To better serve the needs of a rapidly changing workforce, organizations have increasingly adopted individualized work arrangements. Many individuals are no longer satisfied with an employment agreement that is uniform to all employees and top-down dictated by their employer. Instead, they are looking to negotiate an arrangement that fits their personal situation. For instance, some employees are looking for an individualized work schedule or a customized work from home arrangement; others like to obtain a personalized development trajectory or even pursue an individual incentive scheme.

Who benefits from i-deals and who doesn’t?

To accommodate such individual desires and needs, in the past 15 years, organizations have started experimenting with individualization as a new principle to design employment arrangements. In the academic literature, these individualized work arrangements are best known as ‘i-deals’ (idiosyncratic deals). Research examining these i-deals has consistently reported positive effects for those individuals receiving an individualized work arrangement. That is, those who received an i-deal have been found to be more willing to go the extra mile, are more satisfied at work, more productive, more loyal to their employer and stay longer with the company.

That’s great news for those negotiating an i-deal, but what does that mean for the firm? Do firms who frequently grant i-deals also benefit from individualization and perform better than firms who stick to uniform top-down practices? This was the question that our study published in the Journal of Management Studies set out to answer.

At first sight, the question might seem straightforward: If people who are granted an i-deal are more productive and go the extra mile, that should in aggregate result in higher firm performance, right? Not necessarily. People don’t work in isolation. Colleagues and team members closely watch and monitor what is happening to others and compare it to their own situation. When someone receives a favorable arrangement that piques others’ interest, co-workers may become envious even if the arrangement would not be something they’d personally want for themselves. As a result, research has found that i-deals often trigger negative responses in co-workers, potentially negating any positive performance effects that may have been produced by the i-deal in the first place.

How then do firms benefit from individualized work arrangements?

To understand how these unpredictable psychological dynamics play out at the firm level, we collected data from 870 employees from 36 firms over two years. We asked HR representatives of the 36 firms to indicate how many employees typically receive an i-deal, while also indicating how many employees are typically involved in top-down uniform HR practices (e.g., a standard training or performance appraisal). Individual employees indicated how well they felt supported by the organization and how fair they thought reward allocation was in their organization. We then compared financial firm performance two years later with the initial performance at the time of the first survey.

What did we find? Firms that frequently granted i-deals performed better financially than those who didn’t, but only when top-down HR practices were also used for the majority of their employees. If an organization didn’t have a strong set of top down HR practices in place, more i-deals did not lead to better performance. Why was this the case? The explanation is employees’ perceptions of support and fairness. Strong top-down HR practices are designed to consistently incorporate basic psychological principles, such as feedback, recognition, growth, and participation. Because this set of common practices ensures that everyone’s basic individual needs are satisfied, they provide employees with a sense of support  and fairness. When employees are then granted an individualized arrangement, co-workers have less of a knee-jerk reaction because they know that there is a set of practices which signal that the company cares for them and ensures they are treated fairly.  The strong backbone of HR practices can thus prevent the emergence of negative side effects of social comparison so that firms optimally benefit from the positive effects of i-deals.

How to use individualization in a postpandemic work future

While our data were collected before the COVID-19 pandemic, they might provide important insights regarding  how to organize work  in a postpandemic future. Employers are currently struggling with two key challenges when it comes to managing their workforce: (1) Winning the war for talent, as illustrated by stories about The Great Resignation, and (2) Designing a hybrid working model. Individualization might be a principle that underlies both challenges. Attracting and recruiting scarce talent in a tight labour market is increasingly determined by appealing working conditions. People are looking for jobs that provide them with flexibility and autonomy to shape their own working lives and careers in a way that fits them best. Our research shows that granting i-deals will not only persuade individuals to come and work for an employer, but will also lead to better firm performance. Similarly, one of the key principles underlying hybrid working models is increased flexibility, adapting work schedules and work locations to what fits best for employees. Again, our study suggests that such individualization of working arrangement might be beneficial for both employers and employees, as long as the organization makes sure to invest in a set of strong top-down HR practices.