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chapter 12 CHAPTER OUTLINE LEARNING OBJECTIVES Manager’s Challenge After studying this chapter, you should be able to: The Strategic Role of Human Resource Management 1. Explain the role of human resource manage- Environmental Influences on HRM 2. Describe federal legislation and societal Competitive Strategy Federal Legislation The Changing Nature of Careers The Changing Social Contract HR Issues in the New Workplace Attracting an Effective Workforce Human Resource Planning Recruiting Selecting Developing an Effective Workforce Training and Development Performance Appraisal Maintaining an Effective Workforce Compensation Benefits Termination ment in organizational strategic planning. trends that influence human resource management. 3. Explain what the changing social contract between organizations and employees means for workers and human resource managers. 4. Show how organizations determine their future staffing needs through human resource planning. 5. Describe the tools managers use to recruit and select employees. 6. Describe how organizations develop an effective workforce through training and performance appraisal. 7. Explain how organizations maintain a workforce through the administration of wages and salaries, benefits, and terminations. HUMAN RESOURCE MANAGEMENT manager’s challenge Every hour or so throughout the night, big brown trucks back into the bays at UPS’s distribution center in Buffalo, New York, where part-time workers load, unload, and sort packages at a rate of 1,200 boxes an hour. A typical employee handles a box every three seconds. The packages don’t stop until the shift is over, which allows little time for friendly banter and chitchat, even if you could hear over the din of the belts and ramps that carry packages through the cavernous 270,000-square-foot warehouse. It’s not the easiest job in the world, and many people don’t stick around for long. When Jennifer Shroeger arrived in Buffalo as the new district manager, the attrition rate of part-time workers, who account for half of Buffalo’s workforce, was 50 percent a year. With people deserting at that rate, hiring and training costs were through the roof, not to mention the slowdown in operations caused by continually training new workers. Something had to be done to bring in the right employees and make them want to stay longer than a few weeks.1 How would you address this enormous human resources challenge? What changes in recruiting, hiring, training, and other human resource practices can help to solve Jennifer Shroeger’s problem in Buffalo? The situation at UPS’s Buffalo distribution center provides a dramatic example of the challenges managers face every day. Hiring and retaining quality employees is one of the most urgent concerns of today’s managers.2 The people who make up an organization give the company its primary source of competitive advantage, and human resource management plays a key role in finding and developing the organization’s people as human resources that contribute to and directly affect company success. The term human resource management (HRM) refers to the design and application of formal systems in an organization to ensure the effective and efficient use of human talent to accomplish organizational goals.3 This system includes activities undertaken to attract, develop, and maintain an effective workforce. Managers at Electronic Arts, the world’s largest maker of computer games, include a commitment to human resources as one of the company’s four worldwide goals. They have to, in a company where the creativity and mind power of artists, designers, model makers, mathematicians, and filmmakers determines strategic success, and the competition for talent is intense.4 HRM is equally important for government and nonprofit organizations. For example, public schools in the United States are facing a severe teacher shortage, with HRM directors struggling with how to fill an estimated 2.2 million teacher vacancies over the next decade. Many are trying innovative programs such as recruiting in foreign countries, establishing relationships with leaders at top universities, and having their most motivated and enthusiastic teachers work with university students considering teaching careers.5 Over the past decade, human resource management has shed its old “personnel” image and gained recognition as a vital player in corporate strategy.6 Increasingly, ■ TAKE A MOMENT human resource management (HRM) Activities undertaken to attract, develop, and maintain an effective workforce within an organization. 379 Part 4 ORGANIZING AP PHOTO/CZAREK SOKOLOWSKI large corporations are outsourcing routine HR administrative activities, freeing HRM staff from time-consuming paperwork and enabling them to take on more strategic responsibilities. In 2003, human resources topped Gartner Inc.’s list of most commonly outsourced business activities.7 Today’s best human resources departments not only support the organization’s strategic objective but actively pursue an ongoing, integrated plan for furthering the organization’s performance.8 Human resource managers are key players on the executive team. Research has found that effective human resource management has a positive impact on strategic performance, including CONCEPT higher employee productivity and stronc o n n e c t i o n With a booming economy, the Republic of Ireland had employers looking for workers. Poland, on the other hand, had plenty of workers looking ger financial results.9 for jobs. The result was the Warsaw job fair pictured here, an example of how globalizaToday, all managers need to be tion affects human resource management. Because both countries are European Union skilled in the basics of human resource members, Irish construction companies were free to come to the Polish capital in search management. Flatter organizations often of the engineers, project managers, and skilled carpenters they needed. Polish applicants require that managers throughout the orflocked to the job fair from all over the country, seeking to escape high unemployment and a job market where the take-home pay for even an experienced engineer is roughly ganization play an active role in recruit$800 a month. ing and selecting the right personnel, developing effective training programs, or creating appropriate performance appraisal systems. HRM professionals act to guide and assist line managers in managing their human resources to achieve the organization’s strategic goals. 380 the strategic role of human resource management The strategic approach to human resource management recognizes three key elements. First, as we just discussed, all managers are human resource managers. For example, at IBM every manager is expected to pay attention to the development and satisfaction of subordinates. Line managers use surveys, career planning, performance appraisal, and compensation to encourage commitment to IBM.10 Second, employees are viewed as assets. Employees, not buildings and machinery, give a company its competitive advantage. How a company manages its workforce may be the single most important factor in sustained competitive success.11 Third, human resource management is a matching process, integrating the organization’s strategy and goals with the correct approach to managing the firm’s human capital.12 Current strategic issues of particular concern to managers include the following: :: Becoming more competitive on a global basis :: Improving quality, innovation, and customer service :: Managing mergers and acquisitions :: Applying new information technology for e-business All of these strategic decisions determine a company’s need for skills and employees. ■ TAKE A MOMENT Go to the experiential exercise on page 409 that pertains to your potential for strategic human resource management. This chapter examines the three primary goals of HRM as illustrated in Exhibit 12.1. HRM activities and goals do not take place inside a vacuum but within exhibit 12.1 Strategic Human Resource Management the context of issues and factors affecting the entire organization, such as globalization, changing technology and the shift to knowledge work, a growing need for rapid innovation, quick shifts in markets and the external environment, societal trends, government regulations, and changes in the organization’s culture, structure, strategy, and goals. The three broad HRM activities outlined in Exhibit 12.1 are to attract an effective workforce, develop the workforce to its potential, and maintain the workforce over the long term.13 Achieving these goals requires skills in planning, recruiting, training, performance appraisal, wage and salary administration, benefit programs, and even termination. Each of the activities in Exhibit 12.1 will be discussed in this chapter. “Our strength is the quality of our people.” “Our people are our most important resource.” These often-repeated statements by executives emphasize the importance of HRM. Human resource managers must find, recruit, train, nurture, and retain the best people.14 Without the right people, the brightest idea or management trend— whether virtual teams, e-business, or flexible compensation—is doomed to failure. In addition, when employees don’t feel valued, usually they are not willing to give their best to the company and often leave to find a more supportive work environment. For these reasons, it is important that human resource executives be involved in competitive strategy. Human resource managers also interpret federal legislation and respond to the changing nature of careers and work relationships. Competitive Strategy HRM contributes directly to the bottom line, because it is the organization’s human assets—its people—that meet or fail to meet strategic goals. To keep companies competitive, HRM is changing in three primary ways: focusing on building human capital, developing global HR strategies, and using information technology. Building Human Capital Today, more than ever, strategic decisions are related to human resource considerations. In many companies, especially those that rely more on employee information, creativity, knowledge, and service rather than on production machinery, Chapter 12 Human Resource Management environmental influences on hrm 381 success depends on the ability to manage human capital.15 Human capital refers to the economic value of the combined knowledge, experience, skills, and capabilities of employees.16 To build human capital, HRM develops strategies for finding the best talent, enhancing their skills and knowledge with training programs and opportunities for personal and professional development, and providing compensation and benefits that enhance the sharing of knowledge and appropriately reward people for their contributions to the organization. One organization that recognizes the strategic role of HRM in getting employees mobilized to meet goals is The Home Depot, the nation’s largest home improvement retail chain. Part 4 ORGANIZING The Home Depot 382 human capital The economic value of the knowledge, experience, skills, and capabilities of employees. ■ TAKE A MOMENT One of Bob Nardelli’s first moves as new CEO of The Home Depot was to hire a highly visible, experienced human resources executive to immediately dive into leading major strategy and change initiatives. As executive vice president of human resources, Dennis Donavan reports directly to the CEO, has the second-highest salary in the company, and holds one of the most powerful positions in the giant corporation. It’s a reflection of the importance Nardelli puts on building human capital. The Home Depot relies on the quality of its employees’ interactions with customers to stay on top in its business. More than 325,000 employees interact with customers at a rate of 3 billion times a year, often at a personal level, helping them select bathroom fixtures or discussing how to repair a garbage disposal. When Nardelli took over as CEO, those human interactions were beginning to show signs of strain due to rapid growth. Donovan and his HR team came up with 300 different strategic change projects to initiate over a three-year period, many of them designed to strengthen management and leadership skills. Because store managers are so critical to achieving corporate goals, for example, the HR department created a learning forum for district and store-level managers and within only a few months had put nearly 1,800 store managers through a weeklong intensive leadership program. Today, thanks to Donovan, every Home Depot store has its own HR manager who works directly with the store manager to facilitate hiring and developing store-level employees, including creating staff education seminars and e-learning kiosks. The Home Depot is on the cutting edge in involving HRM managers in all areas of business decision making, whether it be ongoing operational concerns, changes in the market, or long-term strategic initiatives. In fact, many of the company’s most important strategic initiatives have been initiated and led by the human resources department.17 Home Depot’s HRM team often uses data-driven research to develop human capital initiatives. For example, data showed that senior workers had fewer absences and stayed with their jobs longer, so the company signed a recruiting partnership with the American Association of Retired Persons (AARP). Surveys revealed that employees prefer semiannual bonuses to annual ones, so the HRM department made the switch.18 These types of initiatives, combined with opportunities for personal and professional development, help create an environment that gives highly talented people compelling reasons to stay. Another concern related to human capital for HRM managers is building social capital, which refers to the quality of interactions among employees and whether they share a common perspective.19 In organizations with a high degree of social capital, for example, relationships are based on honesty, trust, and respect, and people cooperate smoothly to achieve shared goals and outcomes. As a new manager, recognize that human capital is the organization’s most valuable asset. If you are involved in hiring decisions, look for the best people you can find, and then treat them like gold, with opportunities to learn, grow, and develop new skills and earn appropriate compensation and benefits. Strive to build a high level of social capital for your team or department so that people work together smoothly and relationships are based on trust, respect, and cooperation. Globalization An issue of significant concern for today’s organizations is competing on a global basis, which brings tremendous new challenges for human resource management. Most companies are still in the early stages of developing effective HRM policies, structures, and services that respond to the current reality of globalization.20 In a study of more than 200 global companies, including Eli Lilly, PPG Industries, and UPS, managers reported that the biggest challenge for HRM is leadership development and training for the international arena. In addition, HRM is responsible for recruitment, training, and performance management of employees who might have to work across geographical, technical, and cultural boundaries to help the organization achieve its goals. The success of global business strategies is closely tied to the effectiveness of the organization’s global HR strategies.21 A subfield known as international human resource management (IHRM) specifically addresses the added complexity that results from coordinating and managing diverse people on a global scale.22 Research in IHRM has revealed that, as the world becomes increasingly interconnected, some HR practices and trends are converging. However, IHRM managers need a high degree of cultural sensitivity and the ability to tailor and communicate policies and practices for different cultures.23 What works in one country may not translate well to another. Consider the human resources department at the U.K. division of Electronic Arts. In the United States, talented young people are eager to work for companies such as Electronic Arts, but bright college graduates in the United Kingdom often don’t see designing computer games as a worthwhile career. Thus, the U.K. division’s HR director has to take a different approach to recruiting, developing close relationships with specific universities and finding other innovative ways to promote the company.24 Exhibit 12.2 lists some interesting trends related to selection, compensation, performance appraisal, and training in different countries. Information Technology human resource information system An integrated computer system designed to provide data and information used in HR planning and decision making. exhibit 12.2 Some Trends in International Human Resource Management Selection • In Japan, HR managers focus on a job applicant’s potential and his or her ability to get along with others. Less emphasis is placed on job-related skills and experience. • Employment tests are considered a crucial part of the selection process in Korea, whereas in Taiwan, the job interview is considered the most important criterion for selection. Compensation • Seniority-based pay is used to a greater extent in Asian and Latin countries. • China and Taiwan have surprisingly high use of pay incentives, and are moving toward more incentives based on individual rather than group performance. Performance Appraisal • Across ten countries surveyed, managers consider recognizing subordinates’ accomplishments, evaluating their goal achievement, planning their development, and improving their performance to be the most important reasons for performance appraisals. Training • In Mexico, managers consider training and development a reward to employees for good performance. • HR managers in Korea incorporate team-building into nearly all training and development practices. SOURCE: Mary Ann Von Glinow, Ellen A. Drost, and Mary B. Teagarden,“Converging on IHRM Best Practices: Lessons Learned from a Globally Distributed Consortium on Theory and Practice,”Human Resource Management 41, no. 1 (Spring 2002): 123–140. 383 Chapter 12 Human Resource Management Information technology is transforming human resource management and helping to meet the challenges of today’s global environment. A study of the transition from traditional HR to e-HR found that the Internet and information technology significantly affects every area of human resource management, from recruiting, to training and career development, to retention strategies.25 A human resource information system is an integrated computer system designed to provide data and information used in HR planning and decision making. The most basic use is the automation of administrative duties such as handling pay, benefits, and retirement plans, which is convenient for employees and can lead to significant cost savings for the organization. international human resource management (IHRM) A subfield of human resource management that addresses the complexity that results from recruiting, selecting, developing, and maintaining a diverse workforce on a global scale. Some organizations are coming close to a paperless HRM system, which not only saves time and money but also frees staff from mundane chores so they can focus on important strategic issues, such as how to effectively evaluate and compensate virtual workers or how to meet the challenge of a coming skilled labor shortage.26 Consider that annual labor force growth is expected to slow to 0.2 percent by 2020 and stay there for decades.27 By simplifying the task of analyzing vast amounts of data, human resource information systems can dramatically improve the effectiveness of long-term planning to meet this and other HR challenges. Federal Legislation Over the past 40 years, a number of federal laws have been passed to ensure equal employment opportunity (EEO). Some of the most significant legislation and executive orders are summarized in Exhibit 12.3. The point of the laws is to stop Part 4 ORGANIZING exhibit 384 12.3 Major Federal Laws Related to Human Resource Management Federal Law Year Provisions Equal Opportunity/Discrimination Laws Civil Rights Act 1991 Provides for possible compensatory and punitive damages plus traditional back pay for cases of intentional discrimination brought under title VII of the 1964 Civil Rights Act. Shifts the burden of proof to the employer. Americans with Disabilities Act 1990 Prohibits discrimination against qualified individuals by employers on the basis of disability and demands that “reasonable accommodations” be provided for the disabled to allow performance of duties. Vocational Rehabilitation Act 1973 Prohibits discrimination based on physical or mental disability and requires that employees be informed about affirmative action plans. 1967 Prohibits age discrimination and restricts mandatory retirement. Age Discrimination in Employment Act (ADEA) Civil Rights Act, Title VII (amended 1978, 1986) 1964 Prohibits discrimination in employment on the basis of race, religion, color, sex, or national origin. Health Insurance Portability and Accountability Act (HIPPA) 1996 Allows employees to switch health insurance plans when changing jobs and get the new coverage regardless of preexisting health conditions; prohibits group plans from dropping a sick employee. Family and Medical Leave Act 1993 Requires employers to provide up to 12 weeks unpaid leave for childbirth, adoption, or family emergencies. Equal Pay Act 1963 Prohibits sex differences in pay for substantially equal work. Consolidated Omnibus Budget Reconciliation Act (COBRA) 1985 Requires continued health insurance coverage (paid by employee) following termination. Occupational Safety and Health Act (OSHA) 1970 Establishes mandatory safety and health standards in organizations. Compensation/Benefits Laws Health/Safety Laws discriminatory practices that are unfair to specific groups and to define enforcement agencies for these laws. EEO legislation attempts to balance the pay given to men and women; provide employment opportunities without regard to race, religion, national origin, and gender; ensure fair treatment for employees of all ages; and avoid discrimination against disabled individuals. The Equal Employment Opportunity Commission (EEOC) created by the Civil Rights Act of 1964 initiates investigations in response to complaints concerning discrimination. The EEOC is the major agency involved with employment discrimination. Discrimination occurs when some applicants are hired or promoted based on criteria that are not job relevant. For example, refusing to hire a black applicant for a job he is qualified to fill or paying a woman a lower wage than a man for the same work are discriminatory acts. When discrimination is found, remedies include providing back pay and taking affirmative action. Affirmative action requires that an employer take positive steps to guarantee equal employment opportunities for people within protected groups. An affirmative action plan is a formal document that can be reviewed by employees and enforcement agencies. The goal of organizational affirmative action is to reduce or eliminate internal inequities among affected employee groups. Failure to comply with equal employment opportunity legislation can result in substantial fines and penalties for employers. Suits for discriminatory practices can cover a broad range of employee complaints. One issue of growing concern is sexual harassment, which is also a violation of Title VII of the Civil Rights Act. The EEOC guidelines specify that behavior such as unwelcome advances, requests for sexual favors, and other verbal and physical conduct of a sexual nature becomes sexual harassment when submission to the conduct is tied to continued employment or advancement or when the behavior creates an intimidating, hostile, or offensive work environment.28 Sexual harassment will be discussed in more detail in Chapter 13. Exhibit 12.3 also lists the major federal laws related to compensation and benefits and health and safety issues. The scope of human resource legislation is increasing at federal, state, and municipal levels. The working rights and conditions of women, minorities, older employees, and the disabled will likely receive increasing legislative attention in the future. 385 Chapter 12 Human Resource Management the changing nature of careers Another current issue is the changing nature of careers. HRM can benefit employees and organizations by responding to recent changes in the relationship between employers and employees and new ways of working such as telecommuting, job sharing, outsourcing, and virtual teams. The Changing Social Contract In the old social contract between organization and employee, the employee could contribute ability, education, loyalty, and commitment and expect in return that the company would provide wages and benefits, work, advancement, and training throughout the employee’s working life. But volatile changes in the environment have disrupted this contract. As many organizations downsized, significant numbers of employees were eliminated. Employees who are left may feel little stability. In a fast-moving company, a person is hired and assigned to a project. The project changes over time, as do the person’s tasks. Then the person is assigned to another project and then to still another. These new projects require working with different groups and leaders and schedules, and people may be working in a virtual environment, where they rarely see their colleagues face to face.29 Careers no longer progress up a vertical hierarchy but move across jobs horizontally. In many of today’s companies, everyone is expected to be a self-motivated worker, with excellent interpersonal relationships, who is continuously acquiring new skills. discrimination The hiring or promoting of applicants based on criteria that are not job relevant. affirmative action A policy requiring employers to take positive steps to guarantee equal employment opportunities for people within protected groups. exhibit 12.4 The Changing Social Contract New Contract Employee Employer Old Contract • • • • Employability, personal responsibility Partner in business improvement Learning Continuous learning, lateral career movement, incentive compensation • Creative development opportunities • Challenging assignments • Information and resources • • • • Job security A cog in the machine Knowing Traditional compensation package • Standard training programs • Routine jobs • Limited information SOURCES: Based on Louisa Wah,“The New Workplace Paradox,”Management Review ( January 1998): 7; and Douglas T. Hall and Jonathan E. Moss,“The New Protean Career Contract: Helping Organizations and Employees Adapt,”Organizational Dynamics (Winter 1998): 22–37. Part 4 ORGANIZING Exhibit 12.4 lists some elements of the new social contract. The new contract is based on the concept of employability rather than lifetime employment. Individuals manage their own careers; the organization no longer takes care of them or guarantees employment. Companies agree to pay somewhat higher wages and invest in creative training and development opportunities so that people will be more employable when the company no longer needs their services. Employees take more responsibility and control in their jobs, becoming partners in business improvement rather than cogs in a machine. In return, the organization provides challenging work assignments as well as information and resources to enable people to continually learn new skills. The new contract can provide many opportunities for employees to be more involved and express new aspects of themselves. However, many employees are not prepared for new levels of cooperation or responsibility on the job. In addition, some companies take the new approach as an excuse to treat employees as economic factors to be used when needed and then let go. This attitude leads to a decline in morale and commitment in organizations, as well as a decline in performance. Studies in the United States and China found lower employee and firm performance and decreased commitment in companies where the interaction between employer and employee is treated as a contract-like economic exchange rather than a genuine human and social relationship.30 In general, it is harder than it was in the past to gain an employee’s full commitment and enthusiasm. One study found that even though most workers feel they are contributing to their companies’ success, they are increasingly skeptical that their hard work is being fully recognized and appreciated.31 Some companies find it hard to keep good workers because of diminished employee trust. An important challenge for HRM is revising performance evaluation, training, compensation, and reward practices to be compatible with the new social contract. In addition, smart organizations contribute to employees’ long-term success by offering extensive professional training and development opportunities, career information and assessment, and career coaching.32 These programs help to preserve trust and enhance the organization’s social capital. Even when employees are let go or voluntarily leave, they often maintain feelings of goodwill toward the company. 386 ■ TAKE A MOMENT As a new manager, appreciate the opportunities that are offered by the new social contract. Allow people to make genuine contributions of their talents to the organization, and provide them with challenging work and opportunities to learn new skills they can transfer to other jobs in the future. HR Issues in the New Workplace The rapid change and turbulence in today’s business environment bring significant new challenges for human resource management. Some important current issues are becoming an employer of choice, responding to the increasing use of teams and project management, addressing the needs of temporary employees and virtual workers, acknowledging growing employee demands for work/life balance, and humanely managing downsizing. Becoming an Employer of Choice The old social contract may be broken for good, but today’s best companies recognize the importance of treating people right and thinking for the long term rather than looking for quick fixes based on an economic exchange relationship with employees. An employer of choice is a company that is highly attractive to potential employees because of human resources practices that focus not just on tangible benefits such as pay and profit sharing, but also on intangibles (such as work/life balance, a trustbased work climate, and a healthy corporate culture), and that embraces a longterm view to solving immediate problems.33 To engage people and spur high commitment and performance, an employer of choice chooses a carefully balanced set of HR strategies, policies, and practices that are tailored to the organization’s own unique goals and needs. Motek Software, for example, has a strict 9 A.M. to 5 P.M. policy and gives employees a full month of vacation each year. Founder and CEO Ann Price wants the best and brightest IT workers, and she doesn’t want them to burn out and leave after a couple of years. The consulting and training firm, IHS Help Desk, on the other hand, doesn’t expect people to stay more than a couple of years. People work long hours, but IHS keeps them motivated and builds social capital by offering plenty of training and career development opportunities.34 CONCEPT connection It is technology—such as laptops, home computers, and broadband—that makes telecommuting possible. But it’s social and cultural trends that make its continuing growth probable. For example, many employees believe telecommuting makes it easier to achieve work-life balance, whereas employers find the new arrangement expands their labor pool and cuts overhead expenses. The federal government has encouraged the practice as well because fewer commuters means improved air quality and reduced energy consumption. So managers will continue to find themselves dealing with the issues telecommuting raises: just how do you select, train, monitor, and reward employees you very rarely see? 387 Chapter 12 Human Resource Management Teams and Projects The advent of teams and project management is a major trend in today’s workplace. People who used to work alone on the shop floor, in the advertising department, or in middle management are now thrown into teams and succeed as part of a group. Each member of the team acts like a manager, becoming responsible for quality standards, scheduling, and even hiring and firing other team members. With the emphasis on projects, the distinctions between job categories and descriptions are collapsing. Many of today’s workers straddle functional and departmental boundaries and handle multiple tasks and responsibilities.35 Temporary Employees In the opening years of the twenty-first century, the largest employer in the United States was a temporary employment agency, Manpower Inc.36 Temporary agencies grew rapidly during the 1990s, and early 2000s, and millions of employees today are in temporary firm placements. People in these temporary jobs do everything from data entry, to project management, to becoming the interim CEO. Although in the past, most temporary workers were in clerical and manufacturing positions, in recent years demand has grown for professionals, particularly financial analysts, interim managers, information technology specialists, accountants, product managers, and operations experts.37 Contingent workers are people who work for an organization, but not on a permanent or full-time basis. These workers include temporary placements, contracted professionals, leased employees, or part-time workers. One estimate is that contingent workers make up at least 25 percent of the U.S. workforce.38 The use of contingent workers means reduced payroll and benefit costs, as well as increased flexibility for both employers and employees. contingent workers People who work for an organization, but not on a permanent or full-time basis, including temporary placements, contracted professionals, or leased employees.