This document defines contrasting assumptions about the labor force--theory X and theory Y--and shows how they apply to the pyramid organizational structure, examines the assumptions of the two theories, and finally, based on a survey and individual interviews, proposes a merger of theories X and Y to produce theory Z. Organizational structures based on theory X assume that people are willful, lazy, and require clearly defined lines of authority and control. Theory Y emphasizes human interaction and assumes that people like to work, seek responsibility, and are capable of self-control. Theory X assumptions characterize today's predominant pyramid organizational structure, a structure which is not conducive to the implementation of theory Y assumptions. Moreover, to completely change widespread and effective pyramid structures might be unwise. Nevertheless, sometimes theory X assumptions work best while in other situations theory Y assumptions are more appropriate. The document suggests, therefore, that organizations adopt a more flexible attitude midway between theories X and Y. This middle point is termed theory Z and is based on flexible, situational management, which resolves certain conflicts between theories X and Y. (PB)