Internalization v. Decentralization: An Analysis of Recent Developments in Pay Bargaining
| Date | 01 September 1993 |
| DOI | http://doi.org/10.1111/j.1467-8543.1993.tb00405.x |
| Published date | 01 September 1993 |
| Author | Janet Walsh |
British Journal
of
Industrial
Relations
31:3
Sept
1993
0007-1080
Internalization
v.
Decentralization: An
Analysis
of
Recent Developments in
Pay Bargaining
Janet
Walsh
Abstract
It is commonly assumed, particularly within the human resource management
literature, that decentralized bargaining, performance-related pay and indi-
vidualized wage-setting arrangements represent a further extension
of
the
internal labour market and a source
of
eficiency gains
in
production.
Drawing
on
new data
on
company pay policies, this paper advances an
alternative interpretation
of
recent innovations in pay and bargaining. It
is
argued that moves
to
fragment bargaining and reward systems threaten
to
undermine the organizational principles
of
internal labour markets and may,
therefore, raise the
costs
of
managing the employment relationship.
1.
Introduction
It is now commonplace within the human resource management literature
that decentralized bargaining, performance-related pay and individualized
remuneration schemes consolidate and extend earlier moves by companies
towards internal labour markets. The tendency is to assume that such insti-
tutional innovations have served to tighten employers’ control over pay and
performance.
This paper presents new data on company pay policies and advances a
different interpretation of recent trends in pay bargaining. It argues that
bargaining fragmentation and the shift towards individualism have weak-
ened many
of
the collective organizational principles underpinning internal
labour markets, and that these initiatives may have costly consequences for
employers.
Janet Walsh
is
at the School
of
Business
and Economic Studies, University
of
Leeds.
4
10
British Journal
of
industrial Relalions
2.
Pay bargaining: issues and approaches
The
1980s
was a decade of change in company pay policies and the
institutional framework of wage determination. Employers made extensive
use
of
performance-related payment systems and individualized remunera-
tion packages. Many multi-employer, national agreements disintegrated in
the latter half of the decade, while
a
growing number of firms in the private
sector shifted the focus of pay bargaining away from the
level
of
the industry
to within the firm and often decentralized
it
to
divisions, profit centres
or
individual sites. The declining significance
of
industry-wide pay agreements
and the spread
of
single-employer bargaining suggests that firms are
adopting a more proactive stance towards the determination of pay and
employment (Brown and Walsh 1991). Symptomatic
of
broader shifts in
management practices, such developments have been linked
to
the elabora-
tion of firm-specific payment schemes and employment systems.
Widely discussed in the human resource management literature, these
innovations in pay and bargaining are said
to
have a dual significance. First,
decentralized bargaining, individualistic employment practices and
performance-related pay systems allegedly consolidate previous attempts to
internalize labour market functions within the firm. Purcell (1991:33, 41)
argues, for example, that ‘the decentralization
of
collective bargaining and
the focus on the local unit’ is associated with the evolution of ‘organization-
based employment systems’:
This move
to
firm-specific labour markets, especially in large companies, has been
associated with marked changes in priorities from concern with industrial
relations and collective bargaining
to
the flexible deployment and utilization
of
labour under the management prerogative. This
is
associated with an emphasis on
individualism away from what many see in retrospect as an undue focus
on
collectivism in the
1970s.
(Purcell
1991:34)
Product market pressures, notably for quality enhancement and cost
reduction, have dictated the shift to organization-based employment
systems
so
that labour force utilization can be improved. Effective
operational management, based
on
the implementation of just-in-timehotal
quality management systems and new technology, and improved worker
commitment, arising from the introduction
of
employee participation
schemes and performance-related pay, are reckoned to be symptomatic
of
employer strategies designed to enhance employee performance. Such
practices marginalize trade unions ‘as the employer focuses on the individual
enployee and the development of team work’ (Purcell1991:41).
Second, recent changes in bargaining and pay systems are said
to
increase
management’s control
of
labour costs, and to tighten the link between pay
and performance. Decentralized bargaining,
so
the argument goes, enables
management to tie remuneration to the specific circumstances
of
the plant
or
business unit and thereby enhances the control of local managers over
To continue reading
Request your trial