Management Assist

See the  Example box  to learn what the performance management process looks like at Regeneron.

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EXAMPLE

Performance Management at Regeneron

Founded in 1988, New York–based Regeneron has more than 8,100 employees and ranks as one of the largest biotech companies in the world. Regeneron has won a number of awards as a best place to work, an innovation leader, a responsible workplace, and a top biotech firm. It was ranked by Fortune as one of the top 100 Best Places to Work in the United States in 2020. 140

Performance management in biotech can be tricky, because the way managers need to evaluate and determine performance varies substantially across business units. For scientists developing new treatments, it can take years to determine whether a particular aspect of their performance has been successful. For employees in administrative and commercial roles, timelines are much shorter, and the process is more traditional.

A few years ago, Michelle Weitzman-Garcia, Regeneron’s then executive director of workforce development, led the effort to redesign the company’s performance management system to account for the company’s unique needs. Here is a description of Regeneron’s performance management process (as defined by  Figure 9.4 ).

1. Define performance. Broadly, performance at Regeneron is defined along two axes: (1) results—what the employee needs to accomplish and (2) behaviors—how the employee needs to accomplish it. Managers define what those results and behaviors should be for employees in their unique departments. 141

2. Monitor and evaluate performance. Before the overhaul, Regeneron’s managers monitored and evaluated employee performance using a cumbersome 12-point rating scale. Now, fewer than 10% of the company’s managers use ratings in the performance management process. Instead, managers use one of four forms tailored to track performance according to unique expectations for employees in (1) drug development, (2) product supply, (3) field sales, and (4) corporate functions. 142

3. Review performance. The frequency and content of performance reviews at Regeneron varies for employees working in different units. For example, in some units, managers use a 30/30 review process that consists of 30 minutes of performance conversation with each employee they supervise every 30 days. In other units, performance reviews occur once or twice per year. 143

4. Provide consequences. Regeneron uses a progressive discipline system to provide consequences for performance that falls below expectations. 144  With progressive discipline, managers work with employees using a series of graduated steps that aim to correct performance early, before it becomes problematic. Progressive discipline typically begins with informal conversation at the early stages and can result in serious action—including termination—in later stages. The company also offers employees the opportunity to earn above-market rewards for outstanding individual contributions, or when their work leads to exceptional firm performance. 145

YOUR CALL

What do you think about the performance management process at Regeneron? Do you think a differentiated performance management approach is appropriate for biotech firms like Regeneron? Why or why not?

Performance management is an important HR practice and a powerful means for improving individual, group, and organizational effectiveness. 146  A recent review of 488 academic studies of performance management revealed that effective performance management has powerful implications for strategic HRM. Specifically, performance management builds unit-level human capital by increasing skills, motivation, and capabilities within business units and aligning job performance with firm-level strategy. 147

Performance Appraisals: Are They Worthwhile?

A  performance appraisal , or performance review, is a management process that consists of (1) assessing employees’ performance and (2) providing them with feedback. Unlike performance management, which is an ongoing, interactive process between managers and employees, a performance appraisal is often dictated by a date on the calendar and can sometimes consist of a tense conversation that leaves both parties feeling unsatisfied. 148

Management expert W. Edwards Deming (see  Chapter 2 ) felt that such reviews were actually harmful because people remember only the negative parts. 149  Ninety percent of HR professionals in one study declared they were dissatisfied with their performance review/management systems. 150  No wonder then that some companies began dropping the practice altogether, although they soon learned that putting nothing in its place left employees without needed and indeed desired feedback about how they were doing on the job. Some newer approaches to performance appraisal have emerged around two important research findings:

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Frequent Feedback Is Best

Studies suggest that feedback is more accurate when given frequently. 151  Frequent feedback also allows managers and employees to reinforce key ideas about performance. Companies including Gap, Pfizer, Cigna, and Procter & Gamble have started to provide more frequent appraisals that let managers and employees make faster “course corrections” and prevent performance problems from piling up. 152  Consider Adobe’s approach.

Adobe Example: Adobe recently abandoned its use of traditional performance appraisals altogether—not because managing performance isn’t worthwhile, but because the company’s appraisal method wasn’t doing anything to actually improve performance. Further, the company estimates that its old system burned through about 80,000 work hours. Adobe now uses “check-ins”—frequent, informal, engaging conversations between managers and employees aimed at motivating and improving performance. One benefit is that the process feels more egalitarian and less intimidating than a formal appraisal, and managers and employees are more truthful and direct in their conversations. Another benefit is that employees are no longer “ranked” next to their peers. 153  This decision echoes recent research that suggests ranking employees in relation to one another can destroy the cooperation and collaboration that today’s innovative firms rely on. 154

Feedback Should Be Future-Oriented

Good feedback should result in improved performance in the future. Of course, a performance appraisal has to include a discussion of past behavior, because past behavior is what is being appraised. But research suggests that the focus of the conversation should then switch to what can be done going forward. 155  Consider how Deloitte revamped its performance appraisal system.

Deloitte Example: Deloitte, a global consulting firm, led the way in redesigning the performance review in 2015 after discovering, among other negatives, that the process in place was consuming nearly 2 million work hours a year, not nearly enough of which was spent in discussions of employees and their futures. 156  After much internal research, the company devised a streamlined system around three goals:

1. Recognize performance—appraisal data should provide information that can inform variable compensation and other decisions about employees.

2. See performance clearly—the system should produce accurate and non-biased “snapshots” of performance. This is achieved by having managers respond to four future-oriented statements about employees at the end of key projects, using a five-point scale (for example: “Given what I know of this person’s performance, I would always want him or her on my team”).

3. Fuel performance—with weekly “check-ins” between managers and team members. Weekly conversations center on performance, work priorities, and future opportunities for learning and development. 157

Today, Deloitte continues to survey performance management and appraisal systems, and it reports that employees want regular feedback, likely influenced by the response mechanisms of social media, and that most companies are now able to obtain increasingly useful data for better HR decision making. 158  Let us look at performance appraisals in more detail, because they are still used by most organizations, albeit in some new and exciting forms. 159

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Two Kinds of Performance Appraisal: Objective and Subjective

There are two ways to evaluate an employee’s performance—objectively and subjectively.

1. Objective Appraisals

Objective appraisals , also called results appraisals, are based on facts and are often numerical. In these kinds of appraisals, you would keep track of such matters as the numbers of products the employee sold in a month, customer complaints filed against an employee, miles of freight hauled, and the like.

There are two good reasons for having objective appraisals:

· They measure desired results. Objectively measuring desired results enables managers to focus employees on the important or preferred outcomes. Examples would be the number of cars sold by salespeople, the number of journal publications for professors, and the number of defects for a manufacturing plant.

· They are harder to challenge legally. Not being as subject to personal bias, objective appraisals are harder for employees to challenge on legal grounds, such as for age, gender, or racial discrimination.

2. Subjective Appraisals

Few employees can be adequately measured just by objective appraisals—hence the need for  subjective appraisals , which are based on a manager’s perceptions of an employee’s (1) traits or (2) behaviors.

· Trait appraisals. Trait appraisals are ratings of such subjective attributes as “attitude,” “initiative,” and “leadership.” Trait evaluations may be easy to create and use, but their validity is questionable because the evaluator’s personal bias can affect the ratings.

· Behavioral appraisals. Behavioral appraisals measure specific, observable aspects of performance—being on time for work, for instance—although making the evaluation is still somewhat subjective. An example is the  behaviorally anchored rating scale (BARS) , which rates employee gradations in performance according to scales of specific behaviors. For example, a five-point BARS rating scale about attendance might go from “Always early for work and has equipment ready to fully assume duties” to “Frequently late and often does not have equipment ready for going to work,” with gradations in between.

Who Should Make Performance Appraisals?

Most performance appraisals are done by managers; however, to add different perspectives, sometimes appraisal information is provided by other people who are knowledgeable about particular employees or jobs. Decisions about who appraises performance should be made in support of the company’s strategic goals, as you will see in the examples we discuss.

Peers, Subordinates, Customers, and Self

Among additional sources of performance information are co-workers and subordinates, customers and clients, and employees themselves.

· Peers and subordinates. Co-workers, colleagues, and subordinates may well see different aspects of your performance. Such information can be useful for development, although it probably shouldn’t be used for evaluation. (Many managers will resist soliciting such information about themselves, of course, fearing negative appraisals.)

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· Customers and clients. Some organizations, such as restaurants and hotels, ask customers and clients for their appraisals of employees. Publishers ask authors to judge how well they are doing in handling the editing, production, and marketing of their books. Automobile dealerships may send follow-up questionnaires to car buyers.

· Self-appraisals. How would you rate your own performance in a job, knowing that it would go into your personnel file? It’s likely the bias would be toward rating yourself favorably. Nevertheless, self-appraisals help employees become involved in the whole evaluation process and may make them more receptive to feedback about areas needing improvement.

In terms of strategic HRM, managers should choose performance information sources based on whether the insights gleaned from them can improve performance in a way that improves strategic execution. If the firm can better deliver on its objectives when a source of performance information is included, then it may be worthwhile to include the source in the performance appraisal process. However, managers need to evaluate the relative validity of any additional source of information to determine how much weight it should carry. Consider the example of patient experience surveys in health care.

Patient Experience Surveys Example: Hospital reimbursements—the money hospitals ultimately receive (from health insurers, Medicare, etc.) for providing medical services—has become increasingly tied to patient satisfaction scores gathered from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) patient experience survey. 160  For many physicians and health care facilities, there is concern about whether patient reviews represent valid measures of quality of care. Some studies suggest, for example, that denying patients’ requests for pain medications decreases patient satisfaction scores. The concern here is that if important outcomes are contingent upon these scores, some providers may be motivated to make decisions in the best interest of ratings, rather than patients’ health. 161  Recently, a group of five major hospital associations published a list of recommendations for improving the validity of HCAHPS scores. Recommendations were related to, for example, improving response rates, refining survey items, and ensuring that the survey was understandable to people with varying levels of health literacy. 162

360-Degree Assessment: Appraisal by Multiple Sources

We said that performance appraisals may be done by peers, subordinates, customers, and oneself. Sometimes all these may be used in a technique called a 360-degree assessment.

In a “theater in the round,” the actors in a dramatic play are watched by an audience on all sides of them—360 degrees. Similarly, as a worker, you have many people watching you from all angles. With a  360-degree feedback appraisal , or 360-degree assessment, employees are appraised not only by their managerial superiors but also by peers, subordinates, and sometimes clients, thus providing several perspectives. Consider the following example of how Netflix uses 360-degree assessments as part of its performance appraisal process.

Netflix Example: Netflix is known for its hypercompetitive organizational culture, which company executives see as a primary source of competitive advantage. 163  The company’s openly shared “culture deck” describes aspects of this culture with statements such as, “are extraordinarily candid with each other,” and “keep only our highly effective people.” Employees need to be able to “learn rapidly and eagerly,” be “concise and articulate in speech and writing,” and “thrive on change.” 164  The company often uses “real-time 360” lunch and dinner meetings to appraise employee performance. In these meetings, anyone in attendance—from company executives to lower level support staff—is encouraged to share blunt and honest feedback with the employee being appraised. 165

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Typically, an employee chooses evaluators from 6 to 12 other people to make evaluations, who then fill out anonymous forms, the results of which are tabulated by computer. The employee then goes over the results with his or her manager and together they put into place a long-term plan for performance goals. The 360-degree appraisal is a popular tool—according to one report, more than 85% of Fortune 500 companies use this method. 166  When administered correctly, 360-degree appraisals are useful. For example, one recent study showed that this form of evaluation enhanced employees’ innovative behaviors. 167  Here are a few best-practices presented in a recent review of research on 360-degree appraisals: 168

1. Keep it developmental—the 360-degree appraisal is intended to be a source of developmental information, rather than a formal appraisal. Making raters aware that their feedback will be used for the former purpose increases the likelihood that they will provide constructive information.

2. More isn’t always better—focus on choosing evaluators who can contribute unique and strategically valuable information about the employee’s performance.

3. Remember to reduce bias—proponents of 360-degree appraisals often assume that this technique automatically reduces the likelihood that performance feedback will suffer from bias. Unfortunately, more raters often mean more opportunities for bias. Raters should be trained to recognize role-specific competencies as well as their own judgmental biases.

All told, collecting performance information from multiple sources can help the person being evaluated get a multi-dimensional view of their performance.

Forced Ranking: Grading on a Curve

To increase performance, a substantial number of Fortune 500 companies have some variant of performance review systems known as a forced ranking (or “rank and yank”) system. 169  In  forced ranking performance review systems , all employees within a business unit are ranked against one another and grades are distributed along some sort of bell curve—just like students being graded in a college course. Top performers (such as the top 20%) are rewarded with bonuses and promotions; the worst performers (such as the bottom 20%) are given warnings or dismissed.

Forced rankings rely on the theory that there is something inherently motivating about seeing how we stack up against others. This thinking underlies, for example, the “leaderboard” that Peloton users see when they take a virtual cycling class. The main idea is that we will be motivated to work harder and push ourselves further when we are in competition with others. Forced rankings were a cornerstone of many organizations for decades, but outlooks on their usefulness are shifting. Consider how GE’s perspective on forced ranking has changed over time.

GE Example: In the 1980s, GE pioneered its famous “rank and yank” performance management system that required managers to rank their workforce according to performance ratings and “yank” (i.e., fire) the bottom 10%. The system persisted at GE for decades but has all but vanished in recent years. 170  The company’s latest HR innovation is its PD@GE app. 171  This technology connects employees with both managers and peers and enables them to seek and give feedback in real time. Conversations are centered on performance improvement and can happen entirely through the app, although employees can request a face-to-face meeting with a supervisor at any time. 172

This type of performance review system is rapidly losing favor. Here are key reasons:

1. Forced rankings can eliminate good workers too. Proponents of forced ranking say it encourages managers to identify and remove poor performers and structures a predetermined compensation curve, which enables them to reward top performers. However, opponents contend that the system eventually gets rid of talented as well as untalented people. 173  There may also be legal ramifications. A recent suit brought against Ford claimed the company used forced ranking to discriminate against older employees. 174

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2. Forced rankings can negatively impact performance. Numeric ratings, rankings, and formal evaluations without positive feedback may produce the opposite of their intended results—namely, create a culture of reduced performance, according to recent neurological and psychological research. 175  When Accenture eliminated its ranking system, its CEO said, “We’re going to evaluate you in your role, not vis-à-vis someone else who might work in Washington, who might work in Bangalore. It’s irrelevant. It should be about you.” 176

3. Forced rankings are less applicable to modern work. Forced ranking systems were originally conceived at the turn of the 20th century to measure the performance of manual laborers and factory workers. This seems inappropriate today, when more than 70% of workers are employed in service or knowledge-intensive jobs in which skills, attitudes, and abilities are hard to evaluate along a bell curve.

Effective Performance Feedback

As a manager, you may not feel comfortable about critiquing your employees’ performance, especially when you have to convey criticism rather than praise. In fact, studies suggest that most managers unintentionally inflate their employees’ performance ratings. 177  Nevertheless, giving performance feedback is one of the most important parts of the manager’s job, and giving inaccurate or overly positive feedback is helpful to neither the employee nor the organization. Here are some research-backed suggestions for giving accurate, useful feedback: 178

· Take a problem-solving approach, avoid criticism, and treat employees with respect. Recall the worst boss for whom you ever worked. How did you react to his or her method of giving feedback? Avoid giving criticism that might be taken personally.

Example: Instead of saying, “You’re picking up that bag of cement wrong” (which is both personal and also criticizes by using the word wrong), try, “Instead of bending at the waist, a good way to pick up something heavy is to bend your knees. That’ll help save your back.”

· Be specific and direct in describing the employee’s current performance and in identifying the improvement you desire. Describe your subordinate’s current performance in specific terms and concentrate on outcomes that are within his or her ability to improve.

Example: Instead of saying, “You’re always late turning in your sales reports.” Try, “Instead of making calls on Thursday afternoon, why don’t you take some of the time to do your sales reports so they’ll be ready on Friday along with those of the other sales reps?”

· Get the employee’s input. In determining causes of a problem, listen to the employee and get his or her help in crafting a solution. Be thoughtful and compassionate.

Example: Instead of saying, “You’ve got to learn to get here by 9:00 a.m. every day.” Say, “What changes do you think could be made so that your station is ready when people start calling at 9:00?”

· Follow up. Always check in with the employee later to be sure he or she has taken any corrective action you discussed and that you’ve made yourself available for any additional questions or input.

Example: Instead of saying, “Why are you still turning in incomplete progress reports?” Try, “It’s almost time for me to ask for your next progress report. Should we take a look at a draft of it together first?” ●

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9.6 Managing Promotions, Transfers, Disciplining, and Dismissals

THE BIG PICTURE

As a manager, you’ll have to manage employee replacement actions, as by promoting, transferring, demoting, laying off, or firing.

LO 9-6

List guidelines for handling promotions, transfers, discipline, and dismissals.

You will learn in  Chapter 12  that employees’ perceptions about being treated fairly are essential for their job satisfaction, engagement, productivity, and desire to remain at the company. 179  Have you ever been treated unfairly at work? Do you remember how you felt? Probably angry. The point here is that the issue of fair treatment is critical when managers consider who to promote, transfer, discipline, and fire. But you play a role in these decisions as well.

In terms of your own promotions, transfers, and other important career milestones, keep in mind that organizations expect you to take responsibility for yourself. As one expert put it, “We are now in the era of do-it-yourself career development.” 180  Remember that career management is an important career-readiness competency, and consider the advice of Khadijah Sharif-Drinkard, senior vice president of business and legal at ViacomCBS and a Columbia University alum. Specifically—learn to advocate for yourself by highlighting your accomplishments and aspirations clearly to those above you. “You have to figure out ways that you get your own voice out there so that you can translate for people what you’re really doing,” says Sharif-Drinkard, adding, “because a lot of times people won’t necessarily know.” 181

Let’s consider some best practices for handling promotions, transfers, discipline, and dismissals.

Promotion: Moving Upward

Promotion—moving an employee to a higher-level position—is the most obvious way to recognize that person’s superior performance (apart from giving raises and bonuses). There are three primary concerns with promotions: fairness, discrimination, and others’ resentments. Let’s look at each of these briefly:

Fairness

It’s important that promotion be fair. The step upward must be deserved. Managers should never promote employees for reasons of nepotism, cronyism, or other forms of favoritism.

Discrimination

Promotion decisions cannot and should not discriminate on the basis of sexual orientation, ethnicity, gender, age, physical ability, or any other protected class. Further, decisions should not be made on the basis of any non-job-related factor (e.g., political affiliation) even if it isn’t considered a legally protected factor, although recent evidence suggests this type of discrimination does occur. 182

Others’ Resentments

If someone is promoted, someone else may be resentful about being passed over. As a manager, you may need to counsel the people left behind about their performance and their opportunities in the future. In fact, if you are passed over yourself, it is important not to let your anger build. Instead, gather your thoughts, then go in and talk to your boss and find out what qualities were lacking, suggests one report. As we said in the introduction to this section, you should take responsibility for your own career management by looking for ways to improve and showcase your knowledge, skills, and abilities. Above all, don’t give up. It may be that this was not the right opportunity for you, and another will come when you least expect it. 183

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Transfer: Moving Sideways

Transfer  is movement of an employee to a different job with similar responsibility. It may or may not mean a change in geographical location (which might be part of a promotion as well).

Employees might be transferred for four principal reasons:

1. To solve organizational problems by using their skills at another location

2. To broaden their experience in being assigned to a different position

3. To retain their interest and motivation by being presented with a new challenge

4. To solve some employee problems, such as personal differences with their bosses.

Remember that employees are hungry for opportunities to learn new skills and develop their competencies. Job transfers are one way that organizations can provide this kind of meaningful development for employees while simultaneously benefiting the firm. 184  Here are a few examples of how organizations use transfers: 185

Company Examples: The National Football League (NFL) offers a “junior rotational program” that allows employees to rotate between departments including public affairs, finance, events, and marketing. Employees can spend anywhere from six to twelve months in each department. Each year, Emerson, a global manufacturing firm, gives between 8 and 18 employees the chance to spend one year in one of its U.S. offices and one year in one of its international offices through its “engineers in leadership” program. Procter & Gamble is known for rotating managers through different cities and jobs throughout their careers. Many employees come to expect that they and their families will be in a new home in a new town every three to five years. At P&G, it’s “move up or move out.”

Disciplining and Demotion: The Threat of Moving Downward

Poorly performing employees may be given a warning or a reprimand and then disciplined. That is, they may be temporarily removed from their jobs, as when a police officer is placed on suspension or administrative leave—removed from his or her regular job in the field and perhaps given a paperwork job or told to stay away from work.

Alternatively, an employee may be demoted—that is, have their current responsibilities, pay, and perquisites taken away, as when a middle manager is demoted to a first-line manager. (Sometimes this may occur when a company is downsized, resulting in fewer higher-level management positions.)

Demotions are uncomfortable for both managers and employees, and recent research suggests that more than 50% of employees who are demoted ultimately quit their jobs. But demotions don’t necessarily mean the employee isn’t a valuable asset to the company. In many cases, they are simply not a good fit for their current position and would be able to make valuable contributions elsewhere in the organization or after they’ve had more time in a lower-level position. 186  Here are a few tips for managing the demotion process: 187

1. Base demotion decisions on unbiased, well-documented evidence. Demotions should be based on objective facts that have been documented by the organization.

2. Communicate the organization’s desire to retain the employee. If you want to keep the employee and feel they will be a good fit in a different position, explain this, and highlight the strengths that you feel make them the right person for the alternate job.

3. Be honest about performance-related issues that led to the demotion. Employees need honest and constructive feedback in order to learn and develop.

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Dismissal: Moving Out of the Organization

Dismissals fall into three categories: layoffs, downsizings, and firings. We first discuss each type of dismissal. Then, we describe exit interviews, nondisparagement agreements, and employment at will, which often go along with dismissals.

Layoffs

The phrase being laid off tends to suggest that a person has been dismissed temporarily—as when a carmaker doesn’t have enough orders to justify keeping its production employees—and may be recalled later when economic conditions improve. Many companies cite layoffs as necessary to improve profitability, although research suggests they do not, in fact, improve profits. 188  In some cases, there may be no other option, as companies such as Under Armour, Cheesecake Factory, Best Buy, and Disney found during the COVID-19 pandemic of 2020. 189

Downsizings

A downsizing is a permanent dismissal; there is no rehiring later. An automaker discontinuing a line of cars or on the path to bankruptcy might permanently let go of its production employees. Recent research suggests that downsizing occurs more often due to pressure to meet investment analysts’ earnings estimates rather than to correct for poor firm performance. 190

Firings

The phrase being fired, with all its euphemisms and synonyms—being “terminated,” “separated,” “let go,” “sacked,” “axed,” “canned”—tends to mean that a person was dismissed permanently “for cause.” Firings occur due to, for example, absenteeism, sloppy work habits, failure to perform satisfactorily, or breaking the law. Interestingly, it’s rare to hear news of a company firing the CEO. As one writer commented, the CEO “never gets fired,” rather, he or she leaves “to pursue other opportunities” or “spend more time with the family.” 191  But a recent study suggests that up to half of all CEOs that leave their jobs do so because they were fired. 192

A few important points about firings are:

1. Reasons for dismissals should be carefully documented. Employers need to take steps to avoid employees suing for “wrongful termination.”

2. Remember those who stay. Other employees may be affected by the firing of a supervisor, co-worker, or subordinate. 193

3. Dismissals are usually not a surprise. Most bosses are conflict-averse, and you may see the handwriting on the wall when your own manager begins to interact with you less. 194

4. Firings are more common in some industries or job types than others. For example, start-ups are quick to fire if new hires don’t measure up quickly. 195

Exit Interviews, Nondisparagement Agreements, and Employment at Will

An  exit interview  is a formal conversation between a representative from the organization and a departing employee to find out why he or she is leaving and to learn about potential problems in the organization. If you leave an organization, you can expect to have an exit interview—91% of Fortune 500 companies use exit interviews, along with 87% of midsize firms. Unfortunately, research shows that even though many employees quit their jobs because of poor relationships with their bosses, it’s likely that employees will not share this information honestly in exit interviews, because they fear being retaliated against in ways that can damage their careers. 196

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A  nondisparagement agreement is a contract between two parties that prohibits one party from criticizing the other; it is often used in severance agreements to prohibit former employees from criticizing their former employers. Employees who are laid off or whose jobs have been eliminated are often obliged to sign nondisparagement agreements in return for receiving severance pay—pay an employer may give a worker who leaves, such as the equivalent of two weeks of salary for each year he or she was employed. The #MeToo movement has reignited debates about nondisparagement agreements and the fact that they may prevent some victims of workplace harassment from speaking out. Some states have begun to update their laws to protect the rights of harassment victims. 197

Employment at will  is the governing principle of employment in the great majority of states, and it means that anyone can be dismissed at any time for any reason at all—or for no reason. 198  Exceptions are whistle-blowers and people with employment contracts. EEO laws also prohibit organizations’ dismissing people for their membership in one or more protected classes. 199

Managers should always work with HR to ensure they are being compliant with local, state, and federal law during dismissals. ●

9.7 The Legal Requirements of Human Resource Management

THE BIG PICTURE

Four areas of human resource law any manager needs to be aware of are labor relations, compensation and benefits, health and safety, and equal employment opportunity.

LO 9-7

Discuss legal considerations managers should be aware of.

Laws underlie all aspects of the HR practices discussed so far. Whatever your organization’s human resource strategy, in the United States (and in U.S. divisions overseas) it has to operate within the environment of the American legal system. In this section we discuss four areas you need to be aware of. Some important laws are summarized in  Table 9.2 .

1. Labor Relations

The earliest laws affecting employee welfare had to do with unions, and they can still have important effects. Legislation passed in 1935 (the Wagner Act) resulted in the  National Labor Relations Board (NLRB) , which enforces procedures whereby employees may vote to have a union and for collective bargaining.  Collective bargaining  consists of negotiations between management and employees about disputes over compensation, benefits, working conditions, and job security.

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A 1947 law (the Taft-Hartley Act) allows the president of the United States to prevent or end a strike that threatens national security. (We discuss labor–management issues further in  Section 9.8 .)

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2. Compensation and Benefits

The  Social Security Act of 1935  established the U.S. retirement system.

The passage of the  Fair Labor Standards Act of 1938 (FLSA)  established minimum living standards for workers engaged in interstate commerce, including provision of a federal minimum wage and a maximum workweek before overtime must be paid, along with banning child labor. A few important facts about the minimum wage: 200

· Federal minimum wage is $7.25 an hour. It was raised to this level in 2009.

· States have their own laws:

· 29 states and D.C. have minimum wages that are higher than the federal level.

· 5 states do not have minimum wage levels.

· When an employee is subject to both state and federal law, they earn the higher of the two rates (state or federal).

· The federal minimum wage has never remained unchanged for this long. As of 2019, the minimum wage had never stood unchanged for longer. In the 12+ years since the $7.25 per hour rate was set, inflation has increased 18%.

Proponents of a $15 minimum wage say it would help people pay their bills because existing minimum wages have not kept up with inflation, and it would create a fairer working environment because different states now pay wildly different minimums. Detractors say that the $15 figure is arbitrary and that a higher minimum would produce job losses, hurt low-skilled workers, have little effect on reducing poverty, and result in higher prices to consumers. 201

Salaried executive, administrative, and professional employees are considered exempt from overtime rules—these are called white-collar exemptions. The remaining employees, called nonexempt, must be paid time and a half for any weekly hours in excess of 40. In 2020 the Department of Labor (DOL) updated the white-collar exemptions. Two key takeaways: 202

· Workers must be paid overtime if they do not earn at least $35,568 per year (or $684 per week), regardless of white-collar job classification.

· Employers can satisfy up to 10% of standard salary level with nondiscretionary bonuses and incentive payments (to include commissions) that are paid annually or more frequently.

3. Health and Safety

From miners risking tunnel cave-ins to cotton mill workers breathing lint, industry has always had dirty, dangerous jobs. Beginning with the Occupational Safety and Health Act (OSH Act) of 1970, a body of law has grown that requires organizations to provide employees with nonhazardous working conditions (most recently augmented by an update to the Toxic Substances Control Act of 1976). 203  Later laws extended health coverage, including 2010 health care reform legislation, which requires employees with more than 50 employees to provide health insurance or pay a penalty. 204  (More than 20 million Americans have gained access to health insurance due to the passing of the Affordable Care Act.) 205

4. Equal Employment Opportunity

The effort to reduce discrimination in employment based on racial, ethnic, and religious bigotry and gender stereotypes began with Title VII of the Civil Rights Act of 1964. This established the  Equal Employment Opportunity Commission (EEOC) , whose job is to enforce antidiscrimination and other employment-related laws. Title VII applies to all organizations or their agents engaged in an industry affecting interstate commerce that employs 15 or more employees. Contractors who wish to do business with the U.S. government (such as most colleges and universities, which receive federal funds) must be in compliance with various executive orders issued by the president covering antidiscrimination. Later laws prevented discrimination against older workers and people with physical and mental disabilities. (We discuss these topics in detail in  Chapter 11 .)

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Workplace Discrimination, Affirmative Action, Sexual Harassment, and Bullying

Three important concepts covered by equal employment opportunity (EEO) laws are workplace discrimination, affirmative action, and sexual harassment, which we discuss in this section. We also consider bullying, which is not covered by EEO laws.

Workplace Discrimination

Workplace discrimination  occurs when employment decisions about people are made for reasons not relevant to the job, such as skin color, gender, religion, or age. Two fine points to be made here are that (1) although the law prohibits discrimination in all aspects of employment, it does not require an employer to extend preferential treatment because of these factors and (2) employment decisions must be made on the basis of job-related criteria.

There are two types of workplace discrimination:

· Adverse impact.  Adverse impact  occurs when an organization uses an employment practice or procedure that results in unfavorable outcomes to a protected class (such as workers over 40) over another group of people (such as workers under 40). For example, requiring workers to have “four to six years of experience” inadvertently creates adverse impact on older workers, because workers over 40 are likely to have more than six years of experience. This example would not be a problem, however, if work experience in this specific range were required to perform the job. Another example is basing a person’s starting salary on what he or she earned at a previous job. This can discriminate against female applicants because they tend to make less money than males for performing the same job with the same level of experience and skills.

· Disparate treatment.  Disparate treatment  results when employees from protected groups (such as disabled individuals) are intentionally treated differently. An example would be making a decision to give all international assignments to people without disabilities because of the assumption that they won’t need any special accommodations related to travel. Another example would be deciding to choose a male employee for a promotion over a female employee because of the assumption that the female employee—who happens to be pregnant—is going to give up her career soon anyway. 206

When an organization is found to have been practicing discrimination, the people discriminated against may sue for back pay and punitive damages. In 2019, among complaints to the EEOC, the most frequently cited basis for charges of discrimination was retaliation (53.8%), followed by disability discrimination (33.4%); discrimination based on race (33%); sex discrimination, including sexual harassment and pregnancy discrimination (32.4%); and discrimination based on age (21.4%). These percentages are greater than 100% because some charges allege multiple types of discrimination. 207

Discrimination can occur in HR practices even when managers are not consciously aware of it. Aware or not, the organization can be held liable. Organizations need to evaluate their selection devices on a regular basis to be sure they are not at risk of adversely impacting applicants who belong to underrepresented groups. Here’s an example of one entrepreneur using AI to decrease discrimination in recruiting, hiring, and selection.

Blendoor Example: Stephanie Lampkin is the founder and CEO of Blendoor, a tech company that uses AI to remove discrimination from the hiring process. Unlike the applications of AI discussed earlier—that were biased by the data they were built from—Blendoor’s algorithms are built on more comprehensive data sets. Said Lampkin, “Enterprises tend to hire people who look like people they have hired before and they use procedures that haven’t changed. That’s why Amazon’s AI experiment didn’t work. . . . You’re baking in bias in the algorithm.” The problem, says Lampkin, is that age-old hiring methods persist (for example, a bias toward hiring people from certain elite schools) even though they aren’t linked to better firm performance. Blendoor works with companies to turn these biases on their heads. Blendoor’s technology has helped some of its customers double the number of women they hire, and others have hired six times more underrepresented minorities. 208

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