Management Formality, Size of Firm and
Employee Evaluations of Work
Working Paper No. 99
June 2008
David J. Storey, George Saridakis, Sukanya Sen-Gupta,
Paul K. Edwards and Robert A. Blackburn
Warwick Business School’s Small and Medium Sized Enterprise Centre
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1
Management Formality, Size of Firm and
Employee Evaluations of Work
David J. Storey*
George Saridakis**
Sukanya Sen-Gupta^
Paul K. Edwards^^
Robert A. Blackburn#
*
Director, Centre for Small and Medium Sized Enterprises, Warwick Business School, University of
Warwick, CV4 7AL. Email: David.Storey@wbs.ac.uk
**
Lecturer in Business Economics, Loughborough Business School, Loughborough University.
^
Lecturer in Human Resource Management, Cardiff Business School, Cardiff University.
^^
Professor of Industrial Relations, Industrial Relations Research Unit, Warwick Business School,
University of Warwick.
#
Professor of Small Business Studies, Small Business Research Centre, Kingston Business School,
Kingston University.
We are grateful for comments received on earlier versions of this paper from Jim Curran, Kim Hoque and
others following presentations at Cardiff and Glasgow Universities. Paul Edwards and Sukanya Sen-Gupta
were funded by the ESRC through the Advanced Institute of Management Research.
2
Management Formality, Size of Firm and
Employee Evaluations of Work
Abstract
A headline result from WERS 2004 is that measures of employee ‘satisfaction’ are higher in
small than large firms. This paper pursues this issue further. We conceptualise ‘satisfaction’ more
exactly as the employee evaluation of work experience (EEWE) and provide theoretical reasons
to expect the observed relationship. We then interrogate it in two main ways. First, we address the
size of the workplace as well as the size of the firm, and also make distinctions between
workplaces that are part of multi-site companies and stand-alone sites. Second, the relationship
between size and the EEWE is often explained in terms of ‘small firm informality’. We develop a
measure of formality to test this idea. Formality was indeed related to size, both of workplace and
firm. It also had associations with the EEWE. Relationships here were complex, but there was a
clear tendency for the effect to be negative in smaller single-site firms.
3
1
Introduction
A major finding from the 2004 Workplace Employment Relations Survey (WERS) is that
the employees of small firms give higher evaluations of their jobs, on a number of
dimensions, than do those in large firms (Forth et al., 2006: 97-8). This result challenges
some conventional wisdom, for in terms of measures such as pay levels and standard
industrial relations indicators such as trade union presence small firms perform poorly.
The result is, however, consistent with commentary on ‘size and morale’ going back over
50 years (Acton Society Trust, 1953). That commentary was, however, often based on
poor evidence, a weak conceptualisation of ‘morale’, and a failure to be clear about
whether size referred to the work group, the workplace, or the organisation as a whole
(Curran and Stanworth, 1981). The WERS result puts the basic fact of high ‘satisfaction’
in small firms on a firmer footing. This paper interrogates the basis of this fact in three
ways: by addressing different measures of size; by identifying a key determinant of
‘satisfaction’, the formality with which employment relations are managed and showing
that this is associated with size and ‘satisfaction’; and by offering a theory of the sizemorale link. Under the third head, we could use terms such as ‘satisfaction’ and ‘morale’.
These terms have, however, considerable conceptual baggage. What we are examining is
the employee evaluation of (dimensions of) work experience, which for clarity if not
elegance we will call the EEWE.
In contrast to Forth et al., our analysis considers both the size of the workplace
and the size of the organisation, firm or enterprise owning that workplace/establishment.
To address this we make the following distinctions. First, we identify single-workplace
firms. Where the workplace is small then, by definition, the organisation is small.
Second, we identify workplaces that are part of a multi-site firm. One organisation may
own several workplaces with the result that the organisation may be large even when its
workplaces are small. Nevertheless, small and medium multi-site workplaces (SMMWs)
may also belong to an SME. The WERS sample suggests that about 15% of small multiworkplaces belong to a small firm (5-49 employees) and 16% are part of a medium-sized
firm (50-249 employees). We also found that 10% of medium multi-workplaces are part
4
of a medium multi-workplace firm. This leads us to make a further distinction between
SMMWs that are part of a SME and those that are part of large firm.
We begin by examining formality and how this varies by workplace size within
the two categories of workplace ownership (single-site firms and multi-site firms).
Formality is measured by the presence of written procedures, and rules and policies to
design, measure and regulate the employment relationship. In contrast, ‘informality’ is
defined as being dominated by custom and practice, with an absence of written
procedures. We find strong evidence that formality increases as the workplace size
increases. Then we examine whether the EEWE follows a similar pattern. We find,
perhaps unsurprisingly, the reverse results: the EEWE decreases as workplace size
increases. An interesting question, however, is whether small and medium single-site
firms have different EEWE and management formality, and if so to what extent, from
SMMW’s that are either part of a SME or part of a large firm. Our results suggest that
single-site SMEs have higher EEWE and lower formality than SMMWs that are part of
either a SME or a large firm. Having established the above relationships, the analysis
then proceeds by studying empirically the link between EEWE and formality, holding
workforce and establishment characteristics fixed. We find that the association between
EEWE and management formality is quite complex. Some indicators of formality are
negatively associated with evaluations, others are positively associated and others are
unrelated.
The remainder of the paper is structured as follows. Section 2 reviews existing
work and derives hypotheses. It also highlights the distinction between workplace and
firm size. Section 3 describes the dataset and our measures of formality, and summarises
the empirical method. Section 4 examines the relationships among workplace and
organisation size, formality, and the EEWE. Section 5 reports multivariate analyses of the
influences on the EEWE. Section 6 draws out some implications.
2
Organisation size, formality and employee attitudes
2.1 Size and formality
WERS 2004 and its predecessors clearly show that measures of formality in employment
relations increase with the size of the workplace. The presence of an HR manager is one
example (Kersley et al., 2006: 40). All indices of formality are positively associated with
5
size. This seems to be a cross-national fact, as studies in the US (Kaman et al., 2001),
Australia (Kotey and Slade, 2005), and Canada (Golhar and Deshpande, 1997) suggest. It
is important, however, to distinguish between the effects of workplace size and the effects
of the size of the organisation owning that workplace [Marginson (1984)]. We return to
this distinction after we have presented some expectations about organisation size,
initially treating ‘organisation’ as covering both workplace and firm.
Many behavioural differences between organisations of different sizes reflect
differences in the nature of the uncertainties facing them and hence their employment
relations (Storey and Sykes, 1996). The size of an organisation is related to uncertainty in
three respects. First, small enterprises are much more likely to cease trading than larger
enterprises (Mata and Portugal, 2002). This is a result of a combination of factors but is
primarily because they lack control over their external environment as well as other
factors such as under-capitalisation and perhaps poor management skills (Watson and
Everett, 1998). They lack the necessary market power to influence prices and they are
more likely to be dependent on a single or small number of customers. In contrast, large
firms lack control over their internal environment. They are more likely than small firms
to experience problems in communicating with their workforce. The conventional
response to this problem is to develop formal procedures such as newsletters, formal
meetings and representative structures. Formality is, therefore, argued to be a response to
increased size, on the grounds that it is infeasible for the ultimate decision taker to
communicate this directly to all those affected.
A second key problem for large firms is to make workers, at all levels,
comprehend the significance of their own actions. So, while workers in all sizes of firm
understand that absenteeism causes problems for co-workers, workers in small firms may
be more likely to understand the impact this may have upon the viability of the whole
enterprise. To address this problem larger firms again respond by seeking to raise
formality. Team spirit, which may occur more naturally in small firms, is promoted by
formal communication channels and seeking to standardise procedures. A third difference
is that, in small firms, diversity is more likely to be managed flexibly whereas, in large
firms, it is more likely to be managed by formality. So, in large firms, a central theme is
6
to ensure that individuals are treated fairly, by which it is meant that no individual is seen
to be advantageously treated, compared with comparable co-workers.
We expect these effects to apply to workplaces and firms, though perhaps in
different ways. Thus as workplace size increases there is likely to be a more formal
division of labour and growing distance between the top management and workers.
Edwards et al. (1998) report a study of worker attitudes in six large organizations, and
argue that the small size of workplaces in a financial services firm promoted direct faceto-face relationships and a degree of trust, compared with the larger workplaces of other
large firms. Growing firm size is likely to increase problems of communication and to
promote the need for standard rules across workplaces.
These considerations lead to:
H1: Small workplaces will exhibit less formality than large workplaces.
H2: Small workplaces owned by single-site firms (small firms) will exhibit less
formality than small workplaces owned by a large (multi-site) firm.
2.2
Employee ‘satisfaction’
The view that there is a strong link between firm size and employee ‘satisfaction’ was
memorably summarised by the Bolton Committee (1971: 21).
“Although physical conditions may sometimes be inferior in small firms, most
people prefer to work in a small group where communication presents fewer
problems: the employee in a small firm can more easily see the relation between
what he is doing and the objectives and performance of the firm as a whole.
Where management is more direct and flexible, working rules can be varied to
suit the individual. Each employee is also likely to have a more varied role, with a
chance to participate in several kinds of work and better opportunities to learn and
widen his experience.”
This statement reflected common ambiguities at the time as to whether it was the size of
the ‘firm’ or the work group which was important. The dependent variable was also
loosely identified. Ingham (1970) made one development in suggesting that small-firm
employees balance intrinsic job qualities such as close working relationships against
relatively poor pay and conditions, so that there may be no single dimension of
satisfaction. More recent work, however, shows that satisfaction is multi-dimensional
7
(Kalleberg, 1977) while many scholars prefer to address indices of job quality, such as
pay and autonomy, as opposed to ‘satisfaction’ (Green, 2006). A key issue with
satisfaction is that an employee may be satisfied only because s/he is measuring work
against very low expectations. This is certainly true, but it is equally true of the autonomy
measures favoured by some researchers, for workers must use some implicit benchmark
when they assess how much autonomy they have.
The WERS researchers, none the less, produced a set of 22 measures which they
labelled ‘employee needs’ (Forth et al., 2006). It comprised evaluations of three broad
areas: the nature of the job (8 items); the quality of communication from managers (4
items); and the quality of the manager-employee relationship (10 items). Employees rated
these on five-point scales. As noted earlier, we have chosen to call this set the EEWE: it
addresses issues broader than satisfaction with the job itself, but it plainly is a measure of
employee evaluations of the quality of the work experience, and not direct measures of
that quality. We take the view, evidently shared by students of autonomy and other
aspects of job quality (e.g. Gallie, 2003; Gallie et al., 2004), that it does make sense to
ask employees about these things, since there can be no other source for personal
assessments of work experience. We acknowledge that there are potential problems with
self-assessments. But there is only a problem if we have reasons to expect that
assessments will be systematically skewed according to size of firm on variables of
interest: in this case, that small firm workers are, as a group, more or less likely to give a
higher evaluation than large-firm workers, for reasons to do with socially structured
expectations as opposed to their ‘true’ assessments. It has certainly been shown that some
small-firm workers in low-paying jobs are content because of very limited alternatives
(Ram et al., 2007). But the whole point about those jobs is that they are on the margins of
the economy. There is no reason to expect skewed expectations across workers in small
firms as a whole.
Empirical evidence comes from Tsai et al. (2007) who examined three contrasting
sectors and showed that the employment relationship was negotiated differently in each.
But they also found important similarities across the sectors. This led them to identify
two kinds of size effect. The first is a ‘pure’ effect of size, which reflected in particular
direct personal relationships. The second covers processes that are correlated with size
8
rather than the direct result of it. These are the factors discussed below. In short, we can
refine Bolton’s speculations into the expectation that direct personal relationships in
small organisations will lead to positive evaluations of work experience. And we can
unpack ‘organisations’ to test whether this is a workplace effect, an effect of the size of
the firm as a whole, or both.
H3: The employee evaluation of work experience (EEWE) is higher in small than
in large workplaces.
H4: The EEWE in small single-site workplaces (small firms) is higher than in
small workplaces owned by a large (multi-site) firm.
2.3 Formality and employee evaluations of work
Size may be only a ‘proxy for other more theoretically relevant variables that are usually
poorly specified’ (Kalleberg and Van Buren, 1996: 47). Others dispute whether there is
any determinate influence of size: once industrial sector and other factors are taken into
account, ‘size of firm is not, in itself, an important factor in explaining differences in
levels of job satisfaction’ (Curran and Stanworth, 1981: 343). Kalleberg and Van Buren
(1996: 63), their reservations notwithstanding, find a high level of job autonomy in small
firms, which they attribute to a tendency of large firms to constrain the freedom of choice
open to workers. Idson (1990) addressed the size of the workplace rather than the whole
organization. He argued that a lack of ‘satisfaction’ in large firms could be explained as a
result of the nature of formality, which meant that the rules of any particular workplace
would not match the expectations of a significant number of workers.
These studies, together with the results of Tsai et al. described above, lead one to
expect that there will be a ‘pure’ size effect as stated in Hypotheses 3 and 4 but also that
formality may play an independent role. It is plainly also important to control for the
sectoral and other effects identified by Curran and Stanworth, to see whether ‘pure’ and
‘formality’ effects disappear when other factors are introduced.
H5: Formality has a negative impact on the EEWE, holding workforce and
establishment characteristics fixed.
9
3
Data, formality measure and measure of employee evaluations
3.1 Data
Our analysis uses data from the WERS 2004 which is a nationally representative crosssection survey, based on a stratified random sample of establishments and a sample of
employees at those establishments. Here our focus is on private sector workplaces with a
minimum employment size of 5 employees. We have excluded sole UK establishments of
foreign organisations. We draw on data from two sources. The Management
Questionnaire consists of face-to-face interviews with 2,295 senior managers dealing
with industrial, employee or personnel relations at the workplace (response rate 64%);
and the Employee Questionnaire, consists of a self-competition questionnaire distributed
to a random sample of up to 25 employees in each workplace with 5 or more employees
located in Britain (response rate 60%).
In the descriptive analysis, the Management and Employee data have been
weighted using the ‘empwtnr’ and ‘seqwtnr’ variable, respectively. i The ‘empwtnr’ has
been applied to the management questionnaire because the analysis reflects the
proportion of employees to whom the formality procedures have been applied. Further
information regarding the sample design, selection and weighting can be found in the
technical report (Chaplin et al., 2005). The matched employer-employee data comprised
22,451 employees working in 1,733 workplaces. Our number of observations, however,
was reduced by 2% because we excluded sole UK establishments of a foreign
organisation; this reflected our desire not to conflate genuinely small firms with the single
sites of potentially large overseas firms. Given that the small firm literature presented
earlier concerns private sectors firms, we have also excluded public sector workplaces.
Table 1 provides information on the distribution of employees by workplace size,
in workplaces which are part of a multi-site firm and single-workplace firms. This table
shows that 47% of employees of the single workplace firms work in workplaces with 549 employees, compared with 26% of those in workplaces that are part of a multi-site
firm. It is worth mentioning that only 14% of multi-site employees are in SMEs (5-249
employees). This emphasises that multi-site employees work primarily for large firms
(250+ employees). ii
10
Table 1: Distribution of employees by size and type of workplace
(%, weighted estimates)
Workplace size
5-49
50-99
100-249
250-499
500+
Observations
All workplaces
A) Workplaces
which are part of a
multi-site firm
B) Singleworkplace
firms
31.7
15.9
19.8
16.4
16.2
14,249
26.3
14.9
22.2
18.7
17.9
10,649
47.4
18.7
13.1
9.8
11.1
3,600
Note: The null hypothesis that the proportions are equal between workplaces that are part of a multisite firm and single-workplace firms of the same workplace size was rejected for each case.
11
3.2 Measurement of formality
Although informality has long been a defining feature of the small firm debate it is
necessarily a matter of degree, and so this presents problems of definition. As Hill (1974)
pointed out, small firms have elements of formality, and large firms often practise
informality (as a massive literature on the breach or neglect of formal rules testifies).
Case study researchers have explored the negotiability of rules and the meaning of formal
and informal relationships (e.g. Holliday, 1995). Within WERS it is possible only to
derive indicators of the extent to which formal practices and procedures exist. If one were
seeking an index of formality, one might identify measures that are not available in
WERS or define measures differently, for example with explicit reference to formal
systems. Consequently, the WERS measures are imperfect, but they have the benefit of
covering a wide range of HR practices including recruitment, appraisal and pay. In
particular, they reflect the different dimensions of formality identified above, that is,
formality in relation to performance management (e.g. appraisal), training and employee
development, and methods of handling communication with employees.
We used the management questionnaire to identify formal practices, taking only
indicators that reasonably clearly indicated a formal structure or process. The decision of
what measures should be included was not straightforward. For example, WERS has a
question on benchmarking, defined as ‘examining the way things are done at other
workplaces and comparing them with this establishment’. Benchmarking might certainly
be part of a structured approach to the workplace, but it could be done through very
informal methods. In addition, whether or not comparison with outside organisations
takes place may not impinge directly on an establishment’s workers. We therefore
excluded benchmarking as a criterion. Similar arguments apply to the use of just-in-time
methods and the attainment of ISO quality standards. That is, the focus is on formality in
relation to employee relations specifically, though wider studies of workplace production
organisation might embrace benchmarking, JIT and ISO.
We identified 12 measures of formality, most of which relate directly to the
management of employees. Some of these are self-explanatory, for example the existence
of formal procedures in such areas as equal opportunities. We also included coverage of
12
what was explicitly called a ‘formal strategic plan’. This question was followed in WERS
by a follow-up on the issues covered by the plan. An initial idea was to include only cases
where employee issues were mentioned, but there were very few where such issues were
mentioned and thus the primary variable on use of a plan was used. Investors in People
(IiP) is also a natural indicator because the standard is heavily concerned with
documented formal procedures and systems (Hoque, 2003). In relation to communication
with employees, we used two measures: whether meetings were held between senior
managers and the workforce, and the use of some structured communication device such
as newsletters. The latter is clearly formal; the former is less so, but none the less a
meeting, as distinct from unplanned face-to-face interaction, is a reasonably clear
indicator of a considered approach.
Two other measures warrant comment. First, we included the existence of any
non-pay benefits for the largest occupational group; WERS listed five such benefits
including an employer pension scheme and sick pay in excess of statutory minima. The
logic here was that such benefits embrace ‘instrumental-economistic’ rewards other than
basic pay and are likely to reflect a structured and long-term approach to rewards, as
opposed to payment of a basic wage alone. Second, we took one non-HR measure, the
existence of a target for any of a long list of measures including sales, costs, quality, and
labour turnover. We took a target to be an indicator of a stated objective which implies a
structured approach. iii This measure, in contrast to those that we rejected, may affect
employees directly in terms of cost pressures and performance standards.
3.3 Employee evaluation of work experience
As noted above, employees were asked to evaluate their work experience on 22 different
aspects, using a five point scale. These measures are listed in Table 3. Forth et al. (2006)
chose to analyse a summary measure. We did likewise, but also tested whether there were
in fact three (or more) underlying factors. We found that three separate factors did indeed
emerge, with each factor weighting heavily on one dimension of work experience:
evaluations of the job (8 items), evaluations of information (4 items), and evaluations of
manager-worker relationships (10 items). iv
It is possible to add scores on each dimension to produce an overall continuous
score, and some researchers do so, using OLS methods. The underlying measures are,
13
however, ordinal, and, along with other WERS researchers (e.g. Danford et al., 2007), we
have chosen to retain the ordinal ranking and use an ordered response model (for review
see Wooldridge, 2002, pp. 504-508). We also adopt a random effects estimator to allow
for the fact that the employee level data are drawn from a number of workplaces. Since
employees were not asked to evaluate their overall work experience, we computed
average scores of the EEWE and then scaled them back to 0-4 categories. Doing this we
found that only a very small proportion of replies were in the top (5.24%) and bottom
(0.10%) categories. We, therefore, used a three-fold scale taking the value of 1 if the
employee is dissatisfied (15.2%), 2 if satisfied (39.5%) and 3 if very satisfied (45.3%). In
the same way, we created a three point index to reflect each of the three dimensions of
the EEWE. v We also allowed for the possibility that the ‘very satisfied’ are qualitatively
different from other workers, and for some analyses used a simple contrast between these
two groups.
4
Formality and work experience by workplace size
We first address Hypothesis 1 by examining the association between formality and size
within workplaces. Table 2 shows the responses to the twelve questions on formality,
together with the average for all twelve. So, for example, the right hand side of the table
shows that 7% of small single-workplace firms have ‘a person mainly concerned with HR
issues’. This proportion rises monotonically to 80% for single-workplace firms with more
than 500 workers. For both multi- and single-workplace firms, it is the smallest sized
workplaces which, on all twelve measures - and by implication also the average measure
- that have the lowest formality. Second, formality rises with increases in workplace size
for almost every measure.
To address Hypothesis 2 we initially compare small workplaces that are part of a
multi-site firm with small single-site workplaces. It shows that every measure of
formality is significantly higher in 5-49 employee workplaces that are owned by a multisite firm than for single-workplace firms of this size. For example, in workplaces of 5-9
employees that are part of a multi-site firm, 29% report having an HR manager,
compared with only 7% in single–workplace firms. These differences between multi and
single workplaces diminish with increasing workplace size, however, such that there are
14
no significant differences (at the 5% level) between any workplaces with more than 500
employees.
However, not all the SMMWs belong to a large firm. To address this Table 2
distinguishes between SMMWs that are part of a SME and those that are part of a large
firm. It shows that formality is significantly greater in the latter than in the former,
suggesting that the size of the firm, as well as workplace, matters. Second, it shows that
SMMWs have greater formality than small and medium single-site workplaces
(SMSWs). vi Table A1 in the Appendix provides more information and further evidence in
support of Hypothesis 2.
Hypothesis 3 addresses the link between workplace size and the EEWE. The
findings are stark. Table 3 shows that workers in all small workplaces were more likely to
have higher average EEWE than those in large workplaces. For the multi-site workplaces,
the EEWE decreases significantly with increasing size until the 250-499 employee range.
After that increases in workplace size seem unrelated to the EEWE. This effect, however,
is not apparent in single-site workplaces, where the EEWE continues to decrease as
workplace size increases.
The finding that there is a significant difference in the means of the EEWE
between those in small workplaces that are part of a multi-site firm and those in small
single-workplace firms also provides support for Hypothesis 4. In particular, on 21 out of
the 22 measures, workers in single workplace firms of 5-49 employees gave a higher
evaluation than those in workplaces of the same size but owned by a multi-site firm. In
contrast, for workplaces of more than 500 workers, there were significant differences at
the 5% level on only six dimensions. Turning to SMMWs, two main findings are
apparent: first, the means between SMMWs that are part of SME and those that are part
of a larger firm were not statistically significant from each other on half of the EEWE
measures. Second, the EEWE was significantly higher in the single-site SMEs than in
SMMWs that are part either of a SME or a large firm, providing further support for
Hypothesis 4 (Table A2 in the Appendix provides a more detailed picture).
15
Table 2: Employer Formality (0-1 with 1: Yes and 0: No; weighted estimates %)
A) Workplaces that are part of a multi-site firm
B) Single-workplace firms
5-49
50-99
100-249
250-499
500+
SMMW
(5-249)
Large
SME
firm
5-49
50-99
100-249
250-499
500+
SME
Person mainly concerned with HR issues
28.85
38.70
61.23
69.22
81.73
26.50
44.78
6.69
14.46
42.18
52.39
80.07
11.92
Existence of a formal strategic plan
74.23
92.81
90.13
92.89
93.43
56.65
90.12
39.22
65.13
69.11
60.43
89.58
46.47
Investors in People (IiP)
43.59
50.71
48.04
54.36
48.95
20.27
53.47
12.12
22.19
15.08
27.18
43.08
13.94
Presence of tests at induction as part of recruitment
90.19
99.86
98.82
98.86
100
83.74
98.19
76.36
94.81
98.95
96.70
100
81.67
Any communication channels e.g. newsletters, internet , email
95.44
99.29
100
100
100
93.79
98.89
89.19
98.61
100
100
100
91.82
Any meeting between management and employee
92.00
97.18
95.57
92.41
98.1
90.43
95.56
80.84
85.43
93.26
97.38
90.26
82.94
Presence of a dispute procedure
42.73
46.97
54.10
67.42
71.23
36.43
50.06
22.48
34.48
47.48
37.44
58.02
27.13
Presence of an equal opportunity policy
81.46
92.66
94.03
97.56
95.37
61.33
94.70
39.77
70.34
90.79
89.58
96.88
50.14
Presence of a grievance policy
92.49
99.41
99.62
99.08
100
86.19
98.60
68.11
97.34
98.95
95.14
100
75.96
Presence of a performance appraisal programme
84.31
92.79
90.55
99.46
96.02
71.14
92.42
54.16
71.54
74.06
81.21
94.53
59.01
Formal target
87.64
95.77
92.75
98.49
94.12
77.86
94.69
62.01
92.60
91.41
95.10
93.73
69.85
Any non-payment benefits
83.77
89.62
98.91
97.46
98.55
79.56
92.59
65.56
70.60
73.73
65.61
88.46
67.24
Average formality
74.80
83.27
85.00
89.14
89.72
65.33
83.81
51.39
68.01
74.59
74.85
85.71
56.48
Workplace size
Formality Measures:
SMSW
(5-249)
Workplace size
Notes: Within workplaces that are part of a multi-site firm and single-workplace firms, the null hypothesis that formality is the same between workplaces of different size was not rejected at the 5% level in the former sub-sample for "Investors
in People". In most cases, formality increased significantly for workplaces above 5-49 employees. We test whether the proportions of workplaces that are part of a multi-site firm and single-workplace firms, with the same workplace size, are
statistically different from each other. We also test whether the proportions of SMMWs that are part of a SME and those that are part of a large firm are statistically different from SMEs owned by a single-site firm. Bold black and underline
values indicate where the difference was found to be statistically significant at the 5% and 10% level, respectively.
16
Table 3: Mean Employee Evaluation of Work Experience (EEWE) by type of workplace and organisation (weighted estimates)
A) Workplaces which are part of a multi-site firm
SMMW
Workplace size
(5-249)
550100250Large
49
99
249
499
500+
SME
firm
Job Satisfaction Measures:
Factor 1 : EEWE regarding the nature of the job
B) Single-workplace firms
SMSW
(5-249)
Workplace size
549
5099
100249
250499
500+
SME
2.92
(0: very dissatisfied; 4: very satisfied)
Sense of achievement
2.80
2.73
2.69
2.54
2.59
2.86
2.72
2.98
2.89
2.64
2.79
2.71
Scope for using initiative
2.85
2.82
2.77
2.61
2.66
2.93
2.80
3.04
2.93
2.72
2.98
2.71
2.98
The amount of influence on job
2.62
2.59
2.51
2.36
2.40
2.69
2.54
2.86
2.67
2.58
2.65
2.45
2.79
The training received
2.41
2.28
2.25
2.22
2.18
(2.34)
(2.34)
2.52
2.38
2.27
2.44
2.23
2.47
The amount of pay received
1.83
1.78
1.89
1.74
1.81
1.97
1.81
2.14
2.00
1.91
1.94
1.92
2.09
The amount of job security
2.69
2.68
2.52
2.46
2.34
2.77
2.60
2.84
2.76
2.58
2.71
2.47
2.80
Satisfaction with the work itself
2.82
2.75
2.74
2.60
2.61
2.92
2.74
2.97
2.92
2.70
2.84
2.76
2.93
Amount of involvement in decision making at workplace
2.36
2.19
2.06
2.00
2.04
(2.29)
(2.23)
2.60
2.30
2.22
2.26
1.97
2.51
Managers keeping employees informed about changes at work
2.49
2.38
2.21
2.11
2.20
(2.34)
(2.41)
2.63
2.30
2.20
2.37
2.02
2.52
Managers keeping employees informed about staffing changes
2.45
2.23
2.04
1.94
2.04
(2.30)
(2.29)
2.60
2.29
2.09
2.21
1.97
2.49
Managers keeping employees informed about changes in way job is done
2.57
2.40
2.23
2.16
2.18
(2.43)
(2.44)
2.68
2.41
2.29
2.34
2.12
2.59
Managers keeping employees informed about financial matters
2.25
2.14
2.07
1.99
2.12
1.96
2.25
2.16
2.01
1.97
1.99
1.73
2.11
Managers seeking employee views
2.44
2.22
2.08
1.99
2.07
(2.28)
(2.30)
2.62
2.31
2.06
2.10
1.88
2.50
Managers responding to employee suggestions
2.40
2.18
2.01
1.93
1.94
(2.25)
(2.24)
2.61
2.26
2.08
2.10
1.85
2.48
Managers allowing employees/ employee reps to be involved in decision making
2.13
1.89
1.72
1.68
1.68
(1.97)
(1.96)
2.34
1.89
1.80
1.89
1.55
2.20
Relationship between employee and management
2.88
2.65
2.48
2.36
2.38
2.84
2.69
3.14
2.74
2.59
2.53
2.34
3.00
Managers’ ability to keep promises
2.50
2.36
2.17
2.01
1.99
(2.41)
(2.36)
2.74
2.37
2.30
2.22
2.05
2.63
Managers’ sincerity in attempting to understand employee needs
2.60
2.46
2.26
2.14
2.13
(2.50)
(2.46)
2.82
2.50
2.39
2.39
2.13
2.71
Managers’ dealing with employees honestly
2.67
2.50
2.33
2.21
2.18
2.61
2.52
2.90
2.54
2.47
2.50
2.24
2.78
Managers’ understanding about having to meet responsibilities outside work
2.64
2.48
2.31
2.16
2.24
2.62
2.49
2.88
2.56
2.56
2.36
2.30
2.79
Managers’ encouraging employees to develop skills
2.63
2.50
2.38
2.28
2.33
(2.52)
(2.54)
2.75
2.61
2.41
2.51
2.37
2.69
Managers’ treating employees fairly
2.63
2.47
2.29
2.18
2.21
2.62
2.47
2.87
2.62
2.47
2.52
2.17
2.78
Average score
2.52
2.36
2.26
2.15
2.18
(2.46)
(2.40)
2.74
2.49
2.27
2.34
2.19
2.65
Factor 2: EEWE regarding information
(0: very poor; 4 very good)
Factor 3: EEWE regarding manager-worker experience
(0: very poor; 4 very good)
(0: strongly disagree; 4: strongly agree)
Notes: We test whether the means of workplaces that are part of a multi-site firm and single-workplace firms, with the same workplace size, are statistically different from each other. We also test whether the means of SMMWs that are part of a
SMEs and SMMWs that are part of a large firm are statistically different from single-site SMEs. Bold black and underline values indicate where the difference was found to be statistically significant at the 5% and 10% level, respectively.
Parentheses show that the difference between SMMWs that are part of a SME and SMMWs that are part of a large organisation is statistically insignificant at the 5% or 10% level.
17
5
Determinants of employee evaluations of their work experience
5.1
The role of formality
In order to complete our analysis, we now examine the association between the EEWE
and management formality, taking into consideration a wide range of workforce and
establishment characteristics. vii Table 4 presents the ordered probit results for the overall
EEWE index, and also for the three disaggregated indexes (Model I). For comparison, we
also include the results from the random effect ordered probit (Model II). We initially
focus our discussion on the former. The results confirm our earlier finding that employees
in single-workplace firms are more likely to evaluate their job experience highly. The
coefficients for the workplace size measures also show strongly that the EEWE decreases
as size increases. viii
As for the formality indices, we are aware of the possible limitations of treating
these as exogenous in the equation. One may argue, for example, that recruiting the
wrong people and employees’ sense of grievance may generate job dissatisfaction and in
response managers may introduce formal policy responses. Though this is an issue for
further research, we would argue that formality is likely to reflect genuinely exogenous
processes. It is well-established that the formalisation of discipline and dismissals
procedures was driven by legal changes starting in the 1970s (Edwards, 1989). Similar
points apply to equal opportunities policies. A second driver of formalisation is the
general one discussed above, namely, the need for formal rules as organisations become
more complex. A third is isomorphism (DiMaggio and Powell, 1983): firms grow alike
because of coercive, normative and mimetic processes. This is not to deny that some
formalisation may be driven by the state of employee opinion. At least among small
firms, however, the evidence for growing formalisation in the handling of discipline and
dismissals is weak (Earnshaw et al. 1998). We might attribute this to weaker isomorphic
pressures than exist among larger firms. In short, we doubt whether endogeneity is a big
problem.
The results based on the overall EEWE measure are shown in the first column of
Table 4. ix They show that ‘having a person mainly concerned with HR issues’,
‘communication channels’, ‘presence of dispute procedures’, and ‘any non payment
benefits’ are negatively associated with the overall EEWE. We suggest that most of these
18
types of formal procedures may emphasise regulating the workplace through bureaucratic
or documented means, and therefore, may impinge on employee autonomy or discretion
and reduce the EEWE. Table 4, however, also shows some significantly positive
relationships between formality and EEWE. ‘Investors in People’, ‘meetings between
management and employee’ and the ‘presence of a performance appraisal programme’
were found to carry a positive and significant sign. One possible explanation is that these
formal procedures are not purely rule-bound but allow employee concerns to be taken
into account; IiP for example requires evidence of systematic training.
When the model is estimated separately for the three disaggregated indexes of
EEWE, three main conclusions emerge. First, formal procedures such as ‘having a person
mainly concerned with HR issues’ and ‘presence of grievance policy’ are found not to
have any significant association with evaluations of the job or the information provided
by managers. However, both were found to be negatively and significantly associated
with evaluations of the relationship between manager and employee. Second, the
‘presence of an equal opportunity policy’ and ‘formal targets’ were found to be positively
associated with evaluations of information provided by managers. Finally, the role of
formalisation seems to be less important in explaining attitudes to the job itself, since
only one formality measure was found to be significant at the 5% level. This pattern
complements our argument, for evaluations of the job itself are likely to reflect factors
such as interest in the task itself and the quality of relations with work mates. We might
expect formality to be less salient here than it is with views of managers - a result
consistent with the work of Tsai et al. (2007).
By comparing the results of the ordered probit analysis with the random effects
ordered probit, we find: first, ‘having a person mainly concerned with HR issues’, ‘any
communication channels’ and ‘any non payment benefits’ significantly lowers EEWE.
However, ‘any meeting between management and employee’ is clearly associated with
better evaluations. The role of other formal procedures such as ‘Investors in People’,
‘presence of dispute procedure’ and ‘presence of a performance appraisal programme’
becomes weak. Finally, the coefficient of rho (ρ), which indicates the magnitude of the
workplace effects, is statistically significant and relatively large throughout the
19
estimations. It is clear therefore, that there is a high unobservable intra-workplace
correlation in the determinants of the EEWE.
Overall, the results suggest that the relationship between EEWE and management
formality in workplaces is complex. We experimented further by aggregating the raw
responses on formality to find an overall formality variable that ranges between 1 and 12.
Since this variable appears in the right-hand side of the statistical model, we treated it, for
simplicity, as continuous and found that its coefficient for the overall EEWE model was
statistically insignificant (coeff.= -0.008 and std. err.= .0008). For the three disaggregated
indices of job satisfaction, however, overall formality was found to have a significant and
positive association with evaluations of information provided by managers (coeff.=0.023
and std. err.=0.007) but a significant and negative association with evaluation of the
relationship between manager and employee model (coeff.=-0.019 and std. err.=0.007). x
20
Table 4: Ordered Probit (I) & Ordered Probit Random Effects (II) Estimates of Employee Evaluation of Work Experience
Overall
Measures of EEWE:
Model:
Variable
Workplace size (5-49)
50-99
Nature of the job
Information provided by
managers
Relationship between
manager and employee
I
Coeff.
II
Coeff.
I
Coeff.
II
Coeff.
I
Coeff.
II
Coeff.
I
Coeff.
II
Coeff.
-0.178**
-0.207**
-0.082**
-0.082*
-0.0981**
-0.127**
-0.170**
-0.200**
0.039
0.060
0.036
0.048
0.035
0.058
0.037
0.059
100-249
-0.226**
-0.271**
-0.135**
-0.146**
-0.207**
-0.262**
-0.227**
-0.270**
0.038
0.059
0.035
0.047
0.034
0.058
0.036
0.059
250-499
-0.259**
-0.322**
-0.145**
-0.159**
-0.244**
-0.297**
-0.311**
-0.375**
0.045
0.071
0.041
0.057
0.040
0.069
0.043
0.070
500+
-0.259**
-0.288**
-0.243**
-0.254**
-0.158**
-0.189**
-0.278**
-0.311**
0.043
0.068
0.040
0.055
0.039
0.067
0.042
0.068
0.127**
0.172**
0.141**
0.158**
0.076**
0.095*
0.130**
0.178**
0.034
0.051
0.031
0.041
0.030
0.049
0.032
0.050
-0.089**
-0.080*
-0.016
-0.008
-0.019
-0.009
-0.085**
-0.082*
0.028
0.045
0.026
0.036
0.026
0.044
0.027
0.044
0.001
0.008
0.015
0.017
0.011
0.012
-0.050
-0.049
Establishment (W/pls that are part of a multi-site firm)
Single workplace firm
Formality
Person mainly concerned with HR issues
Existence of a formal strategic plan
Investors in People (IiP)
Presence of tests at induction as part of recruitment
0.038
0.057
0.034
0.046
0.034
0.055
0.036
0.057
0.053**
0.062
0.043*
0.041
0.076**
0.076*
0.031
0.039
0.026
0.041
0.024
0.033
0.024
0.040
0.025
0.041
-0.043
-0.052
0.001
-0.015
-0.060
-0.041
-0.052
-0.046
0.064
0.090
0.058
0.074
0.057
0.086
0.061
0.088
Any communication channels e.g. email
-0.484**
-0.513**
-0.533**
-0.572**
-0.615**
-0.661**
-0.376**
-0.403**
0.131
0.165
0.117
0.137
0.113
0.149
0.122
0.158
Any meeting between management and employee
0.122**
0.134*
0.021
0.012
0.233**
0.229**
0.151**
0.149**
0.051
0.076
0.046
0.061
0.045
0.072
0.048
0.074
Presence of a dispute procedure
-0.078**
-0.066
-0.040
-0.031
-0.075**
-0.060
-0.055
-0.042
Presence of an equal opportunity policy
0.028
0.042
0.025
0.034
0.025
0.041
0.026
0.042
0.028
0.018
-0.004
-0.020
0.067*
0.061
0.035
0.025
21
0.042
0.063
0.038
0.051
0.037
0.061
0.040
0.063
Presence of a grievance policy
-0.069
-0.098
0.018
0.001
0.028
0.008
-0.133*
-0.140
0.073
0.102
0.065
0.082
0.063
0.095
0.068
0.099
Presence of a performance appraisal programme
0.074*
0.054
0.027
0.024
0.109**
0.079
0.134**
0.118**
0.044
0.066
0.040
0.053
0.040
0.064
0.042
0.065
0.034
0.046
-0.051
-0.047
0.072*
0.072
0.002
-0.003
0.046
0.068
0.042
0.055
0.041
0.065
0.043
0.067
-0.102**
-0.118*
-0.072*
-0.074
-0.101**
-0.102
-0.070
-0.092
Formal target
Any non payment benefits
Log likelihood
Chi2 [degrees of freedom]
Rho
0.049
0.069
0.044
0.056
0.043
-8,964.0
1,081.4[50]
-
-8,807.9
714.3[50]
0.144
-10,352.7
1,078.5[50]
-
-10,271.7
807.9[50]
0.079
-11,734.1
884.8[50]
-
0.012
Observations
0.065
-11,474.1
533.4[50]
0.157
0.009
9,370
11,507
0.046
0.067
-10,154.3
1,273.4[50]
-
-9,958.1
760.1[50]
0.153
0.011
11,213
0.012
10,226
Note: All models control for personal and workplace characteristics. Full tables are available from authors on request.
Standard errors are reported beneath parameter estimates (in italic).
**Significant at the 5% level.
*Significant at the 10% level.
`
22
We also estimated the overall EEWE model separately for workplaces which are a
part of a multi-site firm and single-workplace firms. Additionally, for each of these two
sub-samples the model is estimated separately for SMEs (5-429); and large firms (250+).
For simplicity, we allow for possible distinct differences between those who feel very
content and other workers, and use a binary variable taking the value of unity if the
worker reports being very satisfied with his or her job and zero otherwise. Probit
estimates (reported as marginal effects) of the probability of being very satisfied with job
aspects are given in Table 5. xi
We first examine workplaces that are part of a multi-site firm. The results (shown
in column 1) clearly show that employees in SMMWs that are part of SME are more
likely to be ‘very satisfied’ than those in workplaces that are part of a large multi-site
firm. Having ‘a person mainly concerned with HR issues’, ‘existence of a formal strategic
plan’ and ‘presence of a dispute procedure’ all lower the probability of high EEWE in
large multi-site firms. The coefficient of ‘communication channels’ was found to be
negative and statistically significant in both SMMWs that are part of a SME and
workplaces that are part of a large multi-site firm. Employees, for example, may feel that
communication should be more personal and direct, or it may be the case that employees
simply dislike newsletters. In contrast, having a ‘formal target’ was associated with high
level of EEWE. Not surprisingly, having ‘meetings between management and employees’
increased the probability of high EEWE in SMMWs that are part of a SME. Also, the
formality variable that captures ‘any non-payment benefits’, was found to be negative and
statistically significant. Finally, the coefficient of ‘presence of a grievance policy’ was
found to be positive and statistically significant for the large firm sub-sample.
The results for the single-workplace firms are also very revealing. We first notice
that the coefficient of SMEs is insignificant. That is, the size of the firm does not make a
difference as between single-workplace firms. However, a closer examination showed
that SMEs and having ‘a person mainly concerned with HR issues’ have a high degree of
negative correlation (corr.=-0.47). We re-estimate the model by including interactions
between the two dummies. Only the interaction between SMEs and not having ‘a person
mainly concerned with HR issues’ was found to increase the probability of reporting high
EEWE when compared to large size firm that has ‘a person mainly concerned with HR
23
issues’. Our interpretation of this result is that HR ‘professionals’ seeks to change
informal procedures that the workforce may have felt worked well in the past. It may also
be influenced by the prior experience of the HR professional, so that someone coming
into a SMEs and applying ‘large firm procedures’ is likely to encounter problems.
It is important to note that, overall, the formality measures point in a single
direction in the single-site, SMEs model. xii Here, the three formality variables that were
found to be statistically significant all carry a negative sign. This is not the case for the
large, single-site firms where the direction was mixed. We also find that some formality
variables that are associated with the EEWE in large multi-site sub-sample are also found
to be associated with the EEWE in large single-site firms, but in a different direction. For
example, employees working in a large single-site firm that has a ‘formal strategic plan’
are more likely to be ‘very satisfied’ than those who work in a large single-site firm with
no ‘formal strategic plan’. The opposite is found in multi-site large firm sub-sample.
Perhaps in single, large workplaces this may proxy for the management having a clear
vision for the firm and the ability to ensure this is shared by the workforce.
24
Table 5: Probit Estimates of Overall EEWE
Sample:
Workplaces that are part of a
multi-site firm
Single-workplace firms
Model:
I
II
III
I
II
III
IV1
Organisation size:
Overall
SMEs
Large
firms
Overall
Overall
SMEs
Large
firms
ME
ME
ME
ME
ME
ME
0.059**
-
-
0.049
-
-
-
0.004
-
-
-
-
-
-
-0.116**
0.078
Variable
Firm size (Large firms)
SMEs
0.022
Firm size & HR (Large firm with a person mainly concerned with
HR issues)
SMEs with a person mainly concerned with HR issues
0.038
-
-
-
-
0.053
SMEs without a person mainly concerned with HR issues
-
-
-
-
0.115**
0.044
Large firms without a person mainly concerned with HR issues
-
-
-
-
0.028
0.054
Formality
Person mainly concerned with HR issues
Existence of a formal strategic plan
-0.042**
-0.039
-0.041**
-0.082**
0.014
0.051
0.014
0.033
-0.077**
0.000
-0.095**
0.055**
0.055**
0.040
0.078
0.031
0.291**
0.023
0.063
0.027
0.028
0.028
0.030
0.101
Investors in People (IiP)
0.026*
0.071
0.017
0.017
0.014
0.030
0.011
0.013
0.051
0.014
0.029
0.029
0.034
0.093
Presence of tests at induction as part of recruitment
-0.022
-0.029
-0.095
-0.030
-0.028
-0.049
0.032
Any communication channels e.g. newsletters, internet , email
Any meeting between management and employee
0.040
0.061
0.062
0.042
0.042
0.042
0.403
-0.337**
-0.301**
-0.333**
-0.084
-0.084
-0.073
-
0.073
0.092
0.107
0.079
0.079
0.079
0.037
0.126*
0.004
0.013
0.017
0.068
25
-0.184
Presence of a dispute procedure
Presence of an equal opportunity policy
Presence of a grievance policy
Presence of a performance appraisal programme
Formal target
0.029
0.075
0.033
0.042
0.043
0.047
0.162
-0.050**
-0.027
-0.051**
-0.007
-0.007
-0.005
-0.017
0.014
0.045
0.015
0.026
0.026
0.029
0.090
0.031
0.056
0.032
-0.025
-0.020
-0.013
-0.032
0.025
0.053
0.032
0.029
0.030
0.031
0.142
0.123**
0.024
0.232**
-0.089**
-0.087**
-0.094**
-0.414
0.045
0.079
0.063
0.043
0.043
0.042
0.359
0.033
0.070
0.036
-0.012
-0.016
-0.013
-0.335**
0.026
0.060
0.031
0.033
0.033
0.035
0.134
0.078**
0.105*
0.055*
-0.054*
-0.052
-0.035
-0.472**
0.026
0.057
0.032
0.033
0.033
0.035
0.106
-0.037
-0.114*
-0.002
-0.074**
-0.078**
-0.061**
-0.440**
0.033
0.063
0.041
0.031
0.031
0.032
0.139
Formality dummies (p-value)
p=0.007
p=0.007
p=0.000
p=0.001
p=0.006
p=0.001
Interaction dummies (p-value)
-
-
-
-
p=0.006
-
-
-4,319.20
585.6[46]
0.42
6,753
-537.3
132.8[44]
0.52
872
-3,738.8
504.7[45]
0.41
5,881
-1,422.4
311.6[46]
0.54
2,285
-1421.6
313.1[47]
0.54
2,285
-1,143.6
245.2[45]
0.58
1,851
-242.7
98.27(41)
0.39
434
Any non payment benefits
Log likelihood
Chi2 [degrees of freedom]
Predicted probability
Observations
Notes: All models control for personal and workplace characteristics. Full tables are available from authors on request.
Standards errors are reported beneath parameter estimates (in italic).
SMEs in multi-site firms include small and medium sized workplaces that belong to small and medium sized firms.
Large firms in multi-site firms include small, medium sized and large workplaces that belong to large firms.
1
The variable "Any communication channels e.g. newsletters, internet , email" dropped due to colinearity.
**Significant at the 5% level.
*Significant at the 10% level.
26
p=0.003
6
Conclusions
This paper has examined the link between management formality and employee
evaluation of work experience in relation to size and ownership. These evaluations have
been defined, not in terms of ‘satisfaction’, but as perceptions of certain dimensions of
jobs. Overall the findings showed that size and ownership (whether workplaces are
single-site or multi-site) are key predictors of formality and EEWE. In relation to size,
four key findings emerge. First, employee evaluations of jobs are rated as higher in small,
than in large, workplaces. Second, formality is greater in large than in small workplaces.
Third, perceptions of jobs are better in SME single-site workplaces in comparison to
similar size multi-site workplaces belonging to either an SME or a large firm. Fourth,
single-site SMEs have lower formality than small and medium sized multi-workplaces
that are part of either an SME or a large firm.
There are two conclusions in relation to formality and employees’ experience of
their jobs. First, different aspects of formality have different association with EEWE, and
the character of the association differs between types of workplace ownership. Table 5,
for example, shows contrasting results of some indices of formality between different
types of workplace ownership and firm size. This result suggests that formality is not
simply bad for employees and that much depends on context. There is no straightforward
explanation for these results within a survey method, and the meaning of different kinds
of formality needs to be grasped through more intensive methods. Nevertheless, in singlesite SMEs the negative association between formality and EEWE tend to predominate, as
Table 5 underlines. This result is consistent with our expectations as to the impact of
formality within such firms.
The fact that size effects persist is consistent with the evidence of Kalleberg and
Van Buren (1996) and Tsai et al. (2007), that there are features of workplace size that
operate over and above such correlates of size as formality. The theoretical arguments for
such effects reviewed in Section 2 are thus supported. One reason may be that small-firm
informality is not perfectly captured in surveys such as WERS. For example, Taylor
(2005) reports from four small firms that, although managers claimed to use formal
recruitment and selection methods, employees stressed ‘being known’ and kinship links.
In other words, over and above low levels of measured formality in small firms, there is
27
informality of practice. Now, as noted above, informality also occurs in large
organisations, and it is an open question whether such informality-as-practice is any more
common in small firms. But there are many reasons to expect that it is. In large firms, the
rules determine the overall framework, and informality occurs in the interstices of the
rules, as all the research on custom and practice demonstrated (Edwards, 1988). In small
firms, managers tend to use personal knowledge and their own judgements, with
formality being in the background (Edwards et al., 2004; Marlow, 2005). There thus
remain ‘pure’ size effects on employee evaluations of work wherein small firms and
small workplaces enjoy relatively good evaluations from their employees.
Our findings in relation to formality are, as noted, more ambiguous. Some
indicators of formality are associated with better EEWEs and others have the reverse
outcome. Hence, we would not conclude that all formality is to be avoided in SMEs.
Extreme informality can be a cover for autocracy (Rainnie, 1989). And there are
instances where formalisation was consistent with the direction of the firm. Ram et al.
(2001) for example, discuss a food manufacturing firm which had grown in size, and
rationalised and modernised its production process. The result in HR terms was, as a
manager memorably put it, a shift from being ‘very laid back’ to being ‘laid back’. There
were now formal procedures for discipline, for example, and these were used, but the
shopfloor atmosphere remained personal and workplace relations were generally good. In
this case, therefore, a ‘fit’ was achieved. When firms grow, they are likely to need to
formalise to a degree, but they need to address the way in which they do so, in particular
seeking to minimise negative effects on employee attitudes. Nevertheless our finding that,
in single-site SMEs there is a negative association between formality and EEWE perhaps
imply that the case described by Ram et al can be viewed as an exemplar.
We now turn to the possible public policy implications from our findings,
particularly from a smaller firm perspective. Our view is that the pressure from
government is to encourage smaller firms to embrace formality, perhaps on the
(misguided) principle that this characterises HRM in large firms and so, therefore, it must
be appropriate for SMEs which are viewed as less well managed. Three examples of this
will suffice. First, funding from the Learning and Skills Council (LSC) is devoted to
formal training, with informal training remaining broadly unsupported. This clearly
28
signals that government favours formality and that if small firms wish to receive support
from public funds then they have to shift towards greater formality. Ideally we would like
to have a measure of formal and informal training in WERS 2004 to examine its link with
EEWE and other “performance” measures, but such data were not collected. Given the
other associations identified in this paper our expectation is that a shift towards more
formality would be unlikely to lead to an increase in EEWE amongst small firm
employees. Second, the Department for Innovation, Universities and Skills continues to
focus its attention on formal qualifications, to which small firms give a much lower
priority than more subjective personal qualities such as ‘attitude’, ‘commitment’, and
‘reliability’. Whilst the more recent Leitch Review (2006) recognises the importance of
‘on-the job’ training it emphasises ‘focusing as much training as possible on
qualifications, as long as qualifications reflect economically valuable skills, brings
enormous benefits to both individuals and employers’ (Leitch Review, 2006: 50).
Although there are recent initiatives aimed at delivering training flexibly, with smaller
firms in mind, such as through ‘Train to Gain’, the emphasis remains on formality and
qualifications (Leitch Review, 2006: 24) and hence continues the long-standing link
between state sponsored training and formality (Kitching and Blackburn, 2002). Third,
other evidence from examining the outcome from Employment Tribunals shows that
small firms are more likely to win their cases if they have, but more importantly actually
use, formal disciplinary procedures (Saridakis et al., 2006). If, as these examples
illustrate, public policy seeks to encourage greater formality in small workplaces owned
by single site SMEs then the impact upon EEWE is likely to be negative.
29
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Appendix
Table A1: Average formality by workplace and firm size (0-1 with 1: Yes and 0: No; weighted estimates %)
Ho: proportions
Workplace size
Firm size
Ownership
are equal
5-49
50-99
100-249 250-499
500+
(p-value)
Multi-workplace
(51.64)
5-49
Single workplace
51.39
Multi-workplace
64.28
76.81
p=0.025
50-99
Single workplace
68.01
Multi-workplace
72.23
80.85
(76.00)
p=0.243
100-249
Single workplace
74.59
Multi-workplace
71.61
(74.42)
84.15
(77.49)
p=0.003
250-499
Single workplace
74.85
Multi-workplace
82.72
85.81
86.51
90.44
(89.91)
p=0.000
500+
Single workplace
85.71
p=0.000 p=0.000 p=0.008 p=0.023
Ho: proportions Multi-workplace
are equal
Single workplace
(p-value)
Note: Within each workplace size, we test whether the proportions of single-site workplaces and multi-site workplaces, with the same or different firm size, are
statistically different from each other. Parentheses show that the difference is statistically insignificant at the 5% level.
34
Table A2: Average EEWE by workplace and firm size (0: very dissatisfied; 4: very satisfied; weighted estimates)
Ho: means
Workplace size
Firm size
Ownership
are equal
5-49
50-99
100-249
250-499 500+
(p-value)
Multi-workplace
2.55
5-49
Single workplace
2.74
Multi-workplace
2.36
(2.55)
p=0.112
50-99
Single workplace
2.49
Multi-workplace
2.50
(2.44)
(2.23)
p=0.008
100-249
Single workplace
2.27
Multi-workplace
2.17
2.17
(2.26)
2.08
p=0.322
250-499
Single workplace
2.34
Multi-workplace
2.56
2.36
(2.27)
2.15
p=0.000
(2.17)
500+
Single workplace
2.19
Multi-workplace
p=0.000
p=0.001
p=0.852
p=0.417
Ho: means are
equal (p-value)
Single workplace
Note: Within each workplace size, we test whether the means of single-site workplaces and multi-site workplaces, with the same or different firm size, are statistically
different from each other. Parentheses show that the difference is statistically insignificant at the 5% level.
35
Table A3: Description of the Individual and Establishment Characteristics (N=9,370)1
Individual Characteristics
Male
Age (Less than 21)
Age (22-49)
Age (50 and over)
White
Single
No child
No qualification
Job Contract (Permanent)
Temporary
Fixed
Tenure (More than 10 years)
Less than 1 year
1-2 years
2-5 years
5-10 years
Occupational Status (Non managerial duties)
Manager or supervisor
Occupational Tasks (Computer is needed)
No need to use computer
Ln(Income)
1
Mean (%)
Association
54.19
pos.
69.09
24.36
95.08
22.59
83.08
15.73
neg.
insign.
insign.
insign.
insign.
pos.
3.38
2.22
pos.
insign.
14.83
12.26
28.21
19.69
pos.
pos.
insign.
insign.
38.37
pos.
23.48
neg.
5.74
pos.
Ln(Working hours)
Member of Trade Union (Never or not recently)
Recent Member of Trade Union
Establishment Characteristics
Ln(Establishment age)
Gender diversity (uneven)
Equally by men and women
% of Employees working part time
Training (0 or less than 1 day over the past 12 months)
1 to less than 5 days)
5 days or more
Sector (Public administration and education)
Manufacturing
Electricity, gas and water
Construction
Wholesale and retail
Hotels and restaurants
Transport and communication
Financial services
Other business services
Health
Other community services
The figures that are reported are based on the overall EEWE model.
36
Mean (%)
3.58
Association
neg.
24.88
neg.
3.21
insign.
36.69
20.44
pos.
pos.
59.23
26.10
insign.
pos.
21.61
2.66
6.49
14.24
3.67
7.45
8.08
16.56
8.55
6.30
neg.
insign.
pos.
insign.
insign.
insign.
insign.
insign.
pos.
insign.
Footnotes
i
Winship and Radbill (1994) stated that “Although sampling weights must generally be used to derive unbiased estimates of univariate population characteristics,
the decision about their use in regression analysis is more complicated” (pp 230). Millward (2001) noticed that most of the published statistical analyses of
WERS 98 uses weighting in descriptive analysis, but do not use weighting in multivariate analyses (some examples are Ramsay et al., 2000 and more recently
Sen-Gupta et.al. 2007). Purdon and Pickering (2001) recommended that WERS researchers who use unweighted data in the regression model to run also a
parallel weighted model and compare the coefficients. The authors suggested that if the coefficients do not differ by more than a small amount between the
models then the unweighted data can be used, and advantage taken of the smaller standard errors. For this reason we also estimate our ordered probit and probit
models, which we present later in the paper, using weighted data. We found that the changes in the magnitude of the coefficients were moderate. As it was
expected weighted regression did generally inflate standards errors, but in most cases the coefficients did remain statistical significant at the 5% or 10% level.
Winship and Radbill (1994) argue that if the parameters estimates are similar, then unweighted estimates are preferable because they are more efficient.
Therefore, based on both Purdon and Pickering (2001) and Winship and Radbill (1994) our paper presents only the unweighted parameter estimates. It should be
further noted that there is a lack of appropriate routines to allow weights for random effects ordered probit models. RE analysis, however, is important because
allows for the fact that the employee level data are drawn from a number of workplaces. Therefore, following the recent work by Brown et al. (2006) our paper
does considers a random effect estimator too. Since we found that the differences in the coefficient of the unweighted and weighted order probit models were
moderate, we may argue that perhaps this will be the case when parameter estimates from the unweighted random effects ordered probit and weighted random
effects ordered probit are compared.
ii
McNabb and Whitfield (2000) make a similar distinction in their examination of low pay.
iii
These measures are not the only possible ones. The most obvious other candidates include the use of standard induction schemes for new employees and the
presence of job evaluation schemes. We already had measures related to recruitment and to appraisal, however, and did not wish to overburden the analysis. In
addition, including these other measures might bias the index of formality towards a particular element.
iv
Using the Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy test (see Kaiser 1970) we found that factor analysis can be used to group the variables
with similar characteristics together (KM0=0.97). We treat the communalities - the proportion of variance that is due to the influence of common factors - as all
1 suggesting that are no unique factors. The results from the principal-component factor model are not presented here, but are available upon request. The results
support using the 22 measures of job satisfaction to identify three factors, with each factor incorporating the items as discussed in the text.
v
Evaluations of the job: 1 if the employee is dissatisfied (10.3%); 2 if satisfied (40.4%) and 3 if very satisfied (49.3%); Evaluations of information: 1 if the
employee is dissatisfied (26.2%); 2 if satisfied (34.1%) and 3 if very satisfied (39.7%); Evaluations of manager-worker relationships: 1 if the employee is
dissatisfied (20.9%); 2 if satisfied (34.4%) and 3 if very satisfied (44.7%).
vi
Since SMMWs that are part of an SME and single-workplace SMEs are both same size firms, the differences solely reflect ownership differences.
vii
The workforce and establishment characteristics considered in the model are showed in Table A3 in the Appendix. We also provide a summary of the results
for the overall EEWE model.
viii
A joint test for exclusion of the four size dummies takes a value of x 2 ( 4 ) = 54 . 05 , x 2 ( 4 ) = 38 . 22 , x 2 ( 4 ) = 50 . 54 , x 2 ( 4 ) = 70 . 37 , respectively.
This suggests that the hypothesis of zero restrictions on the coefficients of size variable is rejected for each model.
ix
When the model is estimated without the size variable the estimated formality coefficient are larger in magnitude.
x
The full results are available upon request.
37
xi
Similar conclusion can be drawn when an ordered probit model is used.
We also experimented further by using the overall formality measure in this model. The results that are not reported here but are available upon request suggest
that overall formality reduces EEWE in single-site SMEs.
xii
38