You are on page 1of 29

Chapter One Introduction to HRM

The focus of this class is on human resource management (HR for short) activities. There are several ways to approach this content, and well use all of them as the semester progresses. After this class, well start looking at the specifics that make up HRM. The approach will be mixed we will look at both what an HR specialist needs to know, and what a general supervisor or manager needs to know. For example, setting up an employment testing program is normally done by professionals in HR, but all supervisors and managers, sooner or later, need to interview job applicants. Well also take some time to look at how HR activities affect you for example, what do you need to know as a job applicant. In this chapter, what well be looking at is why HR is important -- as well see, many folks in management view HR as irrelevant, or, worse, a nuisance. By the end of this class, we should see that human resource management can contribute to organizational success. In this chapter, we will answer these questions: What is human resource management? How do HR activities fit into the overall management of the organization? What are the external influences, requirements and constraints impacting HR practice? What are the HRM functions or activities?

What is Human Resource Management?


Every textbook has its own definition of human resource management, also known as HRM. HR is a specialized area of general management, dealing specifically with the people who make up the organization. Its focus is on ways of improving the efficiency and effectiveness with which people are managed to achieve organizational goals. More concisely, HRM is the organizations methods and procedures for managing people to enhance skills and motivation. Another definition, this one focusing on the specific activities involved, is that HRM includes the organizations activities designed to enhance the organizations ability to attract, select, retain and motivate people.

Copyright 2008 by Kristin O. Prien, Ph.D.

Unauthorized reproduction prohibited

Chapter One: Introduction to Human Resource Management Page 2

The Death of Human Resource Management


A popular topic in the 1990s in magazines such as Fortune and the HR trade journals was the death of human resource management (Caudron, 2003; Schuler, 1990; Schuler & Walker, 1990; Stewart, 1995; Stewart & Martin, 1996; Stewart & Woods, 1996; Sunoo & Laabs, 1999; Ulrich, 2000). According to these writers, the traditional Personnel Department was obsolete. Its primary functions were simple administrative record-keeping tasks that should and could be outsourced. The remaining responsibilities were too important to be left in the hands of the personnel department, and should be reserved for operating management. These articles were right, in a way the traditional HR function is dead, but it has been reborn in a very different form.

The Personnel Department


Traditionally, the HRM function was known as personnel, and was a relatively powerless, low status staff function. Personnel managers kept records and issued paychecks. Many managers perceived it (and many still do) as irrelevant or ineffectual. In fact, up until about 20 years ago, personnel was primarily a recordkeeping function. It was the dumping ground for the inefficient and the folks not deemed worthy of real jobs in organizations women and minorities. Some, in fact, believed that personnel was a dying function, that line management would take on many human resource functions, with the rest being outsourced.

Would It Make More Sense To Outsource HR Functions?


The idea of outsourcing HRM activities began in the 1980s, when many firms contracted out payroll processing. It made sense. Payroll processing is a very detail-intensive, yet routine job. A specialist contractor, running payrolls for many companies, can achieve economies of scale and, thus, do it cheaper than many firms can do on their own. So, the thought was, lets try it with other HR functions. Now, outsourcing is a $6 billion per year business (Babcock, 2006), and some projections (Rafter, 2005) have it as high as $14 billion by 2009. All areas of HR can be outsourced, from routine administrative functions such as benefits processing, to core HR activities, such as staffing and training (Caudron, 2003). A company can outsource specific tasks, such as payroll processing, or entire processes, such as recruitment or benefits administration (Greengard, 2004). An estimated 80% of companies outsource one or more HR functions (Caudron, 2003); other sources estimate that as many as 94% of firms are outsourcing at least one HR function (Gurchiek, 2005). Do companies save money through outsourcing? Is it a good idea, whether or not there are cost savings? The numbers indicate that there are cost savings. Service providers suggest that 15% to 25% cost savings are possible (Greengard, 2004). In actual practice, the savings can be significant. Estimates are that British Petroleum reduced HR costs by 20% (Rafter, 2005). Other firms save, though not as big. For example, Bank of America estimated a 10% savings from outsourcing payroll, HRIS (human resource information systems), benefits processing, and employee communications

Chapter One: Introduction to Human Resource Management Page 3

(Zimmerman, April 2001). And, there is the benefit, especially for smaller companies, of having specialists (that would otherwise be unaffordable) do the work employee benefits, in particular, is an extremely complex and specialized area. Finally, in a recent survey, 89% of firms that outsourced were pleased with their results (Gurchiek, 2005). Not all outsourcing transitions are as smooth as projected. When British Petroleum contracted with Exult to handle a portion of its HR functions, there were difficulties and problems for example, a promised payroll system proved to be impractical outside of English-speaking locations. BP employees, facing the loss of their jobs, had little reason to work to make the transition work (Rafter, 2005). Incidentally, was this a groundless fear? Probably not HR staff went from 100 people to 35 people (Caudron, 2003). Opponents argue that, while it makes sense to outsource routine activities (i.e., payroll or insurance claim processing), functions such as staffing, which are directly related to a firms core competencies its people should remain within the firm. If the fit between employee and the company is critically important, who should make the decision to hire or not hire? When a firm makes the decision to outsource, it is critical to take the time to select the best service provider. Its also important to remember that, no matter how much or little is outsourced, it is critical to keep control over the providers activities as far as employees are concerned (and, often, legally), the company is still responsible.

HR Professionals Today
As we said previously, the reports of the impending death of the HRM function were somewhat exaggerated. What we saw, instead, was a rebirth. Part of this rebirth has been a change in who practices HR. Recent estimates are that 25% to 30% of todays HR executives came from a line area (such as manufacturing or sales), rather than from HR (Caudron, 2003). In another move, many HR professionals are rotating to areas outside of HR. But, HR professionals have also taken steps to change their image and, more importantly, their capabilities. Downsized (Adapted from Dunn, 2000) to be taken seriously, HR practitioners realized that, Figure 1: Why HR Departments are to be a strategic business partner, they needed to bring more to the table than just35% the ability to keep records and a vague desire to work with people. In fact, HR professionals recognize the need for an enhanced skill set; in a recent survey of HR 30% managers, over half pointed to the absence of strategic and quantitative thinking as the major reason for HR departments being downsized (Dunn, 2000). 25% So, what are these skills?
20% 15% 10% 5% 0%

Results not measurable

Not effectively marketed to management

Not in line with Unpopular with business strategy employees

Overstaffed

None of above

Chapter One: Introduction to Human Resource Management Page 4

Quantitative Thinking
CEOs and senior managers view decision-making in financial terms. HR folks traditionally viewed themselves as people persons, but learned that it was essential to be able to show how their activities paid off, in financial terms. For example, GTE uses the balanced scorecard approach, measuring every conceivable aspect of HR performance. With their results, HR staff are able to show, in dollars and cents terms, how much the HR function contributes to GTEs profits (Solomon, 2000). As well see later in this chapter, additional techniques from finance and accounting can be valuable in assessing the value of an organizations people and making decisions about people. Quantitative information is not, as yet, as widely used as it can be. 91% of companies collect so-called metrics, this data, but less than half (46%) actually use this information to measure the value of their employees (People are our greatest asset, 2005). One manager who relies on quantitative information and analysis is the vice president of HR at Bal Seal Engineering, Jeff Jernigan. His entire approach to managing HR is based on numbers not just payroll costs and staffing numbers, but complex statistical analyses, including correlation and multiple regression. The result, based on sales and production information, are used to predict exact staffing needs (Lachnit, 2001; Greatest asset, 2005), but in a recent survey, 84% of HR managers reported that the use of quantitative measurement and decision-making will increase in the near future (Hansen, 2005).

Strategic Thinking
In order to be involved in top-level decisions, its essential to think strategically. That means focusing on the overall organization, not just that narrow segment marked Human Resources. HR managers need to see how the effective management of human resources can fit into the organizations overall strategy, and, more importantly, develop HR programs that carry out the overall strategy. Theres evidence that this shift has occurred. In a recent survey (Flexibility moves to center stage, 2004), 61% of HR managers reported that they had complete, or at least substantial, involvement in organizational strategic planning and implementation. In a more recent survey conducted by the Society of Human Resource Management, certified human resource professionals reported pending from one-third to half of their time dealing with strategic / policy responsibilities (McConnell, 2007). In support of this, over half of the HR managers surveyed report to the companys CEO. In other instances, HR managers become themselves part of company strategy. Finally, in a 2001 study of HR managers, 30 out of 537 surveyed had risen to a senior management position, 10 to the CEO slot (Wells, 2003). Lets look at some actual examples. At Hallmark Cards, the overall company vision statement, Enriching Lives and Relationships, became the starting point for an entire package of family-friendly policies and programs (Atkinson, 2005). At FPI Thermoplastic Technologies, HR manager Claudia Rowe became involved with company strategy to the point that she assumed responsibility for international sales, as well as her HR responsibilities (Stewart & Martin, 1996).

Chapter One: Introduction to Human Resource Management Page 5

Knowledge of the Business


The needs and requirements of a manufacturing company are different from those of a bank, and both differ from what is needed at a hospital or retail chain. The differences are not just between industries. The needs of different banks will be also be different. For example, think about the complexities of recruitment and selection of a very large state-wide bank, such as First Tennessee, with the needs of a small, 2 or 3 branch bank. HR managers and professionals with experience in the firm or industry in areas other than HR have an advantage here, through their knowledge of the business and business requirements. For example, Borders realized that half of their book-buying customers were 45 years or older. In order to better appeal to those customers, Borders is focusing recruiting on people aged 50 and older. Turnover is significantly lower in this age group. Finally, with an aging population, the pool of younger workers who traditionally filled retail jobs is shrinking. The end result a solution to worker shortages that actually results in better employees (Marquez, 2005). In another example, the on-line application at Las Vegas casino Wynn Las Vegas is specifically designed for the casino industry; instead of typing in the name of previous employers, applicants choose from a menu listing all of the Las Vegas casinos (Berkshire, 2005).

Certification and Professional Organizations


As do most professions and industries, the field of human resource management has its professional associations. Perhaps the most well-known is the Society for Human Resource Management (SHRM), with over 200,000 members. Others include the American Society for Training and Development, the International Foundation of Employee Benefit Plans and the International Public Management Association for Human Resources. As do other professional associations, these groups engage in educational and professional development activities, conduct surveys and other applied research, monitor pending legislation and legal cases (often also engaging in lobbying activities) and, often, fund university scholarships for students interested in becoming HR professionals. Finally, the professional HR groups also, increasingly, provide opportunities for practitioners to gain certification, attesting to the individuals expertise in the general field of HRM or a specialized area (such as training or benefits administration). In fields such as law, medicine and accounting, practitioners hold licenses and certifications to attest to their expertise. While HR practitioners do not require licensure or certification, there is a growing trend for HR practitioners to hold one or more certifications. Through SHRM and other organizations, there are several types and levels of certification for HR professionals. The SHRM certification dates from 1976, when the sponsoring organization was known as the American Society of Personnel Directors or ASPA; by 2006, it is estimated that 80,000 or more individuals hold one of the SHRM certifications. (Leonard, 2006). The ASPA certifications were followed by the International Foundation of Employee Benefit Plans and its Certified Employee Benefit Specialist

Chapter One: Introduction to Human Resource Management Page 6

(CEBS) certification. Other professional associations have followed. These two are probably the best-known and most accepted. Other certifications, such as the ones offered by the International Coach Federation are less well-known and are held by very few individuals --- less than 1,500 (Laff, 2007). Certification is normally based on the results of examinations; in addition, applicants for certification often must also have documented work experience in the HR area. The certifying organizations offer review classes to prepare applicants for the exams, and these classes are often a requirement for taking the exam. Current estimates are that over a third of HR directors and VPs hold a certification, although certification is not as yet a requirement for working as an HR professional or manager (Sunoo & Laabs, 1999). Many HR professionals, though, do find that certification gives them an advantage in seeking jobs in the field (Dinell, 2003). There is, though, evidence on the other side; an academic study found that less than 1% of on-line advertisements for HR professionals specified that a certification was required or even desirable (Aguinis, Michaelis, & Jones, 2005).

Figure 2: HRM Professional Organizations and Certifications American Payroll Association (www.americalpayroll.org) Fundamentals of Payroll Certification (FPC) Certified Payroll Professional (CPP) American Society for Training & Development ( www.astd.org) Human Performance Improvement Certificate Certified Performance Technologist Human Resource Certification Institute [affiliated with SHRM] ( www.hrci.org) Professional in Human Resources (PHR) Senior Professional in Human Resources (SPHR) Global Professional in Human Resources (GPHR) International Coach Federation ( www.coachfederation.org) Associate Certified Coach Professional Certified Coach Master Certified Coach International Foundation of Employee Benefit Plans ( www.ifebp.org) Certified Employee Benefits Specialist Compensation Management Specialist Group Benefits Associate Retirement Plans Associate International Public Management Association for Human Resources ( www.ipmahr.org) IPMA-Certified Specialist IPMA-Certified Professional Society for Human Resource Management (www.shrm.org)

Approaches to Revitalizing HR

Chapter One: Introduction to Human Resource Management Page 7

There are two general approaches that are taken in the reborn HRM field first, there is accounting for human resources; and, second, managing people for competitive advantage. Earlier, we said that HR managers needed to be able to think both quantitatively and strategically. These two approaches draw on those skills. Thinking quantitatively leads to treating people as any other asset, and applying techniques from accounting and finance to the management of human resources. Thinking strategically leads to the idea of competitive advantage, the strengths that a firm can build a strategy around. For the HR manager, that translates to how a firm can create and sustain competitive advantage through its people.

Accounting for Human Resources


These are two approaches to measuring peoples contributions to the company. Its important to remember that measurement is important people dont see something as important unless it can be measured. The reverse is true, too -- what is measured is, therefore, important. The techniques used here draw on cost accounting and basic finance. One is not better or worse than the other the two approaches answer different questions.

Costing HR
Wayne Cascio, a professor at the University of Colorado, realized as far back as 1982 that cost accounting techniques could easily be applied to HR activities. How does this work? Basically, what you are doing is calculating the cost of HR interventions and the cost savings resulting from the outcomes. For example, lets look at the costs associated with employees quitting and having to be replaced. First, how do we measure turnover? Its based on the number of employees we have and how may quit and are replaced over the course of (usually) a year. So, if you begin the year with 10 employees, and end the year with 10 different employees, you have 100% turnover over the course of a year. More realistically, some employees may still be with you at the end of the year, while others stay less than a year. Lets assume that we have 100 employees and 200% turnover. This means you have to hire 200 new employees every year. What are some of the costs? Some are obvious ads, application forms, employment tests, drug testing, etc. But others are not as obvious, such as the time it takes HR staff and management to screen and select candidates. The second step is to compare the costs of turnover with the costs of reducing turnover. For example, you might reduce turnover to 50% by increasing salaries by 4%. Should you do this? Compare the cost of hiring 100 fewer people each year with the cost of a 3% salary raise. Lets look at Figure 3 to compare the costs. In this case, the cost of a 3% raise is more than what would be saved with a reduction in turnover. But, what if the price of drug testing drops? The turnover rate increases? Then, the pay raise might be worthwhile.

Chapter One: Introduction to Human Resource Management Page 8

This approach can be more complex. Going back to employment you might be trying to decide whether to run an employment ad in the local newspaper or in the Wall Street Journal. Obviously, the local paper will be much less expensive. What you have to consider, though, is whether or not youll get the applicants you are looking for from the ad in the local newspaper. The Wall Street Journal ad might be three times as expensive, but produce 10 times as many good applicants. So, the Wall Street Journal ad is actually lower cost per applicant. Think longer term, too. Which source provides employees who perform better? Stay with the company longer? A large bank recruited employees primarily from top-ranked MBA programs; these employees performed somewhat better than the recruits from less-prestigious programs, but left the organization at a much higher rate (Garvey, 2005).

Figure 3: Potential Savings From Hiring 100 Fewer New Employees Costs to Hire Employment ad (6 60 day ads on Monster.com @ $300) Clerical time to process applicants (1 hour @ $7.50 x 500 applicants) Initial screening interview (1 hour @$9.00 x 400 applicants) Employment testing ($35 x 300 applicants) Supervisor interview / decision making (1 hour @$15.00 x 250 applicants) Pre-employment drug screen ($50 x 150 applicants) Reference checking (1 hour @ $9.00 x 125 applicants) Supervisor time to train new employees (5 hours @$15 / hour x 100) Total Hiring Costs $1,800 3,750 3,600 10,500 3,750 7,500 1,125 7,500 $39,525

Cost of 3% Raise 100 employees x $7.00 per hour x 40 hours per week x 52 weeks per year Total Cost of Raise Total Savings (Cost)

$1,456,000 $43,680 $4,155

Making cost benefit comparisons isnt all that you can do with HR cost information or, as it also called metrics. Its possible to track costs and other information over time, to determine if HR is becoming more or less effective. For example, you may be taking 60 days, on average, to fill vacant positions. After implementing a new procedure for processing resumes, that time might drop to 55 days an improvement. You can also compare your metrics to those of other companies; this is the balanced scorecard or benchmarking approach (Solomon, 2000). This can be industry averages or you may pick a specific company that youve identified as being someone to emulate (Five steps to effective metrics). If, for example, the industry average tie to fill a vacant position is 45 days, youve improved, but need

Chapter One: Introduction to Human Resource Management Page 9

Excess returns represent a return on assets over the use of metrics firms in the same to improve even more. Some suggestions forand above what other(Bates, 2003; Five industry 2005): steps, are earning. Excess returns are attributable to something intangible, not reflected on a balance sheet.

Do collect data that allows you to determine how well HR is supporting the organizations overall strategy. Dont just copy another organizations metrics. Develop the numbers that your organization needs to measure. Dont try to get too complicated. Make sure management can understand the numbers and what they mean. Do use comparisons. Numbers by themselves dont tell you anything; instead, compare results over time, or with other organizations.

Human Capital Approach


What are your companys assets? The obvious answer buildings, inventory, equipment is only a partial answer. What is an asset? Its any item that has value. Your employees are an asset specifically, their knowledge, skills, expertise, dedication are assets, too, even if you cant tattoo an inventory control number on their foreheads. The idea of intangible assets isnt new think about goodwill, for example. And, its possible to value any intangible asset. One approach to valuing your organizations employees is the human capital approach (Stewart, 1995; Zimmerman, February 2001). Heres how to proceed. The value of your employees is determined by calculating how much more effectively your company operates with your employees. How do we determine how effectively your company operates? One obvious way is to look at earnings. So, to determine the contribution of employees to corporate earnings, follow these steps: Determine three years total pretax earnings Determine average assets over same three years Calculate firms return on assets (ROA) Determine industry average ROA Calculate excess returns1 Subtract taxes Calculate net present value of excess return

The result of these calculations is the intangible value of the companys human capital.

Human Resources and Competitive Advantage


The human capital approach is based on the assumption that we have the best employees and that those employees are contributing to our bottom line. However, theres one important point to keep in mind when thinking of employees as assets they are assets with feet. Your employees leave every night, and theres no guarantee that they will return the next day. So, how do you go about acquiring, managing, and retaining your workforce? In other words, how do we go about establishing and maintaining competitive advantage through people?
1

Chapter One: Introduction to Human Resource Management Page 10

First of all, what is competitive advantage? It is the factor or factors that give your company an edge or advantage over your competitors lets call it X. It could be: High-quality products Superior customer service Lowest cost products Location Product performance Product reliability Value (quality + service + price)

Competitive advantage is something that is valuable. And, in order for something to be valuable, it has to be rare (if you could pick up diamonds in the parking lot, would they be valuable?). Also, in order for X, whatever it is, to be an advantage, it has to be something that not everyone else has. Thus, it must be difficult or impossible to copy (inimitable) and there cant be any substitute for X (nonsubstitutable). Competitive advantage has to be created, but just as importantly, sustained. Firms such as Sears, IBM, and virtually the entire US airline industry have learned the results of failing to maintain competitive advantage. Competitive advantage is the foundation of a firms strategy the idea is to make the optimal use of whatever competitive advantage or advantages the firm has, in order to accomplish the organizations goals (such as profit). WalMart, for example, is able, because of its size, to purchase products at low prices their competitive advantage would be either low cost or value. When we buy groceries in Memphis, we go to WalMart for low prices, Kroger for location, and Seessels (or we didnow we go to Schnucks) for high-quality products and customer service. But, its also important to remember that we dont acquire and sustain competitive advantage through strategy, but rather through strategy implementation. Where does competitive advantage come from? There are numerous sources, but, according the management professor Jeffrey Pfeffer, the most important is people. People are hard to imitate or duplicate, and traditional sources of competitive advantage are no longer as effective as they once were.

Traditional Sources of Competitive Advantageand Where Theyve Gone


What are some of the traditional sources of competitive advantage and where have they gone (Pfeffer, 1998)? Product and process technology: Number one. With the pace of technological innovation becoming faster and faster, a firm can no longer develop a product, protect it with patents, and rest on their laurels. Xerox, for example, was once protected from competition by their hold on key patents. 3M does compete with better products, but they can develop superior products on a continuous basis because of their people. Also, it is important to remember that technology is available to everyone. If you buy superior manufacturing equipment, so can your competitors. Finally, if you rely on advanced technology to be competitive, you had also better have the people necessary to operate that technology. For example, if

Chapter One: Introduction to Human Resource Management Page 11

your grocery store installs automated checkout scanners, youll need more qualified people its no longer necessary to have a lot of low-skilled checkers, but you will need highly skilled network administrators. Protected and regulated markets: The growing global economy is based, in part, on the idea of free trade reduced barriers to trade between countries. So, an industry or firm can no longer rely on the government to prevent the importation of cheaper or better competing goods. The U.S. steel industry is currently protected by tariffs. However, the industry hasnt been able to count on this protection for most of the past 30 years, and has been in a steady decline for those same thirty years. Deregulation, too, matters. For example, telecommunications was once the monopoly of A T & T. No longer. Access to financial resources: Between NASDAQ, venture capital, and even folks personal credit cards, its no longer necessary to have access to the big New York financial markets to raise capital. Economies of scale: In manufacturing, larger companies traditionally had a competitive advantage because of economies of scale. That is, if your business requires a large capital investment, its cheaper to make many of something than just a few. However, economies of scale dont guarantee competitive advantage today. Due to market fragmentation, customers are less interested in a cheap standardized product than in a customized product. Also, inventory management has moved to just-in-time, meaning that its more important and more costeffective for a manufacturer to be able to deliver small quantities on a precise schedule, rather than making a huge batch at one time.

Competitive Advantage Through People


In order to establish and maintain competitive advantage through people, its necessary to make a complete reversal in our traditional thinking about employees. Look at any financial statement payroll and other employee costs (such as training) are listed as an expense. To base completive advantage on employees unique capabilities, you need to start looking at your employees as an asset, instead. The work force should be an asset. When a company spends that much on equipment, the equipment is taken care of and maintained, and the company doesnt spend the money to buy the equipment until they are sure that the Our culture is what makes us unique. It's our "secret weapon" to success. It is a combination of our vision, mission and our philosophy of putting "employees first." We know that without excellent employees we will not be able to provide outstanding service to our customers, shareholders or communities. At First Tennessee/First Horizon, we call our culture Firstpower. Firstpower is how we do business. It is the attitude of ownership and teamwork each employee brings to the job every day. All employees are company owners and as owners we: Recognize that a job well done is the first order of business. Are empowered to take care of customers -- internal and external. Create a flexible work environment so we can embrace both

Chapter One: Introduction to Human Resource Management Page 12

equipment is the best equipment. For example, First Tennessee, in 2006, reported 10.35% return on equity to its shareholders a respectable return on investment, by any definition. Its no wonder that First Tennessee has made this statement (source: www.firsttennessee.com) How does this work? If your employees are an asset, you invest in them, the same way you invest in any other asset. For employees, it isnt a coat of paint or preventative maintenance; its training and development. The result employees are more skilled, more competent, and can work smarter. If your employees are an asset, you treat them with respect and dignity,, letting them know they are valued. The result employees are more committed to the company and involved in their work and work harder. Finally, if your employees are an asset, you make the most effective use possible of the asset. With employees, that means taking advantage of their capabilities and motivation to push responsibility down to employees, rather than relying on supervisors and managers. The result -- lower overhead. One other important piece of advice

Think Long-Term
Building a workforce into an asset isnt something that happens overnight. It takes time and patience. What can you do to create a high-performing workforce? Pfeffer (1998) points to what he calls the seven practices of high performance work systems. Lets look at them.

High-Performance Work Systems: The Seven Practices


As you look at each of these seven practices, youll see that they work as a system. In other words, each practice depends on the other six being in place. For example, if you invest in training, thats a good reason to avoid any unnecessary layoffs. Why invest in your employees, then just throw them away? Employment Security: First, layoffs are a last resort. Before even considering letting employees go, you cut executive pay. Discount broker Charles Schwab & Co. didnt immediately lay employees off when business took a downturn in 2000. First, travel and entertainment were cut. Next, management pay was cut, from the VP level and up including a 50% pay cut for the CEO. When it was apparent that these measures wouldnt be enough, some employees were laid off, though with extremely generous severance packages, including a $7,500 bonus for employee rehired within 18 months and a $20,000 tuition voucher paid for by the founder (Cascio, 2002). When theres no choice, lay people off humanely that means severance pay, outplacement help, extended health benefits. And allow people to leave in a dignified manner. This doesnt mean that nobody is ever fired you still terminate people for poor performance, but you also look at an honest mistake as a learning experience. If people lose their jobs for trying something new, youll have a company full of people doing the same old thing as before.

Chapter One: Introduction to Human Resource Management Page 13

Selective Hiring: If youre going to keep people, make sure you hire the best. Take the time to figure out what you really need. This means that you need to think about what your jobs require and what the organization needs. Think, too, about what can be learned after someone is hired, versus what cant be acquired. You can teach a person computer skills you cant teach conscientiousness. Take your time; if you dont have the time to carefully evaluate new hires, you certainly dont have time to come back in six months and do it again, when the first hire doesnt work out. Plus, if youre that busy, you certainly dont have time to go back and fix the mistakes the first person made! Finally, a lengthy hiring process sends a message to your employees We took the time to hire the best. For example, more and more firms are taking the approach that you should hire for attitude, especially when their competitive advantage is built on customer service, as in the case of Disney. Southwest Airlines uses a similar approach, and much of its success is credited to its employees. Both Disney and Southwest have become models for other companies, in industries ranging from airlines to hospitals (Greengard, 2003; Shuit, 2004). Self Managed Teams and Decentralized Decision Making: If you have good folks that you can trust and rely on, push decision-making further down in the organization. This works better for the organization decisions are made by folks with the information, rather than by headquarters. Also, decisions can be made quickly. You certainly dont want a customer to wait for approval from Chicago before getting that 5% discount that convinces them to buy. People are more motivated by the added responsibility and authority and by the opportunity to better use their brains and skills. In an industry characterized by fierce competition and declining profitability, Wegmans Food Market stands apart. Exact numbers are hard to come by Wegmans is a privately held company but estimates are that margins are double the industry average and sales per square foot are half again as much as the competition. Wegmans was ranked as Fortunes Best Company to Work for in 20052 and the chain boasts a fanatic level of customer loyalty. At Wegmans, participation is a way of life. Employees are encouraged to take whatever steps are needed to ensure customer satisfaction without consulting management. One senior management team member was quoted (only partly in jest) as saying, were a $3 billion company run by 16 year old cashiers (Boyle & Kratz, 2005) High Compensation, Based on Organizational Performance: When you pay people well, youre sending them another signal you matter, youre important. We know that pay doesnt keep people, but high pay levels make it easier to attract a large applicant pool, which is essential if youre going to be selective in your hiring. Finally, and most important, is to pay people more for better performance. If the company is making profits through employees skills and effort, pass some of it along. And, by hiring the right people and providing the training, theres no reason that employees wont perform and receive the rewards for performance. Think, too, about using stock ownership as a motivating tool, not just for executives, but for all employees.
2

Wegmans ranked #2 on the 2006 Fortune list and #3 on the 2007 list

Chapter One: Introduction to Human Resource Management Page 14

One of the classic examples of the payoff from high, performance-based compensation is Lincoln Electric. This Cleveland, Ohio based manufacturer of arcwelding equipment is known for its compensation system, where production workers are paid by production, and a year-end bonus. Plant employees can end up with a six-figure total income; the average bonus for 2000 was over $17,000 (Eisenberg, Sieger, & Greenwald, 2001). In fact, Lincoln Electric ran short of cash in 1992, and actually borrowed money to pay the year-end bonuses (Hastings, 1999). That didnt hurt the company in 2005, Fortune recommended Lincoln Electric as one of its eight choices for high-performing small companies (Small wonders, 2005). Extensive Training: Obviously, the more skills your employees have, the better, and training is important. This is especially critical in today's environment, where technology is rapidly changing, and skills become obsolete overnight. Also, if youre going to decentralize and give people more responsibility, they need more skills. Employees also need teamwork skills (which dont appeal by magic) if theyre going to be working in teams. And, if youre going to invest in training, pick the best people and plan on keeping them around. For example, Minnesota Life, the seventh-largest life insurance company in the U.S., believes in training. The firm spends over $2,000 per year training each IT employee (significantly higher than the industry average). Newly hired employees are required to go through two to three weeks training before beginning their jobs. The result numerous awards for the quality of work life and the quality of the companys IT solutions. Incidentally, Minnesota Life is also highly rated by industry experts (Mullich, 2004). Reduced Status Distinctions: Treat your employees as though they are important, not as though they are peasants. Its easy to call people associates and talk about how people matter, but act as though you mean it. Get rid of the executive dining room, reserved parking, first class plane tickets, and lavish offices. Keep executive salaries in line, too. Extensive Information Sharing: If you plan on decentralizing, people need the information. Also, sharing company-wide information builds a sense of trust between the company and employees, and you need that sense of trust for people to give the company their committed efforts. And, you can share information when you have committed, long-term employees that you trust. For example, at Google, company financial information is shared with employees at weekly Friday afternoon meetings (Raphael, 2003). At Whole Foods, employees are privy to so much information that each employee is classified as an insider by the SEC (Pfeffer, 1998). Among other information, each store has a book, where the salaries of very company employee are listed (Fishman, 2004). Now. Lets look at three examples of how this approach works. These are from research studies, each looking at a large sample of companies, so that we can see what happens across a range of companies. Notice, too, that the three studies we look at each use different methods and measurements to establish the link between

Chapter One: Introduction to Human Resource Management Page 15

HR practices and performance, making it even more clear that this isnt just coincidence.

The Research Evidence


Each of these examples is based on a large sample of firms, meaning that these are the average results. Any one company may not see the improvements that the average company does, though some may see much better results. Bear in mind., too, that this is only three examples out of a large number of these studies. The 100 Best Companies to Work For. Fortune publishes an annual list of the 100 best companies (in the USS) to be employed by. Based on employee survey data, ranking are based on such factors as respect, caring and pride in ones work. The question, of course, is whether or not the best companies to work for are the most profitable. A group of researchers decided to examine this question (Fulmer, Gerhant, & Scott, 2003). Their results indicate that the best companies to work for, when compared with other, similar firms, show significantly higher return on assets, as well as higher overall return to stockholders. Garment Manufacturing: Garment manufacturing has traditionally been a low-skill, assembly-line type of manufacturing. As with other manufacturing, garment factories are a thing of the past in the U.S. Employees in U.S. Garment Industry Look at any piece of 1970 - 2002 clothing youre wearing youll see Pakistan, 1,000 Bangladesh, China almost anything but the 500 U.S. One solution to the problem of fleeing 0 jobs is to increase 1990 1993 1996 1999 2002 2005 worker productivity in American plants. The best-known approach to increasing productivity is modular manufacturing. The traditional garment assembly line (whats called bundle manufacturing) has each worker doing one small takes sewing on a pocket, for example over and over. With modular manufacturing, workers are organized into small, self-managed teams. Each team is responsible for an entire work process and workers are expected to be able to move around within the module, performing different tasks as needed. Employees are paid on a piecework basis, just as in the bundle system, but its now a group incentive, rather than an individual incentive. The results are remarkable (Bailey, 1993; Pfeffer, 1998). Bundles vs. Modules in Garment Manufacturing Performance Measure Gross margin Bundle 26.0% Modular 31.6%
000 of Employees

Chapter One: Introduction to Human Resource Management Page 16

Operating profit Sewing throughput (days) *

7.9% 9.5 days

13.0% 1.8 days

* the time it takes to make a shirt, from start to finish The Minimills. This study (Arthur, 1994) looked at steel minimills small facilities that start with scrap rather than ore. The authors identified two HR strategies followed by the mills. A control strategy was based on the assumption that employees needed to be monitored. The focus was on efficiency and reduced costs. A commitment strategy was based on mutual trust and the objective was to have the employees share the companys goals. As you can see, the control strategy does result in lower costs on a per-hour basis, but look at the reductions in labor hours per ton of steel produced and the scrap rate. Management Practice Wages % of employees in teams Decentralization * General training * Labor hours / ton Scrap rate * 1 = very little to 6 = very much The Case of the IPOs. In this study, the researchers (Welbourne & Andrews, 1996) looked at the fate of new companies (IPO stands for initial public offering, the companys first sale of stock on the open market). The authors picked a random sample of firms filing for IPOs in 1988, then looked how these companies valued people. They went to the prospectuses (which are legal documents), and extracted information about how people were treated they created an index for general HR value, and a second index reflecting how employees were rewarded (especially if rank-and-file employees were eligible for stock options). Then, the researchers went forward in the records to 1993 and looked at what had happened to these companies. As you can see from the chart above, being in the top 16% on either of the HR measures, as opposed to being in the bottom 16%, made a significant difference as to whether or not the firm was still in business 5 years later. Its worth noting that about half of IPOs dont survive so raising the chances to 87% of better is a meaningful improvement. Control $18.07 36.6% 2.42 1.92 Commitmen t $21.52 52.4% 3.04 3.35 % Improvement 19% 43% 26% 74% - 34% - 63%

Chapter One: Introduction to Human Resource Management Page 17

Why Not? The Downward Performance Spiral


Ok. Youd think that everyone would know about these results, and everyone would follow the practices. But, as we know, thats not the case. Too often, HR is seen as a frill Why Not? profits are down, so lets cut The Downward Performance Spiral training expenses. However, cutting expenses through people Performance Problems Organizational Response often leads to problems Low profits Reduce training becoming worse, and you get a High costs Layoffs Poor customer service Salary freeze self-reinforcing downward cycle. Low stock price Contingent staffing As described by Pfeffer (1998), you see something like this: What happens is simple a firm experiences financial problems, and reacts by cutting HR costs. Fall Source: Pfeffer (1998) By reducing their investment in 2005 people, the companys performance goes into a further decline..
Individual Behaviors Decreased motivation More accidents Higher turnover Reduced effort

Management 412 / Intro to HRM / Page 18

Many people do take a short-term view, and believe that cutting the costs associated with the organizations people will lead to higher profits. Well discuss this more when we get to downsizing, but for right now, lets look at a few examples of what not to do.

The Case of Chainsaw Al


In 1996, struggling appliance manufacturer Sunbeam brought in a so-called turnaround expert to rescue the firm, Al Dunlap, also known as Chainsaw Al. Dunlap promised results, in return for a $1,000,000 salary, plus enough stock options to bring him over $40 million. The restructuring began with plant closings and layoffs of 50% of the companys 12,000 employees. Neither the former employees nor the remaining workforce were happy with Chainsaw Al; rumor had it that Dunlap found it necessary to invest in a bulletproof vest and handgun, as well as hiring bodyguards (all at Sunbeams expense). Shareholders, though, were pleased 1997 sales were 1.16 billion, up by 22%, and Sunbeam stock rose from $11.25 to $53 a share. Plans were announced for Sunbeam to acquire three other companies. Sunbeam was the miracle turnaround, and Chainsaw Al was the darling of the business press. However, in 1998, Dunlaps house of cards began to collapse. It seems that those 1997 sales were massively inflated. Dunlap had pressured Sunbeams customers into ordering vast quantities of product, at least several years worth, though no deliveries were made, nor the products paid for. By June of 1998, the board of directors had discovered he problem, and promptly fired Dunlap. Even those employees who were still with Sunbeam were happy to see the end of Chainsaw Al. One employee was quoted as saying, I popped open a bottle of champagne when I heard the news (Kadlek, Marchant & Drummond, 1998, p. 46).

Chapter One: Introduction to Human Resource Management Page 18

Sources include Castelli (2005), Hegstrom, (2003), Riley (2004), 2002; Kadlek, Marchant, Anderson, 1999; Byrne file for Chapter 11 bankruptcy protection and Sunbeam was eventually forced to & Prasso, 2002; Haysett,Serwer, Bonamici & Hajim& Drummond, 1998; Schifrin, 1998; Sellers, 1998 ( (2005). was eventually restructured under new ownership. Under threat of a shareholder lawsuit, Dunlap agreed to pay Sunbeam shareholders $15 million and in a settlement with the SEC, Dunlap agreed to pay a $500,000 fine. And, the man who fired employees in the name of profits is no longer employable the SEC has barred Dunlap from ever again serving as an officer or director of a publicly held firm3

WalMart and the Value of HR


WalMart, at one point a poster child for good management practices (Pfeffer, 1994, 1998), has lost much of its glitter in recent years. The company that rewarded line managers and looked on HR as a waste of time and money has discovered the dollars-and-cents value of professional HR management. In recent years, WalMart has been: Cited and fined for overtime violations, specifically, forcing workers to put in unpaid hours, even locking employees into stores. Caught using undocumented workers (i.e., illegal aliens) to clean stores. Although these workers were technically employed by independent contractors, not WalMart, WalMart recently paid an $11 million fine to settle the case. Civil suits and suits under RICO (Racketeer Influenced and Corrupt Organizations Act) are pending. Named as the defendant in of one of the largest class-action employment discrimination lawsuits filed. The plaintiffs allege that WalMart discriminates against women, in particular for promotion to management positions. Accused of pushing its employees onto public healthcare plans, rather than paying sufficient wages to allow employee to participate in the company health plan. The target of serious organizing attempts by the UFCW (United Food and Commercial Workers)

Perhaps not surprisingly, in 2002, WalMart hired a high-profile VP for human resources and most recently announced plans to add HR professional staff to support store operations; currently WalMart is testing this approach in California, and if it successful, will expand it nationwide4.

Changing the Organization


How does an organization go about changing? It isnt a quick or easy process. Theres some evidence that the high-performance work practices model is easier to implement in so-called greenfields. That is, its easier to start a new facility (the greenfield) with the new practices in place from the beginning than to change practices and culture in an already-existing facility. This isnt to say that change

Chapter One: Introduction to Human Resource Management Page 19

cant happen it can, but you may need as long as 5 to 15 years to bring about real (and lasting) change in how an organization manages its people. Its critical to remember that these practices cant be implemented individually they all act as a self-reinforcing system, and its critical to change the entire system (Neal & Tromley, 1995). To begin with, many organizations get caught up in committees, studies, and planning. All that does is put off actually doing something. This isnt to say that organizations should act without any thinking at all but it does mean that thought needs to be transformed into action (Pfeffer, & Sutton 1999).

Strategic HRM: Putting the Pieces Together


Now. How precisely do we take the idea of competitive advantage through people and the high-performance work practices and put them into place? Look at the example of Google. This is a firm that, more than most, depends on people. Thus, to a greater extent than most firms, Googles assets have feet and walk out the door every night. The question is, how do you make sure that those feet walk back in the next morning? Googles workforce is highly skilled in fact, many of their employees come from Ph.D. programs (note that their recruiting ads run in Scientific American). How do you attract, retain and motivate this type of employee? Google provides a friendly, relaxed work environment, and a generous package of benefits. Job applicants sit in beanbag chairs, breakfast, lunch and dinner and provided free, and theres even an on-site washer and drier (Raphael, 2003). Would the same strategy work for a different company? Maybe, maybe not. Think about a company on the complete opposite end of the spectrum, McDonalds. McDonalds competes, as we know, on price. In addition, systems and procedures in each restaurant have been established to all but remove the possibility of human error. Would it make sense, than, for McDonalds to spend as much money and time to recruit and take care of its front line employees as does Google? The whole point of the systems such as cash registers with pictures and automatic drink dispensers is to remove the possibility of human error. If people cant make performance worse, can they make it better? A recent survey conducted by Pricewaterhousecoopers found that concrete, written plans to align HR strategy with business strategy paid off, with 35% higher revenues per employee (Bales, 2003). How to go about this? Determine the firms strategy Determine the competencies needed to carry out the strategy Examine current management practices Determine congruence Do the current practices work to enhance needed competencies? Are the current practices internally consistent?

External Influences on HRM

Chapter One: Introduction to Human Resource Management Page 20

Its critical to remember that no organization anywhere from Federal Express to the corner hamburger stand operates in a vacuum. The external environment sets boundaries, limits and requirements for how the organization functions. Economic factors, political, legal and social factors, and technology all influence how an organization operates in general, and, specifically, in how it manages its human resources.

Economic conditions
As we said earlier in this chapter, human resource management is, in large part, about money and how the organization uses its financial resources to achieve and sustain competitive advantage. Thus, economic factors are a very important influence on the practice of HR.

Global Economy
The growing global economy has an impact on labor supply and demand. Unskilled jobs such as textiles and garment manufacturing have long been moved to countries with lower labor costs. A new trend, though, is the overseas movement of high-tech jobs. This industry, that conventional wisdom said was a U.S. preserve, is losing jobs to India. Jobs ranging from customer service to high-end programming and systems analysis are being relocated to India, a country where labor costs are significantly lower, and productivity is equal to, if not better than, the U.S. (India has a very strong IT industry, and some of the best schools in the world in this area). Its estimated that over 3 million jobs will be lost in the U.S. over the next 12 years (Where the good jobs are going, 2003). There are ethical issues involved with this shift, especially in industries that employ unskilled workers, many of whom we would consider children, and too young to work in a factory. Politics also plays a role here. The U.S. has used tariffs (import taxes) on foreign steel and textiles, in part to protect voters jobs.

Domestic Factors
The U.S. has shifted away from a reliance on a manufacturing to an information / service economy. This shift impacts HR in many ways. Workers now need more skills than ever before. Jobs no longer require nothing more than strength and the willingness to work. Todays jobs require more than a high school education. The fastest growing jobs require at least some postsecondary education, but there is also numerical growth in jobs at the bottom of the service economy. The decreased importance of manufacturing has also meant a less important role for organized labor. While there are a large number of union members 16.1 million workers these workers represent only about 13% of the labor force.5
For more information about union membership, go to the U.S. Department of Labor, Bureau of Labor Statistics, or directly to http://www.bls.gov/news.release/union2.toc.htm).
5

Chapter One: Introduction to Human Resource Management Page 21

Living Wage: For a family service economy, poverty line, are your only real assets. For a fascinating look at / of history above the your www.dol.gov/asp/programs/history. And, in an information the 4 to be of the FLSA, seepeople one worker must earn at leastAs $8.20 per hour, working out time. Other definitions goandto $12 challengeespecially in sure weve said, they walk full of the door each night, up your per hour, is to make communities with an extremely high cost of living. they walk back in the next morning.

Other economic factors include the trend towards more and more mergers and acquisitions. These also impact labor markets when organizations merge and functions are duplicated, we see layoffs. This is obviously bad for the laid-off employees (and for companies that produce the goods and services that individual formerly purchased), but good for employers, who have a larger labor supply, available at lower prices. Finally, dont forget about our old friends from economics, Mr. Supply and Mr. Demand. Theres the supply and demand of labor, which influences the price you must pay to hire people. Even supply and demand of your companys goods and services matters the better your sales, the more resources you have available to use to enhance your labor force.

Legal Requirements and Constraints


We view government as being the intermediary in the relationship between employer and employee. For the most part, the intermediary role of government is to ensure that organizations conform to what society as a whole has agreed are minimum standards for employment. For example, child labor was generally accepted during the 19th century and even into the twentieth century. By 1939, when the Fair Labor Standards Act (or FLSA youll see this abbreviation again) was passed, society, for the most part, had decided that children should not be working for wages6. Most folks accept the idea of a minimum wage, another FLSA provision. A few people, and some municipalities have gone further, to whats known as a living wage7. However, the idea of a living wage hasnt even begun to hit the mainstream, and may never do so. While HR professionals are normally not attorneys, some understanding of legal requirements and constraints is very important, both to avoid getting into trouble in the first place, and to know what questions to ask your in-house or outside counsel.

Demographics
Here, we are looking at the people who are available who they are, what skills they have, their motivation, their needs (both material and psychological).

New skills are needed


Look back to the economic changes discussed above specifically, the move to an information / service economy. We need workers with different skills, and often

Chapter One: Introduction to Human Resource Management Page 22

skills acquired through a higher level of education than in previous years. See the opposite page for the jobs preduictred to have the highest growth in the next 10 years. Where will we find those workers? Even the jobs at the bottom of the pyramid the cashiers, food service workers, home health aides, and so forth, require basic skills, such as the ability to read and write, the ability to do simple arithmetic, and general work readiness. If workers dont have those skills, is it the employers responsibility to train workers? Could it be a business necessity?

Increasing number of women in paid workforce


Over the past 40 years, women have moved into the paid workforce, and are looking at paid work as a life-long career, rather than a stopgap before raising a family. Who, then, takes care of childcare and (important now with an aging population) elder care? If organizations cant accommodate these needs (for both male and female employees), they run the great risk of overlooking talent they need in order to remain competitive. Many areas of work such as benefit plans and work hours -- have traditionally assumed a family structure of working husband, with a wife not working for pay and 2.3 children. If this ever existed, it certainly does not exist today. So, how do we structure work (flextime, time off) and employee benefits to accommodate the needs of different families, including single parents and dual earner families?

Aging population
Over the next ten years, the number of people ages 65 and above will increase by 26% (Cole, et al, 2003). Whats going to happen to pension plans, health care, and Social Security when the folks born 1947-1964 (baby boom) begin to retire? Will they be able to retire? Will the retirement age be raised? Look for this issue to be a hot topic in politics in coming elections.

Changes in Expectations
With the wave of layoffs and downsizings over the past 25 years, there is no longer the unspoken contract between employer and employee, made up of mutual loyalty and the expectation of a lifetime with a single employer. Many employers complain about a lack of loyalty however, you dont get what you dont give.

Chapter One: Introduction to Human Resource Management Page 23

Fastest Growing Occupations, 2006 2016 (by number of jobs) Job RN Retail salespersons Customer service representatives Combined food preparation and serving workers, including fast food Office clerks, general Personal and home care aides Home health aides Post-secondary teachers Janitors and cleaners, except maids and housekeeping cleaners Nursing aides, orderlies, and attendants Growth (000) 587 557 545 452 404 389 384 382 345 264 Training Required Associate degree Short on-the-job Moderate on-the-job Short on-the-job Short on-the-job Short on-the-job Short on-the-job Doctoral degree Short on-the-job Short on-the-job

Fastest Growing Occupations, 2002 2012 (by %) Job Network systems and data communications analysts Personal and home care aides Home health aides Computer software engineers, applications Veterinary technologists and technicians Personal financial advisors Makeup artists, theatrical and performance Medical assistants Veterinarians Substance abuse and behavioral disorder counselors Growth 53.4% 50.6% 48.7% 44.6% 41.0% 41.0% 39.8% 35.4% 35.0% 34.3% Training Required Bachelor's degree Short on-the-job Short on-the-job Bachelor's degree Associate degree Bachelor's degree Postsecondary vocational Moderate on-the-job Post-secondary professional degree Bachelor's degree

Technology
Change in technology has been a theme of this section. Employers need new skills and more skills. Even more important is the ability to learn as technology changes, employees need to be able to keep up with the changes. We see some jobs vanish, others appear:
Old Jobs Receptionist New Jobs Telecommunications analyst

Chapter One: Introduction to Human Resource Management Page 24

Typesetter Bank teller

Desktop publishing specialist Network administrator (ATM system)

Technology has also made changes in HR operations. For example: Internet recruiting Automated application systems (i.e., Press 1 to apply for a job now) Email / cellular phones (although this really affects business in general, not just HR) Employee communications via intranet Distance interviewing Distance learning for training Telework Resume scanning and applicant tracking Employee data online

HR Functions: What Well Be Looking At


Different textbooks break out the various HR functions differently this is one way of doing it, though not the only way.

Planning
In human resource management, as with any other management activity, the first step is always planning. On the broadest level, HR planning involves determining the strategic direction that HR activities need to take in order to mesh with and support the organizations overall strategy. Formulating plans to carry out strategy requires, first, information gathering, including the process and outcome data from HR activities discussed above (Accounting For Human Resources). An additional form of information gathering that well discuss in the next chapter is job analysis, or the systematic process of collecting relevant, work-related information related to the nature of a specific job. Forecasting is also part of planning what skills will be needed and how and where the organization will find or develop those skills.

Legal Compliance
Like it or not, all organizations are subject to laws and regulations, at the federal, state, and local level. The vast majority of HR activities, including employment, pay and benefits, employee rights, and labor relations, are subject to legal requirements and constraints. Well look at these in Chapters 3 and 4.

Staffing
The staffing process includes all of the steps needed to find, select, and terminate employees, from initial entry into the organization, through eventual retirement, discharge or downsizing. Recruiting and selection are the major activities here, but

Chapter One: Introduction to Human Resource Management Page 25

we are also concerned with career management (from the standpoint of the organization and from the employees perspective), downsizing and retirement.

Reward Systems
It goes without saying that employees are paid. However, we have to determine how much the various jobs within the organization are worth, since not all jobs are worth the same to the company and nobody ever thinks they are paid enough! Systematic salary administration is critical to ensure that employees perceive that pay is being distributed fairly and equitably. In addition to base pay, we need to determine how best to use money and other rewards to motivate employees. Pay increases and the various forms of incentive pay merit their own chapter. Another essential part of reward systems is employee benefits; rather that paying for a job or for performance, employee benefits are designed to encourage employee retention.

Training and Development


As we discussed earlier in this chapter, one of the seven high performance work practices is extensive training. Training is especially critical in a work environment characterized by rapid and constant change the skills you graduate with will almost certainly not be all of the skills youll need in your job five years from now. Organizations must determine what their training needs are, select appropriate training methods, and, finally, evaluate the results of training. In addition to specific skill training, if you have a long-term commitment to your employees, its important to consider their long-term development moving from the mailroom to the CEOs office isnt a myth.

Employee Relations
The HR department in an organization is also responsible for managing the relationship between employer and employees. Employees may have complaints or grievances, that must be resolved, and the need for counseling and discipline is always there. Here, well also look at the issue of employee rights how far can or should an employer control and monitor employees. Finally, labor relations, specifically, the relationship between management and labor unions, is a critical function. Though fewer employees are members of labor unions today than the late 1930s, many firms are still unionized, while others are attempting to avoid unionization. Its essential for HR managers and professionals in those firms to have through knowledge of the labor movement, as well as the complicated legal restraints and requirements involved.

Other Functions
Several other areas may or may not be included in an organizations HR department. They may be part of HR, they may be assigned to a different department or they may be outsourced; we wont be looking at these areas. OSHA (Occupational Health and Safety Act) compliance and safety training are often a

Chapter One: Introduction to Human Resource Management Page 26

department of their own, and are often part of production management, especially in industrial settings). Payroll and HRIS (human resource information systems) are often outsourced, due to the technical complexities involved (Greengard, 2004). In smaller companies, payroll is often attached to accounting and finance.

Chapter One: Introduction to Human Resource Management Page 27

References and Suggestions for Further Reading


Aguinis, H, Michaelis, S. E., & Jones, N. M. (2005). Demand for certified human resources professionals on internetbased job announcements. International Journal of Selection and Assessment, 13(2), 160-171. Anderson, J. (October 1999). Al gets the chainsaw. Institutional Investor, p. 116. Arthur, J. B. (1994). Effects of human resource systems on manufacturing performance and turnover. Academy of Management Journal, 37, 670-688. Atkinson, H. (May/June 2005). Creating a three-dimensional strategy at Hallmark Cards. Strategic HR Review, pp. 8-9. Babcock, P. (March 2006). A crowded space. HRMagazine, pp. 68-74. Bailey, T. (1993). Organizational innovation in the apparel industry. Industrial Relations, 32(1), 30-48. Bates, S. (April 2003). Written HR strategy pays off, study finds. HRMagazine, p.12. Bates, S. (December 2003). The metrics maze. HRMagazine, pp. 50-55. Boyle, M., & Kratz, E. K. (January 24, 2005). The Wegmans way. Fortune, pp. 62-66. Byrne, J. A., & Prasso, S. (January 28, 2002). Why Chainsaw Al opened his wallet. Business Week, p. 8. Cascio, W. F. (1982). Costing human resources in organizations: The financial impact of behavior in organizations. Boston: Kent Publishing. Cascio, W. F. (2002). Strategies for responsible restructuring. Academy of Management Executive, 16(3), 80-91. Castelli, E. (March 19, 2005). WalMart settles case on illegal cleaning crews for $11 million. Los Angeles Times, p. A22. Caudron, S. (January 2003). HR is dead Long live HR. Workforce, pp. 26-30. Challenger, J. A. (July 2003). Solving the looming labor crisis. USA Today Magazine, pp. 28-30. Cole, C. L., Gale, S. F., Greengard, S., Kiger, P. J., Lachnit, C., Raphael, T., Shuit, D. P., & Wiscombe, J. (June 2003). 25 trends that will change the way you do business. Workforce, pp. 43-56. Dinell, D. (August 22, 2003). Climbing higher: Human resource professionals say certification can give careers a boost, Wichita Business Journal. Dunn, K. (March 2000). HR goes flat at Coca-Cola. Workforce, pp. 26, 28. Eisenberg, D., Sieger, M., & Greenwald, J. (June 18, 2001). Where people are never let go. Time, pp. 40-42. Fishman, C. (July 2004). The anarchists cookbook. Fast Company, pp. 70-78. Five steps to effective metrics. (March / April 2005). Strategic HR Review, p. 7. Flexibility moves to center stage. (December 2004). Workforce, pp. 8692. Fulmer, I. S., Gerhart, B., & Scott, K. S. (2003). Are the 100 Best better? An empirical investigation of the

Chapter One: Introduction to Human Resource Management Page 28

relationship between being a great place to work and firm performance. Personnel Psychology, 56, 965-993. Garvey, C. (April 2005). generation of hiring HRMagazine, pp. 71-76. The next metrics.

Marquez, J. (May 2005). Novel ideas at Borders lure older workers. Workforce, pp. 28-29. Mullich, J. (October 2004). Minnesota Life takes the long view on IT hiring and training. Workforce, pp. 80-82. Neal, J. A., & Tromley, C. L. (1995). From incremental change to retrofit: Creating high-performance work systems. Academy of Management Executive, 9(1), 42-54. People are our greatest asset. (April 2005). HRMagazine, p. 20. Pfeffer, J. (1994). Competitive advantage through people: Unleashing the power of the work force. Boston: Harvard Business School Press. (available as an e-book through CBU library) Pfeffer, J. (1998). The human equation: Building profits by putting people first. Boston: Harvard Business School Press. Pfeffer, J., & Sutton, R.I. (1999). Knowing `what' to do is not enough: Turning knowledge into action. California Management Review, 83-109. Rafter, M. V. (June 2005). Adventures in outsourcing. Workforce, pp. 51-55. Raphael, T. (2003, March). At Google, the proof is in the people. Workforce, pp. 50-51. Riley, M. (September 6, 2004). A new tack against WalMart. Denver Post, p. C1. Schifrin, M. (May 4, 1998). The unkindest cuts. Forbes, pp. 44-45. Schuler, R. S. (1990). Repositioning the human resource function: Transformation or demise? Academy of Management Executive, 4(3), 4960.

Greengard, S. (July 2004). Pulling the plug. Workforce, pp. 43-46. Gurchiek, K. (June 2005). Record growth in outsourcing of HR functions. HRMagazine, pp. 35, 38. Hansen, F. (March 2005). Heavy lifting ahead for metrics. Workforce, p. 21. Hastings, D. F. (May/June 1999). Lincoln Electric's harsh lessons from international expansion. Harvard Business Review, pp. 163-174. Haysett, D. (December 23, 2002). Sunbeam out of Ch. 11 with new name, structure. Home Textiles Today, pp. 2, 17. Hegstrom, E. (October 24, 2003). Agents raid two area WalMarts. Houston Chronicle, p. A29. Kadlek, D., Marchant, V., & Drummond, T. (June 29, 1998). Chainsaw Al gets the chop. Time, pp. 46-47. Lachnit, C. (March 2001). World class results on a mom-and-pop budget. Workforce, pp. 42-43. Laff, M. (April 2007). The certified coach: A brand you should be able to trust. T & D, pp. 38-41. Leonard, B. (June, 2006). Certification Institute celebrates 30th year: Group gives HR credibility. HRMagazine, pp. 189-190. McConenll, B. (February 2007). Exams change with the HR profession. HRMagazine, pp. 127-128.

Chapter One: Introduction to Human Resource Management Page 29

Schuler, R.S., & Walker, J. W. (1990). Human resources strategy: Focusing on issues and actions. Organizational Dynamics, 19(1), 4-20. Sellers, P. (January 12, 1998). Can Chainsaw Al really be a builder? Fortune, pp. 118-120. Serwer, A., Bonamici, K, & Hajim, C. (April 18, 2005). Bruised in Bentonville. Fortune, p. 84. Sheley, E. (June, 1996). Share your worth. HRMagazine, pp. 86-96. Shuit, D. P. (September 2004). Magic for sale. Workforce, pp. 35-38. Small wonders. (July Fortune, pp. 34-35. 11, 2005).

Welbourne, T. M., & Andrews, A. O. (1996). Predicting the performance of initial public offerings: should human resource management be in the equation? Academy of Management Journal, 39(4), 891-919. Wells, S. J. (June 2003). From HR to the top. HRMagazine, pp. 46-49. Wright, P. M., & McMahon, G. C. (1992). Theoretical perspective for strategic human resource management. Journal of Management, 18(2), 295-320. Zimmerman, E. (April 2001). B of A and big-time outsourcing. Workforce, pp. 51-53. Zimmerman, E. (February 2001). What are employees worth? Workforce, pp. 32-36.

Solomon, C. M. (March 2000). Putting HR on the score card. Workforce, pp. 9497. Stewart, T. A. (April 13, 1998). A new way to think about employees. Fortune, pp. 169-170. Stewart, T. A. (October 2, 1995). Trying to grasp the intangible. Fortune, pp. 157-161. Stewart, T. A., & Martin, M. H. (May 13, 1996). HR bites back. Fortune, pp. 175-176. Stewart, T. A., & Woods, W. (January 15, 1996). Taking on the last bureaucracy. Fortune, pp.105-106. Sunoo, B. P., & Laabs, J. (May 1999). Certification enhances HR's credibility. Workforce, pp. 70-77. Where the good jobs are going. (August 4, 2003). Time, pp. 36-38. Ulrich, D. (January/February 1998). A new mandate for human resources. Harvard Business Review, pp. 124-134.

You might also like