English, Article, Journal or magazine article edition: Management Jobs in the Insurance Industry: Organizational Deskilling and Rising Pay Inequality Elizabeth Scott; K. C. O'Shaughnessy; Peter Cappelli

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Management Jobs in the Insurance Industry: Organizational Deskilling and Rising Pay Inequality
Author
  • Elizabeth Scott
  • K. C. O'Shaughnessy
  • Peter Cappelli
Physical Description
  • preprint
Notes
  • The attention of both the research community and the popular press has begun to shift from a traditional focus on production jobs and toward management positions in part because of a perception that a fundamental change is underway in the management ranks. Unlike the temporary layoffs of production workers that were historically driven by business cycles, the changes in management job security seem to be permanent and, in large measure, driven by development inside the firm. The most important of these forces appear to be changes in the structure of management and in the organization of work processes. The authors use a unique set of data to examine the structure of management jobs among a sample of companies and observe how those jobs have changed over time. They examine changes in the skill requirements of jobs by functional area and by level in the organization, changes in the "shape" of the organization chart - the distribution of employees across management job titles - and changes in compensation for these jobs. The data were obtained from Hay Associates, and it included the internal organization of management jobs for 11 life insurance companies. The authors see a sharp expansion in the proportion of line workers, absolute declines in the number of top management positions, and only modest growth in the number of middle managers and supervisors. As a result the organization chart has changed dramatically in these companies, becoming considerably flatter. The "span of control" has increased for every level of the organization and especially for first level management. If the widening of the supervisory span of control resulted from taking decision making and responsibility from supervisors and pushing it down to line workers, it does not seem to have increased the average skill requirements of the exempt line workers. Skill requirements for the other levels rose over the period, especially for top management positions. Overall, the average level of skill in the sample fell substantially between 1986 and 1992 (even though skills rose in two of the four levels) because of a sharp shift in the distribution of employment away from management and toward line positions. The authors suggest that the best description of these patterns is that they represent upskilling of individual jobs and deskilling of organizations. Regarding compensation, none of the levels experienced increases in skill that were statically significant, but top managers received a large (28 percent) increase in pay, middle managers received a modest (10 percent) increase, and the lower two levels received virtually no increases. One conclusion is that earnings inequality is increasing substantially inside these firms in a manner that is not attributable to any increase in skill, and the dividing line for that growth in inequality is no longer exempt/​nonexempt but supervisor/​manager. A possible explanation for the rising inequality in compensation is that it helps offset change in the probability of promotion. The fact that the span of control is increasing and organizational chart flattening means that the probability of the average worker being promoted is declining. The decline in the probability of promotion might reduce the incentives to work hard. Increases in the compensation of top jobs increase the return to securing a promotion and may offset some of the effect produced by the decline in the probability of promotion. Another explanation is that top mangers are in "better positions to legislate their own pay increases." If true, this sample may actually underrepresent the true extent of income inequality because it consists of companies using an external consultant to help set compensation where internal consistency is an important characteristic of the pay system. These results suggest that "management" as a career will remain attractive, albeit less certain in terms of promotion prospects. Shifts to team-based approaches and the elimination of functional designations would suggest a greater need for generalists than specialists. As technology such as expert systems reduces the need for large units of "experts," the manger's skill will be in recognizing when an expert needs to be called. Leadership skills and the ability to adapt to a changing environment are two qualities that will be sought in the future. Fortunately, these skills will also be useful to team members who are not selected for promotion to mangers. Increasing income inequality may lead to distrust within the organization, though this may be offset by the technical tracks that allow highly skilled non-managers to earn equivalent levels of pay. The fact that insurance companies are relatively unique in facing no major industry-specific shocks from the outside environment suggests that these results should translate well to organizations in other industries.
  • RePEc:wop:pennin:94-28
Language
  • English
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