The International Journal of Human Resource

Management

ISSN: 0958-5192 (Print) 1466-4399 (Online) Journal homepage: https://www.tandfonline.com/loi/rijh20

The impact of globalization on human resource

management and employment relations in the US
automobile and banking industries

Larry W. Hunter & Harry C. Katz

To cite this article: Larry W. Hunter & Harry C. Katz (2012) The impact of globalization on
human resource management and employment relations in the US automobile and banking
industries, The International Journal of Human Resource Management, 23:10, 1983-1998, DOI:
10.1080/09585192.2012.668341

To link to this article: https://doi.org/10.1080/09585192.2012.668341

Published online: 02 Apr 2012.

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The International Journal of Human Resource Management,
Vol. 23, No. 10, May 2012, 1983–1998

The impact of globalization on human resource management and

employment relations in the US automobile and banking industries
Larry W. Huntera* and Harry C. Katzb
a
Wisconsin School of Business, University of Wisconsin– Madison, Madison, WI, USA; bSchool of
Industrial and Labor Relations, Cornell University, Ithaca, New York, USA
Globalization clearly affects employment relations, and we expect that it has a
differential impact across ‘varieties of capitalism’. In addition, the way globalization
influences employment relations is industry specific. In this article, we examine recent
changes to four employment relations practices – remuneration systems, job security,
work organization and enterprise governance – in the US automotive and banking
industries. We compare the changes in these two key industries and consider whether
they correspond to the categorization of the US as a liberal market economy (LME).
We find evidence of diverse employment relations practices, many of which are not at
all typical of LMEs.
Keywords: automotives; banking; globalization; United States; varieties of capitalism

Introduction
This article examines whether the categorization of the US economy as a liberal market
economy (LME) accurately explains the effect of globalization on employment relations
in the US automobile and banking industries. Specifically, this article compares and
contrasts the effects of globalization on employment relations in these two industries in the
areas of remuneration systems, job security, work organization and enterprise governance.
The aim of such a comparison is to seek a deeper understanding of the relationship
between globalization and employment relations in key industries. The analysis also sheds
light on how national economies and institutions shape employment outcomes.
The US banking and automotive industries are ideal for such a consideration as they are
both long established industries in the US economy, which have been exposed to increased
international trade, wider diffusion of technologies and production systems and greater flows
of foreign direct investment in recent decades. The two industries also allow a comparison
of the effect of globalization on employment outcomes in both manufacturing and service
contexts within a national economy. Finally, these two industries have also been the subject
of significant US Government intervention in recent times in attempts to mitigate the impact
of the 2008–2009 global financial crisis. Such intervention has had a direct impact on
employment outcomes in these industries and as a result is crucial in assessing the USA as a
typical LME.
In assessing these two industries, we suggest that the varieties of capitalism (VoC)
categorization of the USA as an LME cannot, without much refinement and elaboration,
adequately explain the divergent employment outcomes within and between the banking
and automotive industries. In advancing this argument, we recognize that an LME

*Corresponding author. Email: lhunter@bus.wisc.edu

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2012 Taylor & Francis
http://dx.doi.org/10.1080/09585192.2012.668341
http://www.tandfonline.com
1984 L.W. Hunter and H.C. Katz

categorization accurately accords with general changes occurring in a number of our

chosen employment indicators in the US banking industry, but we suggest that many of
these changes can also be partially explained by domestic factors that are not related to the
‘liberal market’ nature of the US economy. In considering the automotive industry, our
research suggests that the LME categorization fails to account for auto employment
outcomes in each of our chosen indicators – remuneration systems, job security, work
organization and enterprise governance. This research supports previous criticisms
suggesting that the VoC literature must evolve in order to account for varying employment
outcomes between and within industries and national economies (Crouch 2005).
In addition, we argue that globalization exerts complex effects on employment
indicators within individual industries (such as the nature of work organization,
remuneration systems, employment security and enterprise governance). This argument
supports calls by Lansbury, Kitay and Wailes (2003), Wailes, Ramia and Lansbury (2003)
and Katz and Darbishire (2000) for the development of an integrated approach that
considers the possibility of simultaneous convergence and divergence in employment
relations and the role of institutions and interests within national economies.
In this paper, we draw on multiple methods, including reviews of secondary data sources
and the authors’ own primary research in these two industries. This primary research
includes firm-level case studies in each industry as well as interviews with industry experts.
In the next section, we discuss the categorization of the USA as a prime exemplar of a
LME. We accept that there are some general features of the US labor market that fit the
liberal market label, such as the prevalence of employment-at-will and typically relatively
large and rapid response in employment to shifts in demand and output. At the same time,
we argue that there are important differences in employment relations between industries
and much variety across companies and plants within industries in employment relations
and employment indicators. Therefore, it is necessary to take an industry-based view when
examining how globalization has affected employment relations. Following brief
overviews of the US auto and retail banking industries, we examine how globalization has
affected four employment relations practices – remuneration systems, job security, work
organization and enterprise governance. Finally, in our discussion of recent developments,
we conclude that the simple label of a LME does not well describe the diverse and
evolving patterns of employment relations and employment indicators found in the auto
and banking sectors.

The USA as a typical LME

The VoC literature adopts a firm centric analysis in which firms seek to solve key
coordination problems including those associated with industrial relations, vocational
training and education, corporate governance and inter-firm relations. Hall and Soskice
(2001), the original proponents of the VoC approach, suggest that the interrelation
between firms and the institutions in these spheres are mutually reinforcing and that these
complementarities produce two ideal types of economies, ‘LME’ and ‘coordinated market
economies’ (CMEs). They further argue that these complementarities dictate the means by
which coordination problems of firms are resolved. LMEs are said to resolve coordination
problems with well-developed capital markets and outsider forms of corporate
governance; market-based forms of industrial relations with short-term commitment
between employers and workers and the use of market mechanisms and contracts to
coordinate relations between supplier and buyer firms (Wailes, Lansbury, Kitay and
Kirsch 2008, p. 3). CMEs, on the other hand, resolve coordination problems by insider
 The International Journal of Human Resource Management 1985

forms of corporate governance, industrial relations systems based on bargaining reflecting

a long-term commitment to employees and the use of non-market mechanisms such as
unions and industry associations to coordinate relations between firms within and across
industries (Wailes et al. 2008, p. 3).
The VoC literature has categorized the USA as a typical LME (Hall and Soskice
2001; Kelly and Hamann 2008; Wailes et al. 2008). This suggests that firms within the
US banking and automobile industries should resolve their coordination problems
according to LME characteristics. LMEs operate via laissez-faire principles in which
market relationships resolve coordination problems. As markets drive employment
relations, we would expect both industries to exhibit low levels of unionization, short-
term employment relationships, market-driven levels of pay with remuneration based
on individual performance and little to no state involvement in industrial relations.
An alternative perspective on the USA and other advanced economies is provided in
the literature that recognizes the many divergences that appear in the employment
practices within advanced economies. Katz and Darbishire (2000) argue that while the
extent of variation within economies has widened in recent years, there is much similarity
in the nature of this variation between advanced economies. They also argue that there are
distinct patterns in how employment practices cluster into low wage, Japanese, human
resource management (HRM), traditional union and participatory employment system
patterns. Katz and Darbishire also identify various common processes including
decentralized collective bargaining and more individual communication and individua-
lization in rewards that have spread across advanced economies. In their emphasis on
diversity and divergences, the arguments of Katz and Darbishire have much in common
with the claims of Wailes, Lansbury and others who emphasize the important role played
by institutional and political factors in shaping employment outcomes.

The US automobile industry

The auto industry historically has played a prominent role in American labor relations both
because of the scale of employment in the auto sector and the influence exerted by the
innovative terms of collective bargaining agreements between the United Automotive
Workers (UAW) and the ‘Big Three’ auto companies – General Motors (GM), Ford and
Chrysler. Those innovative terms included multi-year contracts with cost-of-living-
adjustment (COLA) escalators and built-in annual wage increases, supplementary
unemployment benefits, ‘30 years and out’ pensions, quality of working life programs and
pattern bargaining (Katz 2008). From the 1940s through to the 1970s, these terms became
common features of American collective bargaining and also set the standard for large
non-union employers (Katz 1985).
Since the 1980s, a number of foreign automakers such as Toyota have entered the US
auto industry and set up production sites or ‘transplants’ across the USA, importing lean
production workplace practices including the ‘Toyota production system’ (Katz, MacDuffie
and Pil 2002). Facing competitive pressures from non-union transplants, long-term market
share declines, and periodic cyclical slumps the UAW agreed to significant concessions in
their collective bargaining agreements with the Big Three companies along with
experimentation with worker participation and team systems of work.
Beyond the assembly manufacturers, there are also ‘independent’ component suppliers
that have grown in size and adopted greater responsibility for component design and
manufacturing than was the case in the past. While the Big Three have traditionally been
strongly unionized, the foreign-owned assembly plants and the component manufacturing
1986 L.W. Hunter and H.C. Katz

plants tend not to be unionized, and as a result, employment relations across these different
parts of the American auto industry vary considerably. So, while variation in employment
practices across Big Three companies and across plants within each company has grown,
increased variation in employment practices has also been spurred by union versus non-
union differences.
The above trends have intensified significantly since 2001 as the influence of the Big
Three and the UAW over labor relations in the US auto industry declined. The beginning
of the new century saw the Big Three face declining market share coupled with the failure
of the UAW to organize the transplants or make significant inroads into organizing the
non-union independent supplier plants. Market share declines along with steady
productivity increases led to sizeable declines in employment levels at the Big Three firms
and a weakening of the historic role the UAW had played as a pattern setter in the wider
auto sector and general US labor market.
The Global Financial Crisis of 2008 –2009 led to even more dramatic changes in the
profile of the US automobile industry. The crisis amounted to a ‘perfect storm’ in that the
effects of ongoing structural changes in the auto sector (Big Three market share declines
and the growth of transplants and non-union suppliers) were exacerbated by a sharp
cyclical downturn in auto sales that itself was greatly intensified by the credit crisis
affecting the USA. The credit crisis had particularly large effects on auto sales, which
plummeted due to the increased role that car loan securitization had come to play in auto
purchases and the sudden collapse of securitization markets that came with the US housing
market collapse.
By June 2009, two of the Big Three (GM and Chrysler) had filed for bankruptcy and
emerged as new companies with significant government ownership. The UAW, through
newly created (‘Voluntary Employee Beneficiary Association (VEBA)’) retiree healthcare
trust funds, acquired significant ownership stakes in GM (33%) and Chrysler (19%) and
Fiat became a co-owner of Chrysler.1 Ford Motor managed to avoid similar bankruptcy
and government ownership (but not dramatic sales declines) due to the fact it had arranged
large private loans prior to the financial collapse. Under pressure from the US Government
to bring labor costs to the lower level found in the transplants and fearing the potential
liquidation of GM and Chrysler, the UAW agreed to unprecedented concessions. These
concessions included a lower wage for new hires ($15 per hour versus the $28 per hour
received by current UAW workers), the end to the much maligned jobs banks, a pay freeze
for current workers and 6-year collective bargaining agreements that include no-strike and
binding arbitration provisions.
Perhaps even more noteworthy was the fact that the government ownership stakes at
GM and Chrysler and the negotiated and corporatist-like process used in the bankruptcy
process and evolution of UAW concessions, call into question a simple ‘liberal market’
characterization of the USA. Rather, both the Bush and Obama administrations became
intertwined in efforts to stave off the liquidation of GM and Chrysler. In part, political
action was spurred by fear of the potential consequences the liquidation of these two
companies might have on the then downward-spiraling US economy and on
manufacturing sector supplier networks. Yet, at least for the Obama administration, the
political influence of the UAW also seemed to affect why and how the administration
chose to intervene in the auto crisis.
While the exact effect of these arrangements on future employment outcomes in the
US auto industry is difficult to predict, it is safe to say that they will be profound. And the
era in which the Big Three and the UAW set the agenda for automotive employment
outcomes in the USA has clearly come to an end.
 The International Journal of Human Resource Management 1987

The US retail banking industry

The US retail banking industry is part of the US financial services sector, a sector that
has made up a continuously increasing share of the US economy since 1945 and as
of 2008 contributed over 8% to the US gross domestic product (Bureau of Economic
Analysis 2010). The classification ‘retail banking’ captures all depository institutions and
lenders such as credit unions and savings and loan associations. This range of depository
institutions account for about half of the activity of the financial services sector, the other
half consists of securities and commodities, insurance and trust firms. Historically, the US
banking industry has been characterized by a lack of industry concentration stemming
from The Bank Act of 1933 (also known as ‘Glass –Steagall’), which prohibited US banks
from organizing across state boundaries. However, from the late 1970s through the 1990s
the sector was steadily deregulated. While deregulation through this period was somewhat
uneven, the Interstate Banking and Branching Efficiency Act of 1994 (also known as the
Riegel-Neal Act) completed the process of extending branch banking across state lines.
Five years later, the Financial Services Modernization Act of 1999 formally repealed the
restrictions imposed by Glass –Steagall. This deregulation has been followed by ongoing
consolidation, which has seen the number of banks fall from 14,496 in 1984 to 6772 in
2010 (FDIC 2010). In 2009, the 10 biggest commercial banks controlled more than half of
all US banking assets, in comparison with 29% in 1995 (FDIC 2010). These figures
demonstrate the speed and extent of industry consolidation in a short period of time and
are indicative of an ongoing trend of mergers and acquisitions, which have the potential to
explain a number of employment outcomes in the US banking industry.
The current nature of the US banking industry is neither truly global nor wholly local.
Several of the largest American-owned banks are global in their scope while a number of
the largest banks in the US are foreign owned. Yet, only a small share of the US retail
banking sector is held by international firms, with about 5% of assets, loans and deposits,
held by foreign subsidiaries that are attempting to compete with American-owned banks in
American retail markets. Interestingly, this share has changed little over the past two
decades challenging the traditional assumption of enterprise strategy within an LME.
Indeed, as Tschoegl (2004) argues, much of the activity of foreign-owned banking is
performed by domestic agencies. These foreign-owned subsidiaries are regulated by US
authorities and have met with relatively little historical success (Peek, Rosengren and
Kasirye 1999). Thus, in terms of ownership and management of domestic agencies,
globalization has had little visible impact on the retail side of the domestic US banking
industry. However, there are some recent indications that this could be changing. Some of
the USA’s large retail banks include HSBC, headquartered in London; Citizen’s Bank that
is owned by the Royal Bank of Scotland; Union Bank, owned by the Bank of Tokyo (itself
a subsidiary of Mitsubishi) and Harris, owned by the Bank of Montreal. While the top
seven bank holding companies by assets in the USA in 2009 were all domestically owned,
the next three places in the table were held down by Barclay’s (headquartered in London);
Taunus (a subsidiary of Deutsche Bank) and HSBC North America. HSBC currently
advertises itself as ‘the world’s local bank’.
Despite these recent trends, the US retail banking industry remains a largely domestic
industry. In fact, the trend toward globalization is not one way. For example, LaSalle
Bank, which was owned by the Netherlands’ ABN, was acquired by the Bank of America
in 2007. As a result, the domestic context of the US banking industry has strongly shaped
current industry employment trends and outcomes. Domestic deregulation has meant that
since the 1980s, retail banks have found themselves competing with brokerage houses,
1988 L.W. Hunter and H.C. Katz

money market funds and insurance companies, each of which have introduced standard
retail banking products. Banks have had to offer a wider range of products, such an
annuities, stocks and mutual funds, in order to remain competitive. Rapid consolidation
has also led to increased competition amongst the largest banks and this has had flow-on
effects to the smaller institutions. Yet, it would be inaccurate to suggest that these changes
have resulted only from domestic pressures. While the US retail banking is largely
domestic in nature, it is also subject to competitive international pressures as the result of
liberalization of international capital markets and a relative freer reign for international
banks operating in the USA that have reinforced the effects of local deregulation.
The 2008– 2009 financial crisis was rooted in mortgage lending, including some by
retail banks, but was amplified by the effects of mortgage derivatives and other speculative
activity that took place at arm’s length from much retail activity. In fact, many medium-
sized and small banks came through the crisis well positioned and were affected more
generally by the ensuing recession than by pressures arising specifically from financial
markets. The Troubled Asset Relief Program (or ‘bailout’) was concentrated among larger
banks, many of which had interests not only in retail operations but also in investment
banking and brokerage activity.
The effects of the crisis on workplaces in the retail side of the banking industry are
likely to be felt chiefly in moderating the pace of change. Much of the transformation of
the retail banking workplace in the late twentieth and early twenty-first century centered
on redesign intended to deliver on strategies predicated on selling an increasingly wide
range of financial services and products. But considerable pressure has mounted to rebuild
some of the walls inside the sector (e.g. to re-segregate some of the riskier and more
speculative activity). This may have the effect of mitigating pressure on the retail side to
follow practices of brokerage houses and specialized mortgage lenders.

Remuneration systems
A remuneration system is the process by which the total compensation that employees
receive for their work in an organization is determined. A remuneration system will
generally include a fixed amount of base pay with add-ons such as allowances and
premiums, benefits such as health insurance and pension contributions, paid leave and
various non-financial rewards and bonuses and rewards related to the performance of
individuals, groups or the organization as a whole. As such, the design and alteration of
remuneration systems have always been a key element of collective bargaining between
unions and employers. In recent times, designing remuneration systems in a way that
elicits maximum employee commitment and performance while minimizing labor costs
has become an important aspect of human resource management.
According to the VoC literature, industries within an LME would be expected to
determine employee’s wages and benefits by market forces rather than by negotiated
arrangements such as those made through collective bargaining. It is likely that wages
would be linked to individual performance and that they would also be variable in order to
reflect market fluctuations.

Remuneration systems in the US automotive industry

At the Big Three, wages and conditions have been historically regulated by the collective
agreements that the UAW concludes with each company at the national level and
supplements with plant-level agreements. Until the 1980s, the agreements reached at the
 The International Journal of Human Resource Management 1989

Big Three served as pattern-setters not only for agreements in the auto component supplier
sector, but also for other industries (Katz, MacDuffie and Pil 2002, p. 70). However, as that
pattern-setting role has declined, variation in employment relations has increased within
the auto industry as a whole. In addition, the structure of collective bargaining at the Big
Three was decentralized starting in the 1980s. With the shift away from company-wide
collective agreements and a growing emphasis on collective bargaining at the plant level,
variation has also increased within each of the Big Three auto companies (Katz and
Darbishire 2000).
The pay system at the Big Three automakers has long been job-oriented, i.e. the
requirements of a job, not the characteristics of the job holder, determine how that job
is classified and remunerated. Plant-level collective agreements specify elaborate job
classification systems with numerous classifications, clear distinctions between production,
skilled trades and managerial responsibilities, as well as job ladders that grant workers with
seniority certain rights regarding promotions, transfers, layoffs and shift preferences (Katz
1985). Wages and fringe benefits, such as unemployment benefits, pensions and health
insurance, are set in national collective agreements. Such fringe benefits make up a large share
of total compensation (Katz and Darbishire 2000).
The traditional wage structure includes rules on adjusting base pay annually including
increases tied to the rate of economy-wide inflation. These so-called annual improvement
factor (AIF) and COLA escalators provided autoworkers with built-in annual real wage
increases for many years (Katz 1985). The combination of steady wage increases produced
by the AIF and COLA escalators and expansive fringe benefits led to large real and relative
pay gains for UAW-represented auto workers.
The UAW started to make concessions to their pay formulas and benefit package when
Ford, Chrysler and GM closed manufacturing plants and reduced employment in the early
1980s. For several years, the AIF pay increases were substituted by lump sum payments,
and some profit-sharing plans were introduced. By paying bonuses contingent on company
financial performance, these profit-sharing plans led to increased variation in pay between
the Big Three auto companies (Katz 1985). Since their introduction the yearly bonuses
have varied from zero to about 8000 dollars (Katz and Darbishire 2000, p. 36). While they
are substantial in some years, bonuses did not become such a significant component of
total compensation as is the case, for example, in Japan. However, in the Japanese-owned
plants in the USA, a variety of performance-based pay schemes are used and make up
between 5% and 20% of total compensation (Katz and Darbishire 2000, p. 32). Barton and
Delbridge (2004) report that the significance of bonuses is limited in the auto supplier
firms, because although bonuses for plant performance are widely used, the percentage of
total pay related to bonuses, at less than 5%, is very small.
However, these trends are changing as the UAW has struggled to maintain its influence
in the face of declining membership and due to the financial troubles of the Big Three
(at one point the UAW had 1.5 million members and now their membership is below
500,000). The UAW agreed to massive redundancies in the companies’ workforces from
October 2005 on that were achieved largely through voluntary severance and early
retirement plans. Workers who took advantage of these options received sizeable lump
sum payments. It is revealing that even though the UAW was agreeing to pay concessions,
due to a sharp decline in employment levels and deterioration in the financial strength of
the Big Three (and associated declines in the union’s ‘total bargaining power’) the union
still had a sizeable amount of ‘relative bargaining power’. Total power concerns the total
amount of profits available for labor and management in a given bargaining relationship at
a given point in time to divide between themselves. Relative power (largely derived from
1990 L.W. Hunter and H.C. Katz

strike leverage) is the ability of one side to impose costs on the other side and in the
process convinces them to agree to something they would not otherwise do (see Katz,
Kochan and Colvin 2008, pp. 78– 85). The union’s relative power derived from the
weakened financial state of the Big Three that made them especially vulnerable to
strike threats, which if exercised would likely have led to the collapse of the companies.
The UAW used this relative bargaining power to negotiate extensive severance and
retirement options for its now largely aged workforce.
The benefit package in the Big Three-UAW collective bargaining contracts came
under particular pressure as the ‘legacy costs’ associated with pensions and retiree
healthcare were criticized in the popular press as well as by corporate managers
(these costs were high in part due to the large number of retirees relative to active workers
given the declines that had occurred in the size of the Big Three workforces). Note that
pensions and retiree health plans are part of the private benefit system that prevails in the
USA in contrast to the more public provision of these benefits common to many other
countries. The US auto legacy costs were criticized as the key source of the competitive
cost disadvantage the Big Three faced vis-à-vis the transplant companies. The latter were
advantaged by more limited benefit plans, younger current workforces and very few
retirees. Even the Obama administration, which on other issues appeared sympathetic to
the UAW and autoworkers, put pressure on the union to make deep concessions so as to
cut legacy costs.
The pace of benefit concessions accelerated as the financial crisis worsened and under
threat that the Obama administration might not otherwise provide financial support to the
companies. The companies and the union came under pressure to deliver concessions as
part of the bankruptcy reorganization plans they had to provide to the ‘auto task group’ set
up by the Obama administration. The UAW eventually made unprecedented concessions
to their benefit package. The most extreme change was the transfer of the liability for
future benefits and administration of those benefits to union run ‘VEBA’ trust funds. GM,
Chrysler and Ford initially agreed to large dollar contributions to fund the VEBAs, but as
the companies’ financial conditions worsened, those contributions were altered to include
a sizeable share of stock payments rather than cash. The health plans for union retirees also
were changed to include larger co-pays and other benefit reductions.
While the current degree of flux in the US auto industry makes it difficult to predict
future remuneration outcomes, it is very clear that up until recently much of the US auto
industry was regulated by collective agreements that reflected the powerful influence of
the UAW and limited variable pay or links to individual performance. Furthermore,
though there have been significant changes to pay outcomes, these changes came about
through a negotiated adjustment process that in turn included significant government
involvement and government ownership. This is not how a ‘LME’ is supposed to operate.

Remuneration systems in the US banking industry

With respect to compensation practices, the dominant trend in American retail banks is
toward the enhanced use of variable and performance-related pay. However, it is important
to note that there is variation across banks along a number of dimensions including the
extent to which pay is truly variable and the basis for payouts of incentives and bonuses.
At one extreme lie banks in which incentive pay has become an integral part of the
retail banks’ compensation system. For example, the compensation system in a case study
we carried out recently, National Bank (Hunter 2008), established a uniform base salary
for front-line Financial Specialists throughout the organization. The plan as established
 The International Journal of Human Resource Management 1991

had no provision for annual cost-of-living adjustments or other raises in the base level.
Rather, the plan paid out large rewards to the workers who were able to achieve sales
goals, which were set at high levels (and increased each quarter). Employees in these
positions who exceeded their goals were able to earn more than twice their base salary.
Variable pay this extensive continues to be unusual – commission systems across most
banks provide for proportionally higher base pay levels and correspondingly modest
incentive payouts.
To some extent, the variable pay schemes are influenced by cross-industry norms.
Banks offering securities and other investment products, for example, are in direct
competition with brokerage houses, which typically offer their own employees a pay
package that is relatively heavily focused on incentives. The need to be competitive in
these labor markets drives compensation packages in retail banks; the banks offer pay with
more variability (and higher peak levels) to the employees whose jobs entail selling
investment products than for employees whose jobs are focused servicing, or even selling,
more traditional banking products.
Incentive pay may also be extended for effective sales ‘referrals’. Essentially,
employees are rewarded for directing customers toward a co-worker who is able to carry
out a sale. This is a popular approach to integrating tellers or call center customer service
representatives (CSRs) into a sales-focused strategy while minimizing the need to train
these same employees in knowledge across the range of the bank’s product offerings.
Therefore, while there may be inconsistencies as to the extent of variable pay, the US
banking industry remunerates employees on a system of variable pay in line with
performance goals and sales targets (Hunter 1999). Importantly, the trend has not been
tempered by employee representation; the absence of unions in the US banking industry
has ensured that managers face no formally organized opposition to these kinds of pay
plans, and thus, this employment outcome is exactly what we would expect in an LME.

Remuneration systems and LME expectations

As evident above, the US automotive and banking industries have vastly different
approaches to the key employment outcome of employee remuneration. The US
automotive industry, as characterized by the former Big Three, has until recently had
remuneration systems that are based on job design rather than on individual performance
or targets and are collectively determined with a presence of a strong industry union. This
is in defiance of the categorization of the USA as a typical LME and is reflective of a
remuneration system that would usually be found in a typical CME. In contrast, the US
banking industry makes greater use of variable pay related to individual performance and
sales targets. Without the mediating presence of an industry union these remuneration
systems are typical of a LME.
These findings suggest that key employment outcomes, such as remuneration systems,
can vary within national LMEs where there is a presence of a strong mediating agent such
an industry union. It is also important to note that there appear to be growing variations
within national industries with respect to remuneration systems suggesting that firm-level
factors affect employment outcomes. For example, in the banking industry, the extent to
which retail banks’ strategies rely on sales by particular groups of employees in part drives
the extent of variable pay for those groups.
It is also noteworthy that changes in remuneration schemes reflect the market and
regulatory environment, and firms’ positions in that environment. To take one example, in
the aftermath of the financial crisis, some larger banks attracted attention for having had
1992 L.W. Hunter and H.C. Katz

pay schemes that encouraged employees to make risky loans or to push customers into
particular investment products. While compensation plans for employees have not – at
least as yet – been constrained as a result of financial regulatory reforms, some banks have
modified their pay schemes not only in response to changes in their own strategies but in
order to pre-empt the possibility of even more restrictive regulation.

Job security and work organization

Job security refers to the relative stability of employment numbers in an industry and to
how that employment is structured (full-time, part-time, casual, temporary or contract
workers). Work organization refers to how jobs are defined and how work is allocated; the
scope of jobs and whether this is changing; the impact of technological change and
changes to the intensity of work.
The VoC literature predicts that job security in LMEs such as the USA is likely to be
characterized by little stability with changes in employment numbers reflecting
fluctuations in market demands. Work organization is also likely to reflect current market
demands and the technological resources of competing firms, with specifics varying by
industry, as discussed below. We have chosen to consider these two employment
outcomes together as stability in employment numbers often masks great flux in work
organization and vice versa, as is the case in the US banking and automotive industries.

Job security and work organization in the US automotive industry

Work organization practices in the Big Three plants tend to follow mass production with
repetitive assembly line work, while the Japanese transplants in the USA are more
orientated toward lean production and team organization. At the same time, since the early
1980s at an uneven pace and with much diversity across plants, team working spread at the
Big Three, with some plants introducing formal teams with extensive worker and union
involvement in business decision making. This diversity was dampened somewhat when
the financial crisis led to the sale of Saturn and the closing of the NUMMI plant, both of
which had been showcase illustrations of the use of participatory and team-based systems.
Job security in the US automotive industry, on the other hand, has been even more
unstable. As mentioned above, voluntary severance and retirement plans have featured
heavily in collective bargaining agreements over the past two decades. The UAWs’ focus
on the negotiation of severance payments is understandable given that so many of the active
workforces of the Big Three were nearing retirement age (e.g. 72% of GM’s workforce had
20 or more years of seniority in 2004). As a product of both decline in market share and the
influence of productivity improvements, enormous reductions in employment occurred at
the Big Three. Hourly employment (UAW represented) at GM alone fell from 457,000 in
1985 to 196,000 in 2001 and then fell to less than 50,000 in 2009.2

Job security and work organization in the US banking industry

Employment numbers in the US banking industry have remained fairly stable over the past
20 years, yet this stability masks a relative decline in US banking employment and the
significant changes in the work organization experienced by banking employees. The total
number of workers employed in American commercial banking reached a peak of nearly
1.4 million in 1990 and after a small drop has remained relatively stable at around 1.3
million workers between 1993 and 2005. From 1990 through to 2005, in contrast,
employment in the economy as a whole grew by 22%, indicating a relative decline in
 The International Journal of Human Resource Management 1993

banking jobs even as retail banking’s overall share of GDP increased from 3% to 4%
during the same period (Hunter 2008, p. 140).
Job security was historically a key characteristic of retail banking yet this has been
eroded by deregulation that removed firm-based training and knowledge as the key to
career progression and the segmentation between jobs with different educational
requirements has sharpened dramatically. Merger activity has reinforced this trend as local
managerial positions are now devalued. Perhaps the most significant change has been the
shift from a service to sales focus requiring effective customer service and a skilled, sales-
orientated workforce and concomitant levels of investment in human resources that are
difficult to reconcile with the demands for cost containment. One noticeable shift has been
the reduction in ‘back office jobs’ (data entry, check processing and the like), as
technology has enabled the streamlining of processes and the elimination of much of the
manual work. At the same time, there has been a significant increase in jobs involving
front line customer contact, namely bank tellers in branches and operators in call centers.
In 2008 over 600,000 or nearly a third of the 1.8 million workers in banks and other
depository institutions were bank tellers. Growth in part-time work explains some but not
all of the increase in the share of front-line workers (Hunter, Bernhardt, Hughes and
Skuratowicz 2001).
Most of the other jobs in retail banking are now, like the tellers, on the front lines of
customer contact. In addition to over 600,000 tellers, the official statistics in 2008 identified
some 75,000 workers specifically as ‘sales workers’, in addition to over 150,000 loan
interviews and new accounts clerks, well over 100,000 loan officers and 100,000 customer
service representatives, this latter category not even existing in the official data until 1999.
Another important trend is that many of these sales workers now work in call centers rather
than in branches (occupational and establishment figures produced by the US Bureau of
Labor Statistics do not indicate the number of workers in branches and those in call centers).
Back office work associated purely with transaction processing has diminished due to
consolidation and centralization (and to a lesser extent outsourcing). Much processing work
has been reduced by automated technologies but also by the strategy of incorporating such
work into the work of those employees that work directly with customers.

Assessing the LME categorization with respect to job security and work organization
With respect to job security and work organization in retail banking, one aspect of the
LME categorization holds up well. Management has considerable flexibility to make
adjustments. Employees can be redeployed across tasks and jobs; jobs can be redefined
without their boundaries being renegotiated and workforce size can be adjusted to meet
demand. In practice, however, the extent of flexibility with respect both to job security and
work organization can be overstated.
Job security in retail banking is largely a function of the health and status of the
employing bank. While there are few formal protections against layoffs, in fact, layoffs
remain relatively rare. Nearly all front office retail banking jobs are secure except in
circumstances such as consolidation following merger and acquisition. Even in these
circumstances, the branch networks of the involved banks and their associated jobs often
remain intact. Back office and managerial jobs are somewhat more vulnerable to
consolidation, relocation and technological change. And workers specializing in particular
lines of product and services (such as mortgage lending in the 2008 – 2009 financial crisis)
have also been subject to layoff, but in fact the layoffs even during this difficult period
were not remarkably high: many of the announced job cuts (as, e.g. when Bank of America
1994 L.W. Hunter and H.C. Katz

announced it would cut 30,000 positions in late 2008) were actually implemented via
attrition through retirement, voluntary turnover and hiring freezes.
Changes in work organization, however, have had a different sort of impact on security.
The introduction of sales responsibilities into many jobs means that much larger numbers
of employees occupy positions with aggressive systems of performance management
coupled with the incentive pay discussed above. While mass layoffs remain unusual, work
re-organization has had the effect of making individuals more vulnerable to dismissal for
below-standard performance. The nature of work for many employees has moved from
what formerly was, in practice, employment-for-life, to employment contingent on
performance, and such developments have trickled down from managerial and higher-level
lending positions into customer service jobs and even to tellers in some banks.
Characteristics of the LME permit banks to achieve flexibility; they do not guarantee
such flexibility nor determine the form it takes. American retail banks are in fact
characterized by considerable diversity with respect to how they actually organize work
and implement flexibility, from firms that are relatively quick to resort to layoffs, to those
that make layoffs a rare event but aggressively manage individual performance. Similarly,
the extent to which sales activity is integrated into call-center, teller and other front-line
jobs varies widely across banks (and sometimes even within them).
In the auto industry, the nature of job security and work organization is even less in line
with the VoC characterization of an LME. At the Big Three companies and unionized
independent suppliers the extent of job security has been heavily mediated by collective
bargaining. While workers at these companies faced cyclically driven layoffs until the
1980s, these layoffs were short term in nature and workers benefited from extensive
negotiated benefits (such as Supplemental Unemployment Benefits that acted in effect to
guarantee annual wages) while negotiated seniority rules guided who was laid off and the
scale of layoff benefits. In the recent crisis, the federal government influenced how the Big
Three companies and employment was adjusted. The non-union transplant assembly
companies tend to follow a more Japanese-oriented style of employment stabilization.
It was only at non-union independent supplier companies that market style employment
adjustments typical of LMEs prevailed and even here there was much inter-firm variation
in both cyclical and structural employment adjustment strategies.
Work organization varied much across the various original equipment manufacturer
(OEM) and parts supplier firms, in part as a function of the union status of the workforce,
but also as a product of firm and plant-level factors. The unionized assembly and supplier
firms historically had ‘job control’ (Taylorist, etc.) style work organization and in that way
fit the LME pattern. Yet, in the often localized search for ways to lower costs and increase
production system flexibility, from the 1980s on there has been much experimentation
with team systems and worker and union participation and wide variation across and even
within plants in how work is organized. Similar experimentation and variation appear at
the non-union independent supplier plants. And as with job security, the non-union
assembly transplants tended to make use of Japanese team style practices, though at some
firms there are ‘hybrid’ practices and much variation in shop floor work practices.
The influence of unions, government intervention and firm and plant strategies reveal
only a weak adherence to LME employment security and work organization practices in
the banking and auto sectors. The banking sector illustrates both advantages and
disadvantages of the VoC approach to categorization. On the one hand, in this sector,
outcomes are clearly driven by market considerations, and understanding the ways in
which firms react to markets and to technological developments is central to explanations
of developments in the workplace. On the other hand, these market trends must be
 The International Journal of Human Resource Management 1995

understood in a broader institutional context of de-regulation and re-regulation. Further,

the freedom of US banks to act with relatively few institutional constraints implies that a
common or consistent approach to employment practices in US banks is less likely than a
range of practices that varies substantially across firms. The auto industry pushes this line
of analysis still further: while markets may be relatively more important in the USA than
in countries identified as CMEs, this should not be read to imply that institutions do not
matter. Both labor unions and a heavy dose of government involvement have had
substantial impact on the evolution of work organization and job security in this industry.

Enterprise governance
Enterprise governance refers to the level of unionization and union influence; the nature of
bargaining between management and the workforce; the degree of employee involvement
in decision making; the role of the human resources function in the enterprise and the role
of industry associations (including employer associations).
In a typical LME, we would expect to see very low levels of unionization, individual
agreements between employees and employers, employer controlled levels of employee
involvement in decision-making process, an increased role of the human resources
function in the enterprise and little intervention from industry association in industrial
relations matters.

Enterprise governance in the US automotive industry

The UAW is the primary union representing workers in the US automotive industry.
The UAW is a large and fairly centralized union that has considerable bargaining power in
the industry with its internal structure organized along company lines in the automotive
industry. The former Big Three were completely unionized and their national, company-
wide collective bargaining agreements cover the companies’ final assembly and parts plants.
As mentioned above, the remuneration systems of the Big Three were all settled under
collective agreements and the conditions of the significant redundancies experienced at
the Big Three were all agreed to with the involvement of the UAW.
The UAW has launched various organizing drives in unorganized transplants (foreign
assembly plants operating in the USA) yet none of these drives has come close to being
successful. Despite this, UAW efforts to organize the transplants continue. Furthermore,
the level of unionization in the independent suppliers (foreign or domestic) has fallen
from high levels right after World War II to a very low level; estimates are that now only
10% or less of this sector is unionized.

Enterprise governance in the US banking industry

Almost no workers in the US banking industry are organized into trade unions. Whilst
overall union density in the US is low relative to most other industrialized countries (about
8.5% of the private sector belonged to a union in 2005) the rates of unionization in banking
are notably low even by these standards. Union membership was estimated at 1.5% in
2005, with about 2.1% of the banking workforce covered by collective bargaining
contracts (Hirsch and Macpherson 2003).

Enterprise governance in LMEs: a key mediating factor?

The US automotive and banking industries present us with two extremes of enterprise
governance in an LME. Employees of the Big Three are wholly unionized while almost no
1996 L.W. Hunter and H.C. Katz

employees of the US banking industry belong to a union. In addition, within the auto
industry enterprise governance differs much from the Big Three pattern at the non-union
assembly transplants and supplier plants. Union presence or absence is a critical
distinction as it would appear that many of the key employment outcomes considered
above have been strongly mediated by union involvement in enterprise governance in
parts of the US auto industry and such a mediating presence may explain why the
outcomes vary from the traditional assumptions about employment relations in LMEs.
The absence of any organized counterweight to management decisions in American
banking has a different sort of implication. Management is able to introduce innovations in
pay systems and work organization quickly, and to implement layoffs (whether driven by
merger, technology or other considerations) relatively unchecked. The effect of this freedom
is that while initiatives can be introduced and implemented quickly, the same kinds of
initiatives can also be withdrawn or reversed. While such reversals may be part of a process
of trial and error in an uncertain environment, they also may reflect changes in management
priorities, incentives or in the identity of the managers themselves. The one-sided approach
to employment relations has the potential for a somewhat paradoxical effect: because such
changes do not have to be negotiated, they may often turn out to be neither systematic nor
strategic. This in turn results in a wide variety of approaches to employment across banks.

Discussion and conclusion

Our comparison between key employment relations practices in the US auto and banking
industries supports calls for a broadening of the current VoC literature in a number of
areas. Most critically, we see these US industries as illustrating the need to pay attention to
variation within national systems. While ideal-typical descriptions of national systems, or
national-industrial systems, can illuminate particular aspects of employment relations, and
be suggestive of trends, such descriptions mask the diversity of practice within those
systems. In part, this is a question of focus and exposition: as we plunge deeper into the
nuances of how LMEs and CMEs vary in their approaches to solving coordination
problems, we can choose to concentrate relatively more effort on variation within those
systems. Here, it is also worth recalling that the VoC approach is centered on actors, with
the key actors typically identified as firms. To the extent that the employment practices and
outcomes actually vary within national systems, whether within or across industries, a
focus on actions inside firms in the context of both markets and institutions is likely to shed
more light on the sources of that variance.
It may be the case that this is particularly important in the context of the LME. A key
aspect of the ideal-typical LME is that it permits management to implement work practices
under relatively fewer institutional constraints. But this freedom does not in itself suggest
that all firms, or all firms within industries, will respond to similar market or technological
developments similarly, for two broad reasons.
First, the LME highlights the need to consider the strategic choices (Kochan, Katz and
McKersie 1994) made by employers. These choices reflect decisions about the specific
markets in which firms will compete, the basis on which firms seek competitive advantage, the
orientation of the firm toward growth and the means by which growth is sought (e.g. through
acquisition or organic expansion). Managers across firms will diverge in their approaches to
these choices, and such divergence will have implications for employment practice.
Second, the connections between employment practices and managerial goals may be
opaque, particularly in times of crisis, or rapid technological change. Where these
connections between ends and means are unclear, even a range of initiatives or innovations
 The International Journal of Human Resource Management 1997

in employment practices may not lead over time to the emergence of dominant approaches
to employment relations. Where managers are persuaded of the superiority or widespread
legitimacy of particular approaches, we might expect convergence, but the cases of the US
auto and banking industries suggest that even relatively strong convergence is vulnerable
to technological changes and to the effects of economic downturns or crises.
Kelly and Hamann (2008) argue that politics is also likely to have significant effects on
employment relations and on the broad national-level bi- or tri-partite agreements that
include workplace issues. While the US context does not feature the ‘social pacts’
(Hamann and Kelly 2007) characteristic of non-LME countries, the US case still merits
observation of the extent to which party politics and the role of the state have effects that
ripple into the workplace even in an LME. The 2008– 2009 financial crisis and subsequent
recession sparked direct intervention in both industries, first on the watch of the Bush
administration and then under the Obama administration in concert with a Democratic
congress.
With respect to the auto industry, while it is unclear that either leading political party
would have been willing to let the market sort out the effects of the recession, it seems
likely that the current situation in the industry cannot be explained wholly without
reference to choices made by the Bush and Obama administrations. Similarly, the banking
industry is likely to remain itself the object of political debate, with party politics and
electoral considerations influencing the shape of reform, and at least indirectly, trends in
employment relations in the industry.

Notes
1. A successful initial public offering in November 2010 lowered the UAW’s ownership stake to
13% and the US Government’s ownership stake from 61% to 33%.
2. The workforce seniority distribution and employment figures are from GM internal data.

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