125

123 Baskerville, David. “Unions and Guilds” Music Business Handbook & Career Guide. 8th Ed., 2006: 181 – 190. 124 Policy & Strategy. Last accessed on July 21, 2010 at http://www.liveperformance.com.au/default.aspx?s=policy_strategy 125 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

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The Actors’ Equity Association, founded in 1913 established some of

the following terms: required bonds for salaries, paid travel costs for road

shows, arbitration of contract disputes, two weeks notice or salary for

dismissals after probation period, and a time limit on unpaid rehearsals.

Theater unions in the U.S are often in conflict with one another and

often may decline to join have each others’ picket lines. Many national tours

of Broadway shows are not in contracts with Actors’ Equity or the American

Federation of Musicians, and instead are associated with rival unions.126

Just as in theater, in the early days of film working conditions were

unregulated. Many actors worked up to sixteen hours a day without

overtime, retirement pensions, health insurance or safety regulations. They

were subject to firing without recourse, and artists were traded around

among different studios. Film unions negotiate contracts with the studios’

bargaining organization, the Alliance of Motion Picture and Television

Producers (AMPTP).

The best known artists’ union is the Screen Actors Guild (SAG),

established in 1933. SAG negotiates with studios over long-term

engagement contracts, compensation for new digital distribution, and work

126 Brown et al.: Wonderful Town: The Future of Theater in New York. National Arts Journalism Program, New York, 2001.

58

rules.127 In 2001, actors with speaking parts were guaranteed by SAG rules

to earn at least $617 per day on big-budget films and $466 per day on low

budget (i.e. less than $2 million) films. Extras earned $100 per day. For

instance, if an actor worked on 2 films in a year for 5 days each at “scale”,

he would earn $6,170 before deductions.

The Writer’s Guild of America is another prominent and powerful

“above the line” guild. SWG represents between 9,000 to 12,000 movie and

TV writers. Of these, several hundred of whom make serious money. A top

screenwriter may earn as much as $2 million per movie in addition to a

percentage of the profits.128 About 2,500 writers earn enough to support

themselves solely from writing. But most writers are part-timers with small

incomes. 129

These film and television writers went on strike over reduced payment

for hour-long shows and for reruns and exports to foreign countries.130 The

strikes shut down the industry for 5 months. Other unions -- actors,

hairstylists, and cinematographers also joined the strike in support. The

strike forced networks to postpone the fall TV season.131 Another prolonged

127Baskerville, David. “Unions and Guilds” Music Business Handbook & Career Guide. 8th Ed., 2006: 181 – 190. 128 Susman, Gary. “We Call It Martian Accounting.” The Guardian, 31 August 2001. 129 Lazarus, Paul N. The Movie Producer. Harper & Row Publishers, 1985. 130http://en.wikipedia.org/wiki/1988_Writers_Guild_of_America_strike 131Lazarus, Paul N. The Movie Producer. Harper & Row Publishers Inc. 1985

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Writers Guild of America strike took place in 1960 and lasted for 21

weeks.132

Still another strike in 2007-2008, writers demanded a payment

increase for movies and television shows released on DVD and the Internet.

The strike ended after 100 days.

The Directors Guild of America represents 5,000 directors.133 In 2001,

film directors were guaranteed by the collective bargaining agreement to

earn at least $12,100 per week on features budgeted over $1.5 million and

$8,647 per week on features budgeted between $.5 million and $1.5

million.134

Directors are also guaranteed at least 8 weeks of work per low-budget

film and 10 weeks on each big-budget film. While a small-budget film

director will earn at least $69,000, top directors can earn over $3 million in

addition to a percentage of the revenue.135

There is even a union for producers- Producers Guild of America

(PGA) a labor union representing 4,000 upper and middle managers.136

132http://en.wikipedia.org/wiki/1960_Writers_Guild_of_America_strike 133Cinema Design, Inc., Los Angeles. [source not verified] 134Susman, Gary. “We Call It Martian Accounting.” The Guardian, 31 August 2001. 135 Susman, Gary. “We Call It Martian Accounting.” The Guardian, 31 August 2001. 136 About Us. 2002 Producers Guild of America. http://www.producersguild.org/pg/about_a/default.asp 18 March 2004.

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In the U.S., journalists are often represented by the Newspaper Guild,

founded in 1933,,when journalists observed that organized truck drivers

made much more money than they did. In 1987, the union had 34,828

members, but membership declined, and in 1995, it merged into the

Communication Workers of America (CWA).

The union's presence is still not welcome with publishers. The

American Newspaper Publishers Association went on record in the 1980s as

being committed to “wherever applicable, a union-free environment.”137

Even with unionization, journalist salaries sre low. At the Washington

Post, for example, after 5 years the top minimum weekly salary was $1,002

in 2002. Smaller papers paid even less. Jobs are under pressure as circulation

and ad revenues decline and publishers cut costs.

The following chart shows reporter/photographer top minimums in 2002 at

daily newspapers represented by the Newspaper Guild, after 5 years of

employment:

Contracts: Top Min.

Boston Globe 1,260.16

New York Times 1,445.17

137 Herrick, Dennis F. Media Management in the Age of Giants: Business Dynamics of Journalism. Ames, IA: Blackwell Publishing Professional, 2003, p. 74.

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Philadelphia Inquirer 1,197.47

Washington Post 1,002.30

San Francisco Chronicle 1,070.22

Utica, N.Y. 387.50

Montreal, Quebec 1,166.00

Ottawa, Ontario 1,142.42

Journalism outsourcing has become a rising trend in the industry.

Thomson Reuters outsources some of its Wall Street news reporting to India.

The company planned to move about 10% of its workforce (1,800 workers)

to Bangalore by 2006 and move some production departments to Singapore.

These outsourced production departments include the editing, writing, and

data extraction departments.138 This led to protests and picket lines.

In Canada, 280 workers at Le Journal de Quebec held a 438-day

strike from 2007 to 2008, one of the longest in Canadian history. This was

prompted by tabloid Sun Media locking out 140 editorial workers due to

labor disagreements over longer working hours.139

138Chepesiuk, Ron. "Now a part of the story." The Daily Star, 5:356, May 29, 2005. 139 Surridge, Grant and Malhomme. Stephane. “438-day Journal de Quebec strike over; Convergence of media in Quebec key issue.” National Post's Financial Post & FP Investing. Ontario, Canada, July 3, 2008.

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Unions in Music and Dance

The American Federation of Musicians (AFM) is the oldest union in

the US arts scene and represents professional instrumentalists.140 The AFM

was established in 1896 to prevent the hiring of out-of-town musicians who

would then compete with locals. In 2008, the union represented over 90,000

musicians. Employers are now required to charge traveling musicians an

extra union charge. The AFM has unionized major symphony orchestras.141

Automation replacing musicians is not a new phenomenon. Recording

technology began displacing live musicians in the 1920s. Over the past 50

years, hundreds of thousands of music jobs have been lost due to

technology.142 In recent years, musicians have been facing increasing

displacement by synthesizers and electronic instruments, creating a “virtual

pit orchestra” as band enhancements. 143Production of music recording has

also become more automated through multi-tracking, synthesizers, and the

digitization of the process.

140Baskerville, David. “Unions and Guilds” Music Business Handbook & Career Guide. 8th Ed., 2006: 181 – 190. 141Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 142Glasel, John, “Automation Drains Musical Gene Pool” Billboard. New York: Oct 15, 1988. 143 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

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A strike of the New York Philharmonic Orchestra was narrowly

avoided in 1995 144 The agreement raised the minimum salary of orchestra

members from $71,760 to $81,120. “First Chairs” salaries was in the six

figures. This agreement made the New York Philharmonic the highest paid

orchestra in the U.S. 145

The ballet company of the New York Metropolitan Opera has a pay

structure that includes straight hourly rehearsal rates and performance extras.

The straight rehearsal rate for 2010/11 is a minimum of $56.65.146

The performance bonus for a principal solo part in 2010/11 is

$372.66, while the bonus for an intermediate part is $248.41.

In Italy opera performances were canceled in 2010, opera theater

workers went on strike to protest budget cuts from the government.147 The

government claimed that actors were accepting double salaries, and working

as little as 16 hours in a week. Actors were receiving bonuses for simply

holding a prop or object on stage.

144http://query.nytimes.com/gst/fullpage.html?res=990CE4D71F39F934A35753C1A963958260 145 http://query.nytimes.com/gst/fullpage.html?res=990CE4D71F39F934A35753C1A963958260 146 "The Memorandum of Agreement 2006-2011.” 24 June 2005. Musicalartists.org. Last accessed on 16 June 2010 at http://www.musicalartists.org/agreements/MET2006-2011_MOA.pdf. 147“Italian opera houses hit by strike” CBC News, May 2, 2010. Last accessed on July 22, 2010 at http://www.cbc.ca/arts/theatre/story/2010/05/02/opera-strike-italy.html

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Media unions exist around the world.148 The United Kingdom has the

Broadcasting Entertainment Cinematograph and Theatre Union, which was

formed in 1991 and now represents over 26,500 members.149 The Korean

Movie Worker’s Union was founded in 2005 with 320 members as the

country’s first film union. In 2006, over a thousand Korean film stars,

production staffers, and local artists rallied to protest the government’s

change to the screen quota system, which protects Korean movies from

foreign competition.

In 2008, a big one-day strike since 1974 in the French television and

radio sector took place. Six unions representing 11,000 TV network staffers

and 4,000 public radio station employees walked out in protest over

President Sarkozy’s plans to ban advertising from public TV channels,

which would cost these public channels over $1 billion a year in revenue.

This leads to the following question: Why is there such strong unionization

in media crafts and among media creatives? There are at least four factors:

money, an oversupply of talent, stress, and the need for respect.

Oversupply: The supply of aspiring artists is in elastic. The high level

of competition for jobs in the sector depresses the average wage earned from

148 More information about worldwide media unions can be found at http://www.xpdnc.com/links/fednat.html. 149http://www.bectu.org.uk/index.html

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creative work below the wage of regular labor.150 One of the functions of

unions is to reduce entity, and to limit competition, especially from people

who just want to work for the experience.

Money: Do talent guilds raise income? They do to some extent, but

they have a smaller impact on compensation or creatives than the craft

unions. These talent unions have less bargaining power and less cohesion.

Individual talent is more likely to cut their own deals.

Stress: The high level of stress in creative fields may be due to several

factors, such as risk, long periods of unemployment and job search, intense

competition, frequent rejection, an often short productive life as an artist

(especially in music, film, and dance), and long, irregular work hours as

actors. Musicians and actors experience higher stress levels due to their

grueling schedules. They typically rehearse during the day, perform at night

and on the weekends, and spend time away from home.151

Technicians at TV stations and the networks usually work under

tremendous pressure to meet deadlines. Overtime is common.152 TV

stations require technicians to work evenings, weekends, and holidays.153

150Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 151 U.S. Department of Labor, Bureau of Labor Statistics. “Musicians, Singers, and Related Workers.” Occupational Outlook Handbook. <http://stats.bls.gov/oco/ocos095.htm> 152http://www.bls.gov/oco/ocos109.htm 153http://www.bls.gov/oco/ocos109.htm

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Journalists are in the same situation. They face the constant pressure

of deadlines and a competitive work environment, coupled with at times

dangerous work conditions(more than 1,000 journalists and similar media

persons have been killed over a span of 10 years).154

Respect and recognition by intelligent and articulate people is another

important factor, and unions help to reduce the lack of respect from the

management (the “suits”). Writers have often written about and exposed the

inner workings of Hollywood film studios. Examples include Budd

Schulberg’s What Makes Sammy Run, F. Scott Fitzgerald’s The Last Tycoon,

Nathanael West’s The Day of the Locust,155 and William Faulkner’s Golden

Land. They expressed contempt, if not outright loathing, for the values of

studios or rather their management.156 This same contempt also pervaded

several movies about Hollywood such as The Big Knife, The Bad and the

Beautiful, Barton Fink, The Players, and State and Main.157 Studios are

generally portrayed as organizations run by philistines maximizing their

154Giga, Sabir I., Hoel, Helge, and Cooper, Cary L. “Violence and stress at work in the performing arts and in journalism.” Sectoral Activities Programme. University of Manchester Institute of Science and Technology, June 2003. 155 Epstein, Edward Jay. “The Big Picture, The New Logic of Money and Power in Hollywood,” New York: E.J.E. Publications., 2005. 156 Epstein, Edward Jay, “The Big Picture, The New Logic of Money and Power in Hollywood,” New York: E.J.E. Publications, 2005. 157Epstein, Edward Jay, “The Big Picture, The New Logic of Money and Power in Hollywood,” New York: E.J.E. Publications, 2005.

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earnings on the back of the writer’s integrity.158 Unions are thus, in part, a

response by employees to stand up to a management that is not respected.

III.4. Unions in the ‘New Economy’

The image of Silicon Valley culture is egalitarian and democratic,

with employees offered ownership in the company and opportunities for

advancement.159 Nevertheless, employees of dot-com companies began to

organize.160

High-tech unions however, face considerable resistance. This

resistance comes primarily from high-tech entrepreneurs who feel that the

union-imposed restrictions and traditional business style threatens the

entrepreneurial and collaborative essence of their companies.161

Another issue is freelancers. Microsoft was involved in labor disputes

in 1999 over this.

A third of Microsoft’s workforce of about 6,000 people were

“permatemps.” This gave Microsoft and other tech firms like Intel and HP

158Epstein, Edward Jay, “The Big Picture, The New Logic of Money and Power in Hollywood,” New York: E.J.E. Publications,, 2005. 159Girard, Kim. “Unions? Not in this Valley.” September 2003. Fast Company. Last accessed on 16 June 2010 at http://www.fastcompany.com/magazine/74/unions.html 160Greenhouse, Steven. “The First Unionization Vote by Dot-Com Workers Is Set.” The New York Times, January 9, 2001, p. C4. 161Girard, Kim. “Unions? Not in this Valley.” September 2003. Fast Company. 25 March 2004. http://www.fastcompany.com/magazine/74/unions.html

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flexibility, but created of high levels of employee insecurity.162 The primary

concern of “permatemps” in particular is that despite high take-home pay,

they lack benefits such as medical coverage, and job security. As worker

demands expanded, the Washington Alliance of Technical Workers

(WashTech) began to unionize these “permatemp” white collar tech

workers.163 In the case Vizcaino v. Microsoft, an Appellate Court ruled that

the workers Microsoft hired as “independent contractors” were actually

common law employees and were thus entitled to the same access to pension

plans and other benefits that formal employees enjoyed.164 Other factors

contributing to dissatisfaction include the perception that middle-aged

workers are obsolete, changes in employee ratings system and termination

policies, disparity in pay to executives, and decreased job security.165

In response, some employers created access arrangements for health

insurance. The Motion Picture Health and Welfare Fund in the film industry

serve as a model for providing benefits in project-oriented industries such as

software development.166

162Pederson, April. “Should High-Tech White Collar Workers Unionize?” 6 June 2000. Speak Out. Last accessed on 16 June 2010 at http://speakout.com/activism/issue_briefs/1284b-1.html. 163Pederson, April. “Should High-Tech White Collar Workers Unionize?” 6 June 2000. Speak Out. Last accessed on 16 June 2010 at http://speakout.com/activism/issue_briefs/1284b-1.html. 164 Muhl, Charles J. “What is an Employee? The answer depends on the Federal Law.” Monthly Labor Review, Jan. 2002 165 Fraser, Jill Andresky. White-Collar Sweatshop. New York: W.W. Norton and Co, 2001, p.140. 166Batt, Rosemary, Susan Christopherson, Ned Rightor and Danielle Van Jaarsveld. “Work patterns and workforce Policies for the New Media Industry.” EPI Book. February 2001.

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A growing threat to the labor force in the ‘new economy’ is

outsourcing and off-sharing. Software developers earn $60/hr in the US and

$6/hr in India, on average167. There is also an immigration of talent. From

2001 to 2003, about 180,000 new skilled workers entered the U.S. to join the

computer field.168 The Programmers Guild attempts to combat foreign

competition by resisting a variety of tech visas which would allow foreign

workers to work in the US.

III.25. Productivity in the Media

In order to understand productivity and its trends, one must be able to

answer the following questions:

A. How is productivity defined and measured?

B. What are productivity trends?

C. How can productivity be increased?

167Citation needed 168Francis, David R. “Endangered species: US Programmers.” The Christian Science Monitor. 14 October 2004. USA Today Tech Investor. Last accessed on 16 June 2010 at http://www.usatoday.com/tech/ techinvestor/industry/2004-10-14-programming-jobs_x.htm.

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Productivity has different definitions in different fields. For our purposes

we will define productivity (P) as the ratio of output (Y) to input (X).

P = Y/X

Input categories include capital, labor, energy, intermediate materials, and

sometimes purchased services.169 If one uses only a single-factor to

calculate productivity, such as that of labor, one would omit the

contributions of the other factors like capital (eg. machinery). The better way

therefore is to use “total factor productivity” (TFP), defined as the combined

productivity of all inputs, Xi.

There are many different models that have been used for the econometric

estimation of productivity growth. These include production functions, cost

functions, and translog function.170

Several studies on productivity have been conducted. In the network

services sector, Nadiri, Schankerman, Denny, and Fuss studied the

169Owyong, David T. “Productivity Growth: Theory and Measurement.” APO Productivity Journal, 2001. 170Owyong, David T. “Productivity Growth: Theory and Measurement.” APO Productivity Journal, 2001.

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productivity of the telecom industry171. Eli Noam conducted a study on the

cable industry. Robert Picard produced a study on the newspaper

industry.172

Productivity is often hard to measure; hence, what outputs should be

taken into account? Differing definitions of output are based on different

measurements, such as the number of physical units manufactured (e.g.

CDs) or sold. There are many possible determinants of productivity such as

the number of films produced, the number of tickets sold, or the numbers of

individual operations (phone calls, keystrokes, lines of code).

A mere physical measure of output unit omits however, a cause

derivation for quality. A “TV set” can be a box-like black and white model,

or a 60” inch home theater. This then suggests the use of value as the output

measure173

Productivity measures tend to work best for blue-collar industries. It

is much more difficult to measure the productivity of managers, for instance,

who make up 25% of US white collar jobs. And the productivity of “black

collar” creative jobs is even harder to measure. Outputs are hard to define

171Nadiri, M. Ishaq and Schankerman, M. A. “Technical Change, Returns to Scale, and Productivity Slowdown” May 1981. Last accessed on July 27, 2010 at http://www.econ.nyu.edu/user/nadiri/pub34.pdf 172“Journal Articles by Robert G. Picard” Last accessed on July 27, 2010 at http://www.robertpicard.net/journalarticles.html 173 Owyong, David T. “Productivity Growth: Theory and Measurement.” APO Productivity Journal, 2001.

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and to measure -- quality differences can also be drastic, resulting in non-

homogenous products that can be hard to compare.

When the physical outputs of media are measured, outputs can include

recording tracks, news articles, minutes of film, numbers of books, words of

such text, and lines of code. Capital must be set as a given, and the stress

must be on incremental production budget inputs in order to calculate

content productivity.

Productivity Trends

For distribution networks, studies show an enormous increase in the

productivity of distribution networks in recent years. Telecom workers’

productivity rose from an index of 74 in 1993 to 127 in 2003 for wired, and

from 85 to 270 for wireless media industries. In the creative sector,

productivity has risen enormously if we define its output as experiences of

the consumers.

But market expectation of acceptable quality is rising (just look at old

films and TV shows), productivity increases are understated if one only

looks at “TV show minutes produced.”

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.

174

175 Output per worker in the semiconductor and other electronic

component manufacturing industries grew from 48 to 360. In 2004, output

per worker was more than seven times greater than productivity a decade

earlier.

176 174"Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/ servlet/SurveyOutputServlet> 175 "Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/ servlet/SurveyOutputServlet>.

0 50

100 150 200 250 300 350 400

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Out

put /

Wor

ker

(GD

P)

Year

Semiconductor and other electronic component manufacturing

70

80

90

100

110

120

130

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Out

put /

wor

ker

(GD

P)

Year

74

In contrast, the productivity increase in content production has been

low. It should be noted that the scale of the following graphs is large and

thus magnifies small changes in GDP.

The output per worker in the publishing industry, excluding Internet-

based publishers, rse from 76 to 122, and hardly after 1999.

177

The output per worker in the newspaper, periodical, book, and

directory publisher industries, rose over the decade from 95 to 103, but

declined after 2000.

176 "Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/ servlet/SurveyOutputServlet> 177 "Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/ servlet/SurveyOutputServlet>

75

85

95

105

115

125

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Out

put /

Wor

ker

(GD

P)

Year

Publishing industries (except internet)

75

178179

In newspaper newsrooms, a long-time rule of thumb has been one full

time envelope (FTE) per 1000 circulation. But according to a 2001 survey

(by the Poynter Institute) the ratio is 1.2 to 1.3 FTEs per 1000, with even

higher ratios for papers with low circulation and lower ratios for the largest

papers. And the output per worker in radio and television broadcasting

industries decreased from 99 to 96.

178 "Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/servlet/ SurveyOutputServlet> 179 "Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/servlet/ SurveyOutputServlet>

90 92 94 96 98

100 102 104 106 108 110

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Out

put /

wor

ker

(GD

P)

Year

Newspaper, periodical, book, and directory publishers

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180

One content industry that has experienced great increase in worker

productivity is the software industry.181 There are several key factors that

contribute to the growing productivity of software creations. Working faster

and smarter account for 8% and 17% of the gains, respectively. Avoiding

repetitions at work accounts for a larger percentage (47%) of the gains as

well.182

Thus, labor productivity growth is high in hi-tech fields that are

capital-intensive. In effect, labor has been substituted by capital and the

reunioning workers productivity has risen in convergence. Conversely,

180"Industry Productivity and Costs." Bureau of Labor Statistics. <http://data.bls.gov/PDQ/servlet/ SurveyOutputServlet> 181 Barry Boehm. Managing Software Production and Reuse, 1999. 182 Barry Boehm. Managing Software Production and Reuse, 1999.

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90

95

100

105

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Out

put /

Wor

ker

(GD

P)

Year

Radio and television broadcasting

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productivity growth has been slow in labor-intensive activities, except for

software, where capital intensity has risen.

For labor intensive media activities, there is a negative productivity

increase. Its cause is the overall rise in the productivity in the general

economy. This is known as the “cost disease,” a term coined by William J.

Baumol and William G. Bowen.183 The “cost disease” phenomenon is

economically counter-intuitive. In the long run, workers’ real incomes rise

due to their rising productivity. This in turn raises incomes across the

economy. This means that one must pay low productivity occupations, like

creatives in media, more than before, because they now have better-paying

alternative opportunities. These increases in the cost of production offset the

cost savings from any technical progress in the creative arts.184 Thus,

workers in occupations experiencing no growth in labor productivity at all

nevertheless receive higher wages as a result of increases in productivity in

other sectors of the economy. The labor-intensive performing arts thus

becomes relatively costlier to produce, thus showing low productivity.185

And yet, the people employed in these actually get paid more than in the

past. 183 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 184 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000. 185 Caves, Richard E. Creative Industries: Contracts Between Art and Commerce. Cambridge: Harvard University Press, 2000.

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Methods to Improve Employee Productivity

This discussion on employee productivity growth leads us to the

following question: how can one raise productivity in creative occupations

in both quality and quantity? This is a major task for managers in media and

communications and will be the subject of the next two sections.

Employers can implement various methods to improve worker output, such

as:

• Improved selection and placement programs

• Training and instruction

• Appraisal and feedback

• Goal-setting

• Financial incentives

• Work redesign

• Better supervision

• Redesign of organizational structure

• Redesign of decision-making .186

186 Guzzo, R. A. & Katzell, R. A.. “Psychological approaches to productivity improvement.” American Psychologist, April 1983, 468-472.

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Retention is a key issue to maintain productivity. It is often the most

highly creative and valuable people who are the most mobile. The following

diagram shows the cost of losing employees:

The largest cost of turnover is not the costs associated with severance

or recruiting, but the indirect costs of lost organizational knowledge. The

following graph shows several practices and their effects on turnover

reduction employers can engage in.

187

The Six Sigma Approach to Productivity Growth

Six Sigma is a productivity growth process. It aims to identify

company weaknesses and apply statistics so that Six Sigma can apply

187 Mercer Human Resource Consulting

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statistics to find the best solutions to the problem. It uses a “DMAIC

Process,” which stands for define, measure, analyze, improve, and control.188

The Six Sigma strategy trains employees to be “black belts,” or

experts in the art of Six Sigma processes. These black belts then train other

employees. Each division has a “Six Sigma master” who is held accountable

for concrete results and is responsible for employee career acceleration.189

At the high-tech firm Honeywell, a culture was created where black belts

were considered distinguished. 190

IV. “Soft Control”

The Creative Workforce The United States has witnessed the evolution of a large “creative

class” throughout the twentieth century. By one count, 10% of the

188 “Six Sigma and Leadership.” 7 March 2000. Center on Japanese Economy & Business, Columbia Business School Deming Center for Quality, Productivity, and Competitiveness. Last accessed on 7 June 2010 at http://www4.gsb.columbia.edu/ null?&exclusive=filemgr.download&file_id=645944&rtcontentdisposition=filename%3Dsix_sigma.pdf. 189 “Six Sigma and Leadership.” 7 March 2000. Center on Japanese Economy & Business, Columbia Business School Deming Center for Quality, Productivity, and Competitiveness. Last accessed on 7 June 2010 at http://www4.gsb.columbia.edu/ null?&exclusive=filemgr.download&file_id=645944&rtcontentdisposition=filename%3Dsix_sigma.pdf. 190Walker, Garrett and J. Randall MacDonald. “Designing and Implementing an HR Scoreboard.” Human Resource Management, Winter 2001, Vol. 40, No. 4, pp. 365-377.

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workforce was part of the creative class in 1900. In the 1970s and 1980s,

20% were in this category. By the year 2000, this number was 30%.191

The activities the creative class engages in, include designing products

that can be widely made, sold, and used, developing theorems or strategies

that can be applied in many cases, and problem-finding and problem-solving

approaches.192

Creative class is comprised of those working in the cultural industries

such as art, theater, film, publishing, music, photography, fashion,

advertising, design industries, and journalism.193 Around this core lies a

wider creative group comprised of finance, law, business, health care, and

counseling.194

“Creativity” is difficult to describe. It is typically described as a

process in which expertise in a specific field is combined with

unconventional thinking that results in either new solutions or new

questions.195

191 Florida, Richard. The Rise of the Creative Class. New York: Basic Books. 2002, p. 74. 192 Florida, Richard. The Rise of the Creative Class. New York: Basic Books. 2002. 193DeFillipi, Robert and Grabher, Gernot. “Paradoxes of Creativity: Managerial and organizational challenges in the cultural economy,” Journal of Organizational Behavior. <http://www.job-journal.org/authors/calls/creativity.htm> 194 Florida, Richard. The Rise of the Creative Class. New York: Basic Books. 2002, p. 8. 195Parker, Sharon. “Designing a Proactive & Creative Workforce for the Innovation Era.” Paper prepared for the Ausralian Graduate School of Management and Research Briefing Series.

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The creative vice president of a major Madison ad agency wrote that

“the production of ideas is just as definite a process as the production of

Fords; the production of ideas, too, runs an assembly line; in this production

the mind follows an operative technique which can be learned and

controlled; and that its effective use is just as much a matter of practice in

the techniques as the effective use of any tool.”196

The creative process operates as a 5-step process.197

• The first step, immersion, is the assembly of information.198

• The second step is digestion, in which the information gets

throught through in the mind.

• The third step, incubation, is moving the problem out of the

conscious mind and into the subconscious to do the work.199

• It is then the fourth step, illumination, in which a new idea is

born.

196 George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill. 197 George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill. 198George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill. 199George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill.

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• This is followed by a fifth step, the verification, when the idea

gets a reality check and is prepared into a practical tool.200

Alain Levy, CEO of EMI Music believes that “most people in the

creative world think that they are artists themselves.”201

The creative workforce is relatively young, as creativity usually peaks

between the ages of 30 and 40.

Creative people benefit from network effects that encourage the

further development of creative thinking. They often choose to live in a

community with each other. Examples of these neighborhoods include New

York’s SoHo and Paris’ Left Bank. These communities spark creativity

among their members. Often, regional economic growth is powered by

creative people, who mostly prefer places that are diverse, tolerant, and open

to new ideas.202

Creative Class Values

200George E. Belch & Michael A. Belch, “Advertising and Promotion: An Integrated Marketing Communications Perspective,” Fourth Edition, 1998, Irwin/McGraw-Hill. 201 The Economist, 18 January 2003. Aris, Annet & Bughin, Jacques. Managing Media Companies: Harnessing Creative Value. New York: John Wiley & Sons, Ltd., 2005.[two sources?] 202 Florida, Richard. The Rise of the Creative Class. New York: Basic Books. 2002, p. 249.

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The creative class particularly values individuality, meritocracy,

diversity, openness, professional quality, and a non-routine nature of

work.203

Creatives are typically less structured and organized. They are more

likely to describe what they do than who they work for, and therefore

identify less with their organization. They especially tend to take pride in the

quality of their work.204

A study of creativity and incentives found that explicit promises of

reward for creative performance readily increases creativity.205 In fact, it is

often harder to coerce creative employees to lower quality standards than to

raise them.206

Creatives are also highly gregarious and like excitement. Typically,

they tend to be more neurotic, but not necessarily more anxious, than

noncreatives. 207

203 Florida, Richard. The Rise of the Creative Class. Basic Books. 2002. 204 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information, Columbia Business School. 205 Arneli, Stephen & Eisenberger, Robert. “Can the Promise of Reward Increase Creativity?” Journal of Personality and Social Psychology 74, no. 3 (1982). 206 Strauss, George & Sayles, Leonard R. Personnel: The Human Problems of Management. Englewood Cliffs, NJ: Prentice-Hall, 1980 207 Gelade, Garry A. “Creativity in conflict: The personality of the commercial creative.” The Journal of Genetic Psychology 158, no. 1, Mar 1997.

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Creatives exhibit higher levels of extrovert traits but often exhibit

other, more difficult traits including self-consciousness, impulsiveness,

vulnerability, anger, hostility and depression. 208

Creatives, unlike their industrial working class counterparts, are not

clock-watchers and do not actively seek a shorter work week. Rather,

creatives are more likely to work longer hours and be under stress and time

pressure.

Incentives given to creative personnel must be more than financial in

nature.209 Offering financial compensation for creative tasks (e.g. to rewrite

an ending into a “happy ending”) may be viewed as an offensive bribe to the

creative worker, counteracting the incentive’s motivational intent.210 The

best way to motivate creatives which often lead to superior performance.

It is dangerous to allow creative workers, especially ‘techies’, to get

bored, and therefore it is important to update the tools or technology for

them to “play” with and keep them engaged. What matters most to such

persons is the challenge and flexibility of their job. They work best when

they feel stimulated and are able to work on their own terms.

208 Gelade, Garry A. “Creativity in conflict: The personality of the commercial creative.” The Journal of Genetic Psychology 158, no. 1, Mar 1997.. 209Robinson, Jennifer (2005). [Interview with Dr. Richard Florida, Ph.D., author of The Rise of the Creative Class Flight of the Creative Class] [needs to be better cited] Share, Ken A. “Interview with Richard Florida, Author and Professor at George Mason University.” Washingtonian Magazine, August 2006. 210 Florida Richard & Goodnight, Jim. "Managing for Creativity." Harvard Business Review, Summer 2005.

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211

In a survey of IT technologists (see above graph), pay is only is

the fourth most important factor, far below “challenge” and

“flexibility”. Similarly, “benefits” is relatively low on the ranking as

well at #7. Other important benefits for about 20% of such

technologists include are the atmosphere at the workplace, the ability

to dress casually, opportunities for innovative work, individual

recognition, and personal contribution to success.

Models of Personality

211 Citation needed

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Personality tests are used as part of the screening process during

recruitment. The ‘Myers Briggs’ model is a widely used personality test, in

an effort to create a fit between employees and their jobs. It rates people

based on four dimensions:

These dimensions are:

• I-E (Introverted/Extroverted)

• S-I (Sensing/Intuition)

• T-F (Thinking/Feeling)

• J-P (Judging/Perceiving)

After answering a questionnaire, respondents are assigned one of the

sixteen ‘types’ or combinations based on these four dichotomies.

Most MBAs would probably classify themselves as “ESTJ”:

• Extroverted (vs. introverted)

• Sensing (vs. using intuition)

• Thinking (vs. feeling)

• Judging (vs. perceiving)

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The ESTJ types are energized by actions and the spoken word, like

dealing with available facts and use logic in their decision-making process.

They are practical, and prefers using trusted methodologies to solve

problems and to form new ideas.212

On the other hand, most creatives would probably classify themselves

as exact opposites of the “MBA type,” defining themselves as IIFP:

• Introverted

• Intuitive

• Feeling

• Perceiving213

IIFP types are energized by their thoughts and emotions and makes

decisions based on personal values. They like to use their imagination to

solve problems while considering all possibilities and patterns. The “creative

type” desires to see others develop and works best on work with a

meaningful purpose.214

212Steyaert, Chris, Soccodato, Nicola & Nielsen, Gitte. Research Institute for Organizational Psychology. Team Building and Personal Development Day: Follow Up. 19 March 2004. 213Steyaert, Chris, Soccodato, Nicola & Nielsen, Gitte. Research Institute for Organizational Psychology. Team Building and Personal Development Day: Follow Up. 19 March 2004. 214Steyaert, Chris, Soccodato, Nicola & Nielsen, Gitte. Research Institute for Organizational Psychology. Team Building and Personal Development Day: Follow Up. 19 March 2004.

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Geeks are technology-savvy employees needed to create or run

high-tech products.215 Most technical workers, or ‘geeks,’ would

probably classify themselves as ISTP (introverted/sensing/

thinking/perceiving216) on the Myers Briggs test.

In a media environment, even more than in other industries, managers

must act as leader, motivator, communicator and understand group

dynamics. They must also be able to communicate effectively with diverse

employees.217

A manager also must have the conceptual skills to organize and

analyze information to improve individual and company performance.

Managers must be able to handle creative talent, or at least handle the

handlers of talent. This may require high levels of tolerance.

IV.2. Motivating and Managing Creatives

There are several approaches to motivating creatives.

Investigating these perspectives is part of a larger discipline called

215Glen, Paul. Leading Geeks. San Francisco: Jossey-Bass, 2003. 216 Steyaert, Chris, Soccodato, Nicola & Nielsen, Gitte. Research Institute for Organizational Psychology. Team Building and Personal Development Day: Follow Up. 19 March 2004 217 Black, J. S. and Steers, Richard M. Organizational Behavior. New York: Harper Collins College Publishers, 1994, p 19.

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“Organizational Behavior,”218 Managers can use their grasp of

organizational behavior to improve employee productivity. Successful

people management depends on understanding employee motivations.

Douglas McGregor in 1960 posited two managing styles,

“Theory X” and “Theory Y”. Theory X style is extrinsic in nature and

Theory Y is intrinsic.

Theory X is based on the belief that the average human has an

inherent dislike of work and will avoid it when possible, therefore needing

greater control and structure in the workplace. The extrinsic motivation

theory subscribes to the belief that people engage in work in order to obtain

goals that are apart from the work itself, such as money, power, security, and

status. Adherents of this perspective see workers as needing “hard control”

elements, such as punishment, firing, and deadlines, to overrule the lack of

self-motivation. Theory Y, based on intrinsic motivation, states that

managers assume that their workers enjoy their work and are generally self-

motivated.219

Frederick Taylor, famed author of “The Principle of Scientific

Management” (1911), viewed workers as interchangeable cogs in a

machine. Even though he was a charlatan in his methodology, data 218 Black, J. Stewart and Steers, Richard M. Organizational Behavior. New York: Harper Collins College Publishes, 1994, p. 20. 219 George Strauss, Leonard R. Sayles , Personnel: The Human Problems of Management, 1980.

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collection and case description, his work was widely admired in the

business community(as well as the Soviet Union). His approach or

‘Taylorism’, however, does not work well for creatives.220

221

Frederick Taylor

Elton Mayo who succeeded Taylor as a thought leader in this

field, was a leader of the intrinsic perspective. Mayo came to America

from Australia with a BA in philosophy, but falsely claimed a

doctorate in psychology. He bamboozled leaders of American business

and business education with tales of scientific techniques of “healing”

labor unrest. After becoming a Harvard Business School professor,

Mayo studied the AT&T (Western Electric) Hawthorne Plant in

Chicago. Mayo claimed to have “discovered” the motivating factors

that facilitate employee performance. However, his methodology was 220Sagle, Jones & Thompson, John. “Taylorism”. Spring 1999. Cornell University. 2 Feb. 2007. http://instruct1.cit.cornell.edu/courses/dea453_653/ideabook1/thompson_jones/Taylorism.htm Miller, Katherine. Organizational Communication: Approaches and Processes. 5th ed. Boston: Wadsworth Cengage Learning, 2009, p. 18. 221 http:.//www.infoescola.com/files/2009/08/small_frederick-taylor.jpg

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laughable. He hand-picked six atypical women as the test group, and

replaced them when they did not conform to the hypothesis.

Mayo claimed to have found that the markers were motivated by

the attention of the researchers paid to the workers and by the

attributes of the work: enjoyment, interest, satisfaction of curiosity,

self-expression, personal challenge, and respect, feelings of task

accomplishment and personal growth.222 .None of the physical

variables such as lighting etc., seemed to affect output. Actually, the

real incentive for the women tested was the extra money given out to

do well in the experiment.

Expectancy/Valence Approach to Motivation

Another approach in understanding employee motivation is the

expectancy approach, also known as the “valence” or “equity”

approach.223 According to this approach, individuals are not inherently

motivated or unmotivated. But motivation is created by expectancies

and “valences”. Expectancy is the belief that a particular act will lead

222 Glen, Paul. Leading Geeks. San Francisco: Jossey-Bass. 2003. 223As described in Edward Tolman and Kurt Lewin. Black, J. Stewart and Steers, Richard M. Organizational Behavior. New York: Harper Collins College Publishers, 1994, p 179.

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to a particular outcome 224. Thus, the expectancy theory holds that

motivation is created through the belief that if one performs well,

certain positive outcomes will follow.

Expectancy may be the the underlying motivation of the mid-

level managerial class, not necessarily of the creative class or of top

executives.

The Hierarchy of Needs

These three approaches were integrated in a fourth approach to

understanding motivation that approach takes into account that a

person’s motivation is not immutable, but that it depends on

circumstance and can change. Motivational attitudes follow a

“hierarchy of needs”, a concept popularized by Abraham Maslow. As

each lower level is fulfilled, a person – in this case, an employee –

moves up to the next level where needs will different than before and

become more important than at the lower level of the hierarchy.225

Maslow’s Hierarchy of Needs 224 Black, J. S. and Steers, Richard M. Organizational Behavior. New York: Harper Collins College Publishers, 1994, p 179. 225 Cairncross, Frances. The Company of the Future: How the Communications Revolution is Changing Management. Boston: Harvard Business School Press 2002.

94

226

• Level 1: Physiological Needs (individual survival) – food,

clothing, shelter

• Level 2: Safety Needs – job security, retirement

• Level 3: Social Needs – group companionship

• Level 4: Esteem Needs – self confidence, ability

• Level 5: Self-Actualization – realization of one’s full potential227

Each human has all of these needs but at varying degrees of

intensity and desire. As a lower level is filled, higher levels become

more important. For creatives, while Level 5 (self-actualization) is

particularly important, some satisfying of levels 1 to 4 (food and

226http://steves.blogharbor.com/maslow.jpg 227Cairncross, Frances. The Company of the Future: How the Communications Revolution is Changing Management. Boston: Harvard Business School Press 2002.[incorrectly sourced?]

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shelter, security, group companionship, and esteem needs) must be

fulfilled first.

This Hierarchy of Needs can serve as a framework in

understanding how a firm can motivate its employees and generate a

“soft” form of control over its employees. Applying “soft control” for

media and technology industries means filling these needs.

Level 1 of the Hierarchy of Needs: Physiological Needs.

Creative companies provide a “caring sweatshop” environment.

Creative workers get comfortable physical work spaces, job perks such as

free food, free tickets and an informal dress code.228 Employees get access to

advanced equipment and resources such as the latest software, hardware, and

technology. Creatives who know they are at the forefront and pushing limits

in their fields tend to do a better job.229

Google’s “caring sweatshop” provides free lunch, all-you-can-eat

snacks, a massage therapist, doctor, and dentist on site.230

Level 2 of the Hierarchy of Needs: Safety

228Florida, Richard. The Rise of the Creative Class. Basic Books. 2002,132 229 Caudron, Shari. “Strategies for Managing Creative Workers.” Personnel Journal 73, no. 12 (December 1994). 230Life at Google. Last accessed on 16 June 2010 at http://www.google.com/jobs/lifeatgoogle/benefits/.

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Once basic needs of shelter and sustenance are met, the next level on

hierarchy of needs is safety. Safety needs included several elements: job

security, retirement security, and the security of fair treatment.

The media sector not a good environment for job or retirement

security. In fact, it is hard to think of an industry with less of them. This is

the major reason for the high unionization that was discussed earlier in the

chapter.

The third element of security, is fairness. This has many dimensions,

among them a fair performance appraisal,231 and non-discrimination.

Safety Needs: Fairness in Performance Appraisal

Creatives can lose their motivation less because they are under-

compensated, and more if they are treated unfairly with others.232 One way

to limit suppression of creativity is to develop fair rather than arbitrary

performance reviews.

There are two, general approaches to measuring performance:

objective measures and subjective ones. The objective approach uses

performance monitoring of measures of performance such as keystrokes,

231Glen. Paul. Leading Geeks. San Francisco: Jossey-Bass, 2003. 232 “Managing Creative People.” Ainsworth Magazine. 25 April 2005. Last accessed on 16 June 2010 at http://www.free-pr-advice.co.uk/managingcreativepeople.htm.

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lines of code written, sales achieved, tickets or recordings sold, or

profitability.

But such efforts can backfire. Take the example of journalists, subject

to a productivity push. At the Winston-Salem Journal, productivity in the

newsroom was codified in numerical terms: Reporters had to produce per

week forty stories based on press releases, or fifteen stories based on

meetings or police activities. Journalists’ productivity was recorded and

reviewed weekly233 Journalists hated such quantifications of their work.

The system was seen by theorists as a ploy to cut expenses at the expense of

quality.234

The second, judgmental approach to measuring performance include 8

different techniques.

Performance could be in some cases objectively measured, such as

TV ratings or sales.

In other cases, performance rating scores indicate how superiors grade

employees based on a numeric scale. This is the most frequently used

technique. Creatives resist such objective quantifications. They prefer more

233Underwood, Doug. “Assembly-line Journalism,” Columbia Journalism Review 37, no. 2 (Jul./Aug. 1998): 43. Last accessed on 7 Jun 2010 at http://vnweb.hwwilsonweb.com/ hww/results/results_single_fulltext.jhtml;hwwilsonid=EV33L3VBUPV55QA3DILCFGOADUNGIIV0. 234 Underwood, Doug. “Assembly-line Journalism,” Columbia Journalism Review 37, no. 2 (Jul./Aug. 1998): 43. Last accessed on 7 Jun 2010 at http://vnweb.hwwilsonweb.com/ hww/results/results_single_fulltext.jhtml;hwwilsonid=EV33L3VBUPV55QA3DILCFGOADUNGIIV0

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subjective but mostly if they are evaluated by superiors of the peer group.

There are a variety of techniques. A company must also decide who does the

evaluating: is it a specialized HR “assessment centers”, or is it the person’s

superior, or their, colleagues, or even subordinates (“upward evaluation”), or

a “360 degree feedback” that combines multiple sources.235

The method becomes increasingly difficult when there are many

employees to evaluate.

The paired-comparison technique uses a matrix to compare the

performance of each employee with that of every other person in the group.

This process is simple and accurate, but can become unwieldy when dealing

with a large number of employees.

The question is, can the performance of creative talent be evaluated

without suppressing creativity?

Common sources of error in the performance appraisal process are the

“halo effect” (rating people from reputation, not from reality), bias, and

inadequate information.

Safety Needs: Non-discrimination

235

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Creative employees value impartial hiring practices and unprejudiced

workplace treatment. This is more than the absence of overt discrimination

and promoting people are often subconsciously biased towards hiring those

who are like themselves. 236

A gender gap is prominent at the executive level. A 2002 gender study found

that women make up only about 14% of top executives in media

companies.237 In the early 2000s, women only represented 12% of directors

and 16% of executives in the 23 largest telecommunications companies238.

Of the 11 largest publishing companies, women comprise 17% of

directors and 22% of executives in 2002 despite significant presence in

lower employment levels.239 In Japan, at major global telecom company

NTT Docomo, only 4% of assistant managers and above in 2009 were

females.240 Similarly, African-Americans and Hispanics are also

underrepresented in the top tier of media firms.

The Third level of the Hierarchy of Needs: Social Needs 236 Picard, Robert & Brody, Jeffrey. “Technology & Labor Issues.” The Newspaper Publishing Industry. Needham Heights, MA: Allyn & Bacon, 1997.. 237 Koss-Feder, Laura, “Few Women at the Top of Media Companies,” Women in Action, Iss. 3 (30 September 2002): p. 54. 238 Koss-Feder, Laura, “Few Women at the Top of Media Companies,” Women in Action, Iss. 3 (30 September 2002): p. 54. 239 Koss-Feder, Laura, “Few Women at the Top of Media Companies,” Women in Action, Iss. 3 (30 September 2002): p. 54. 240“Employment and Compensation.” NTT Docomo. Last accessed on 23 June 2010 at http://www.nttdocomo.co.jp/english/corporate/csr/report/partner/employee/employment/.

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Social Needs: Identification

Humans are social animals, and strongly seek belonging to a

community. An important element of the “soft control” of creatives is to

integrate them into teams with community spirit.

One way to accomplish this is by creating an “us” versus “them”

identification in the workplace. This encourages competition against other

companies rather than against colleagues.

In the telecom industry, morale is highest during peak periods of

emergencies when the job is hardest. This feeling of service to others

motivates people in many fields. Managers can also spur motivation across

groups by creating shared goals, group incentives, profit sharing, and

common peer values.

In the first instance, creatives are attracted to a company’s positive

and prestigious reputation and brand identity.241 This reflects well on

themselves .

Social Needs: Embracing Freelancers

As mentioned, media companies increasingly rely on project oriented

independent contractors. Freelancers have greater independence, but also 241 Aris, Annet & Bughin, Jacques. Managing Media Companies: Harnessing Creative Value. Hoboken: John Wiley and Sons, 2005.

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greater insecurity than traditional employees. This complicates the “us”

identification, which becomes unclear in project-based enterprises. An

important element of soft control is making these freelancers feel part of the

family.

Freelancers incur substantial transaction costs. One study found that

such employees spend only 49% of work time in new media on direct

production. The remainder is spent on searching for new work and on client

relations, i.e. on developing future employability.242

Effectively managing freelancers requires giving clear task

specification, prompt feedback, establishing clear fee/pay arrangement, and

an easily accessible contact point. Freelancers should be routinely

supervised.243

Social Needs: Inclusion

Another element of soft control is communicating the significance of

daily tasks and how they fit into the bigger picture. Executives often view

creatives as having valuable ideas but lacking the broad perspective.

Therefore they are typically not included in the company’s strategic

242 Batt, Rosemary, et al.. “Work patterns and workforce Policies for the New Media Industry.” EPI Book. February 2001. 243 Some resources for media freelancers are: www.mastheads.org; www.jossip.com; www.ed2010.com; www.mediabistro.com

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planning.244 Managers, though, need to include creatives in order to motivate

them. Creatives will be more motivated when they understand the big

picture and the relationships between the firm’s short and long term

objectives. 245

However, including creatives into corporate management can also

create problems. For example, many newspaper companies have created

“cross divisional teams”, task forces, and committees with reporters and

editors joining circulation and advertising managers to produce marketing

and other strategies. This has broken the tradition of “church and state”- the

separation of the editorial and the publishing business sides of the operation.

Since the mid-1980s, and the big newspaper chains such as Gannett in

the U.S. have pushed for an “open newsroom” in which all departments,

whether editorial or marketing, are expected to work together in producing

and promoting the paper. This development, though, has also created

criticism from news staff of being pressured to report news content of less

value under constraints of advertising and marketing.

244 Mumford, Michael. “Managing Creative People: Strategies and Tactics for Innovation.” Human Resource Management Review 10, no. 3, 2000 245 Glen, Paul. Leading Geeks. San Francisco: Jossey-Bass, 2003.

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Level 4 of the Hierarchy of Needs: Esteem needs

Peer Recognition

Creatives, more than most people, need the reassurance of positive

feedback. It is inherent in the subjective nature of such work that its creators

seek assurance that they are doing well. Recognition ideally comes from

people who are familiar with the work and can make objective and informed

judgments.246 Working with and being recognized by talented peers are

among the things that talented employees value most.

Research shows that money does not necessarily increase creativity.

10-15% of employees innovate when recognition is monetary, such as

bonuses or increased salary. On the other hand, 70-80% of employees

innovate when their recognition is symbolic, such as an award or special

title247.

Tools of peer recognition are award ceremonies and appropriate credit

for notable work.248 The Oscars, Golden Globes, Grammies, Tonys,

246 Florida, Richard. The Rise of the Creative Class. New York: Basic Books, 2002. 247 Robinson, Alan.G. & Stern, Sam. Corporate Creativity: How Innovation and Improvement Actually Happen, San Francisco: Berrett-Koehler, 1997. 248Aris, Annet & Bughin, Jacques. Managing Media Companies: Harnessing Creative Value. Hoboken: John Wiley & Sons, 2005..

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Pulitzers, and numerous other awards are annual platforms to recognize

creative excellence by peers.249

Esteem Needs: Encouragement

Encouragement is another motivational element of “soft control”.

Creativity involves risk, so managers who stress consequences of failure

inhibit creativity. These managers should stress rewards for success

instead.250 They should communicate a positive ‘can do’ attitude --

negativity is an enemy of creativity.

Creatives tend to be intensely involved with their work and therefore

more sensitive to evaluations. They often have problems handling rejections

or setbacks.251

Converting ‘constraints’ into ‘challenges’ “we’ve always done it this

way” becomes “now’s the time for a fresh approach”252. Most of the many

249 Live Performance Australia Helpmann Awards. Last accessed on 1 July 2010 at http://www.helpmannawards.com.au/. 250 Reitz, Joseph H. Behavior in Organizations. 3rd ed. Homewood: Irwin Publishers, 1987.. 251 Penttila, Chris. “An Art in Itself.” Entrepreneur. December 2003. Last accessed on 10 June 2010 at http://www.entrepreneur.com/magazine/entrepreneur/2003/december/65600.html. 252 Javitch, David. “Inspiring Creativity in Your Employees.” Entrepreneur.com Human Resource Management. 4 April 2005. Entrepreneur. Last accessed on 10 June 2010 at http://www.entrepreneur.com/ article/0,4621,320638,00.html.

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ideas by creatives get rejected, but their egos need not be bruised. Managers

must provide special recognition to keep morale high.253

Level 5 of the Hierarchy of Needs: Self-Actualization

Self-actualization is the most defining level of needs for

creatives. This has many dimensions. Creatives are motivated and inspired

by the prospect of advancing their skill levels-getting better at what they do,

achieving mastery, breaking out. Therefore, training, development, and

stimulating experiences are ways to motivate them.

The British Broadcasting Corporation (BBC) regularly sends its

creators and producers to three-month management courses at American

business schools.254 The company also rotates its top creators through

different work spheres. The BBC also runs its own “BBC Academy” as a

training program, using technology provided by Skillset, the UK Sector

Skills Council (SSC) for the Creative Industries.255

253 Caudron, Shari. “Strategies for Managing Creative Workers.” Personnel Journal 73, no. 12 (December 1994). 254 Batt, Rosemary, et al. “Net Working: Work Patterns and Workforce Policies for the New Media Industry.” Economic Policy Institute, 2001. Marlow, Jane. “BBC sends its staff back to school.” The Independent, London, 21 November 2005. 255 “A word about what we do.” BBC Academy. Last accessed on 28 June 2010 at http://www.bbctraining.com/aboutUs.asp.

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In France, the media company Lagardere spent an average of €1,137

for each employee who participated in its Media Campus training programs,

taught by experts from Université Paris-Dauphine.256

In the telecommunications sector, Verizon, ranked #11 on Business

Week’s 2006 list of best places to start a career, spent an average of $2,140

to $26,000 per hire to train each of its 18,535 new entry-level employees.

Verizon offers entry-level workers the opportunity to enroll in a formal

mentorship program, as well as various formal leadership, management

development, and rotation programs that last a year or more.257

Motorola’s training system is called Motorola U and started more than

20 years ago. When it started more than 20 years ago. 47% of its funding is

supplied by internal Motorola business units, and 16% comes from outside

suppliers and customers who can also participate. Motorola U hosts 330

classes, 100 of which are offered online, which are taught by 600 external

educators and run by 300 staff members.258

In contrast, Intel’s training philosophy is to leave up-skilling to an

employees own initiative. The motto is “own your own employability”.

Thus, employees are individually responsible for improving their work skills

256 “Human Capital: Development.” Lagardere. Last accessed on 1 July 2010 at http://www.lagardere.com/ human-capital/our-approach/development-331.html. 257Gerdes, Lindsey. “The Best Places to Launch a Career.” Business Week, 18 September 2006. 258 Clarke, Thomas & Hermens, Antoine. “Corporate Developments and Strategic Alliances in e-Learning.” Education + Training 43, no. 4 (2001), p. 265.

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after receiving periodic reports detailing the status of the firm and changes to

skill requirements.259

Dell’s skill development program, EducateU.com, offers two types of

training. When employees opt to ‘learn to know,’ they acquire widely

applicable skills through knowledge about the company and its methods.

‘Learning to do,’ on the other hand, helps works apply certain skills and

knowledge to a specific aspect of a job.260

General Electric has 13-week course that covers business policy,

economics, social issues, and management principles.261 GE also

incorporates understudy/mentor, job rotation, and coaching programs.262

In Japan, the IT company Work Application hires based on potential

rather than experience, and then host a training program called Professional

Development Scholarship System. It was named the best place to work in

Japan in 2010 by Nikkei Business magazine.263.264

259 Pasternack, Bruce & Viscio, Albert. The Centerless Corporation. New York: Simon & Shuster, 1998, p. 67. 260Clarke, Thomas & Hermens, Antoine. “Corporate Developments and Strategic Alliances in e-Learning.” Education + Training 43, no. 4 (2001), p. 265. 261Donnelly, Jr., James H., et al. Fundamentals of Management. Texas: Business Publications, 1987, p. 254. 262 Donnelly, Jr., James H., et al. Fundamentals of Management. Texas: Business Publications, 1987, p. 253. 263“Best Workplaces in Japan.” Nikkei Business, March 1, 2010. 264 “Recruitment activity policy.” Works Applications. Last accessed on 23 June 2010 at http://ir.worksap.co.jp/english/recruit/index.html.

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The leading Japanese mobile telecommunications operator NTT

Docomo Group offers more than 120 elite training programs and 400.265266

Disney provides mobile training units that allow employees to receive

computer training at their work site. Furthermore, Disney offers training via

satellite from some top business schools to its supervisors and managers.267

Self-Actualization: Job “Sculpting”

Another element of “soft” control is job “sculpting”, which involves

shaping, as much as possible, jobs around employees’ skills and interests.

Sculpting includes letting workers structure their own flexible schedules so

that they can work efficiently. In doing so, workers are allotted more

freedom to pursue personal achievements in the industry.268

Newspapers often employ job sculpting when they allow their

journalists to expand and compile stories into a book, which generates

visibility (and income) for those writers.

265“Professional Skill Development.” NTT Docomo. Last accessed on 23 June 2010 at http://www.nttdocomo.co.jp/english/corporate/csr/report/partner/employee/career/. 266“Professional Skill Development.” NTT Docomo. Last accessed on 23 June 2010 at http://www.nttdocomo.co.jp/english/corporate/csr/report/partner/employee/career/. 267 Paton, Scott M. “Service Quality, Disney Style.” Quality Digest. January 1997. Last accessed on 10 June 2010 at http://www.qualitydigest.com/jan97/disney.html. 268 Butler, Timothy & Waldroop, James. “Job Sculpting: The Art of Retaining Your Best People.” Harvard Business Review, September-October 1999. Last accessed on 10 June 2010 at http://hbr.org/1999/09/job-sculpting/ar/1.

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But it should be noted that too much flexibility for the wrong person

can also create problems. In 2003, the New York Times’ young journalist

Jayson Blair engaged in extreme fabrication of quotes and sources. The

evidence of lack of internal quality control forced executive editor Raines

and managing editor Boyd to resign.

The response need not be tight control but to provide professional

guidelines. The scandal prompted the New York Times to issue a 52-page

manual titled “Ethical Journalism: Code of Conduct for the News and

Editorial Departments”. The manual details 155 situations, covering ethical

questions arising in protecting the newspaper’s neutrality, the staff’s civic

and journalistic activities outside The Times, conflicts of interest in personal

and professional activities, and dealing with contributions and gifts. .

Self-Actualization: Avoid Cultural Dissonance

“Organizational culture” is the establishment of behavioral norms in

an organization through a pattern of common values and beliefs.269

269 Heck, Ronald H, and Marcoulides, George A. “Organizational Culture and Performance: Proposing and Testing a Model.” Organization Science 4 , no. 2 (May 1993): 209-225.

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“Theory Z” is based on culture. It was proposed by C.J Ouichi in

1981. For example, American culture places a high value on individual

achievement, whereas Japanese culture places a high value on the sense of

community.270 And there are different cultures in different industries.

People often believe that a strong and common culture is always

desirable. But there are times when a strong organizational culture

undermines changes and innovation. For example, Encyclopedia

Britannica’s culture was dominated by direct-to-home salespeople.271 When

annual sales of Encyclopedia Britannica collapsed from a high of 117,000 to

about 20,000, this strong sales force culture prevented change from a door-

to-door sales model to an online tech model.272 Instead, companies, like

individuals must learn and adapt. The idea of the firm as a learning

organization became popular with Peter Senge’s 1990 book The Fifth

Discipline. Senge argues that the firm is an organism and that change is not

simply a matter of retooling.273 Organizational learning theorists take their

cue from studies in biology and mathematics of so-called self-organizing

270 Sohn, Ardyth, Media Management. Mahwah: Lawrence Erlbaum Associates, 1999, p.94. 271 Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004 272Nalbantian, Haig, et al. Play To Your Strengths. New York: McGraw-Hill, 2004 273 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information. Columbia Business School.

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systems.274 They believe that the firm is self-organizing at all levels and that

it is a living organism that cannot be controlled by top-down directives.275

A major element for creatives in particular is congruence of word and

deed. When corporate culture says one thing, but corporate behavior goes

another way, trouble follows. This is a persistent problem.

To sum up, the elements of ‘soft control’ HR management are:

1. The “caring sweatshop”: challenge with comfort

2. Fairness

3. “Us vs. Them”: identification, and inclusion in decision process

4. Make freelancers part of the family

5. Communicate significance

6. Peer recognition

7. Encouragement, and acceptance of failure

8. Upgrade of skills

9. Job sculpting

10. Communicate significance

11. Avoid cultural dissonance

274 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information. Columbia Business School. 275 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information. Columbia Business School.

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VI. Conclusion and Outlook Why is HRM of media companies so important?

Creative workers have a distinctive set of individualistic work styles,

meritocratic values, and unconventional social behaviors that pose unique

challenges to its Human Resource Management.

Management guru Peter Drucker noted, “Knowledge workers and

their skills may well be a firm’s main asset and can, unlike manual workers

in manufacturing, own the means of production: they carry that knowledge

in their heads and can therefore take it with them”. The media business is

essentially a people’s business. With creative people as one of the firm’s

major assets, organizations will need to execute strategies to retain, develop

and invest in their most valuable workers in order to maximize productivity

and innovation.

These HRM strategies will help evolve the employment system of the

future. The long-term survival of media firms depends on replenishing its

creative resources.276

276 Lampel, Josh, et al. “Cultural Industries: Learning from Evolving Organizational Practices.” Organizational Science 11, no. 3 (June 2000): 263-269.

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Acquiring and grooming talent is the most important challenge for a

media company. Every media company therefore needs a well-honed

recruitment and retention strategy.277

Nobel Prize-winning economists Herbert Simon and Kenneth Arrow

viewed the modern firm as fundamentally designed for information

processing.278 The business firm’s organizational form reflects the structure

of its most important information processing tool.

During the Industrial age, the machine became the governing

organizational concept. This mode of operation originated in the early 1900s

with Frederick Taylor’s Principles of Scientific Management, which advised

that tasks and organizational structure be subdivided to make the firm into a

well-oiled machine. In today’s terms, the firm was “hard-wired” through

rigid structures and rules to reduce the need for informational flows.279

Looking ahead, what is the direction for media companies? Optimal

information processing will occur in decentralized “networked” firms

instead of the tradition of permanent hierarchical organizations. There has

been significant change in the media industry structure in organizing talent.

277 Cairncross, Frances. The Company of the Future. Cambridge: Harvard Business School Press, 2002. 278 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information. Columbia Business School. 279 Noam, Eli. The Impact of Increased Knowledge on the Business Firm: The Medium is the Company. 1 December 2003. Columbia Institute of Tele-Information. Columbia Business School.

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Now, groups of creatives are assembled for projects, under an

entrepreneurial model.

This organizational model for the media industry has the potential to

become the model for the mainstream firm of the future, due to its project-

oriented, freelance-based emphasis, fluid management structure, flexible

skill deployment, high element of creatives, and flat hierarchy.

The challenge for leaders in the media industry is to manage human

resources more effectively without alienating the creatives, who are their

core productive assets.

Creative managers need to consider both the creative and profit

aspects of the firm. They must balance their need of “operational control”

with the “creative freedom” desired by creatives.280 The top companies tend

to be those where management provides equal attention and respect to both

the “suits” and the ”pony tails”.

In doing so, is it possible to maintain “hard HRM” and “soft control”

at the same time? Media firms are at the forefront of this organizational

change. And as Disney’s employee relations show, media firms will have to

be at the forefront of new how to deal creatively with creative employee

relations.

280 “Special Report: How to Manage a Dream Factory – The Entertainment Industry.” The Economist 366, 18 January 2003, 76.

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Tools and Issues Covered

In this chapter, we have covered the following HRM tools:

§ ROI in HRM

§ Internal Labor Market Model

§ Tournament theory of compensation

§ Risk allocation and reward structure

§ Hiring of risky workers

§ Compensation structure

§ Productivity measurement

§ Hierarchy of needs

Issues covered

We used these tools to discuss HRM issues such as:

§ Soft HRM

§ Hard HRM

§ Soft control

§ Human capital

§ Fixed vs. variable pay

§ Craft unions

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§ Creative workforce

§ Freelancers

§ Discrimination

§ Motivation

§ Star compensation

§ Royalties, profit-sharing

§ Training

§ HRIS

§ Automation

§ The information workforce of the future

§ Outsourcing/Offshoring

§ Corporate culture