5 pages of CONTEXT HRM report. Details provided in attachments.

Brandon91002

HumanResourceManagement10thEdition.pdf

Home >Human Resource Management homework help >5 pages of CONTEXT HRM report. Details provided in attachments.

Human Resource Management

Tenth Edition

Lloyd L. Byars, Ph.D. Professor Emeritus of Management

College of Management

Georgia Institute of Technology

Leslie W. Rue, Ph.D. Professor Emeritus of Management

Robinson College of Business

Georgia State University

HUMAN RESOURCE MANAGEMENT, TENTH EDITION

Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the

form or by any means, or stored in a database or retrieval system, without the prior written consent of The

McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or

transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside

the United States.

This book is printed on recycled, acid-free paper containing 10% postconsumer waste.

1 2 3 4 5 6 7 8 9 0 WDQ/WDQ 1 0 9 8 7 6 5 4 3 2 1 0

ISBN 978-0-07-353055-0

MHID 0-07-353055-7

Vice President & Editor-in-Chief: Brent Gordon

Vice President EDP/Central Publishing Services: Kimberly Meriwether David

Editorial Director: Paul Ducham

Managing Developmental Editor: Laura Hurst Spell

Editorial Coordinator: Jane Beck

Associate Marketing Manager: Jaime Halteman

Project Manager: Robin A. Reed

Design Coordinator: Brenda A. Rolwes

Cover Designer: Studio Montage, St. Louis, Missouri

Senior Photo Research Coordinator: Jeremy Cheshareck

Cover Image: © Royalty-Free/CORBIS

Buyer: Susan K. Culbertson

Media Project Manager: Balaji Sundararaman

Compositor: MPS Limited, A Macmillan Company

Typeface: 10/12 Times Roman

Printer: Worldcolor

All credits appearing on page are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Byars, Lloyd L.

Human resource management / Lloyd L. Byars, Leslie W. Rue. — 10th ed.

p. cm.

ISBN-13: 978-0-07-353055-0 (student ed.)

ISBN-10: 0-07-353055-7 (student ed.)

1. Personnel management. I. Rue, Leslie W. II. Title.

HF5549.B937 2011

658.3—dc22

2010025365

www.mhhe.com

iii

To Lloyd L. Byars, Jr., Linda S. Byars,

Susan Ashley Ross, and Elizabeth Lee Means

Lloyd L. Byars

To Elizabeth R. Norris, Margaret

Massie, Leslie W. Rue, Jr., and Passie M. Rue

Leslie W. Rue

Preface Today’s most effective and successful organizations fi nd ways to motivate, train, compensate,

and challenge their employees. This is true for all organizations, whether they are manufactur-

ing or service companies, large or small, domestic or international, profi t or nonprofi t, govern-

ment or nongovernment.

Since the publication of the ninth edition of Human Resource Management, the world has con-

tinued to change. The human resource components of most organizations have become even more

diverse and more sophisticated. In addition, other signifi cant changes have occurred that affect

human resource managers. The worldwide recession and accompanying downsizing, changing

government and legal requirements, increased awareness for security issues, new information

systems, demands for a more skilled workforce, and intensifying global competition are just a few

of the factors that have contributed to the complexity of HRM issues for today’s organizations.

FEATURES OF THE BOOK As in previous editions, the tenth edition of Human Resource Management continues to present

both the theoretical and practical aspects of HRM. The theoretical material is presented through-

out the text and highlighted via a marginal glossary. Students are assisted in learning HRM

terminology through these concise defi nitions placed in the margins. They also provide a valu-

able study tool for students. The practical aspects of HRM are presented through lively and

pedagogically effective examples woven throughout the text and end-of-chapter materials.

• There are detailed learning objectives for each chapter.

• Multiple “HRM in Action” boxes are included in each chapter and provide current examples

that illustrate how actual organizations apply concepts presented in the chapters. The over-

whelming majority of these examples are new to this edition.

• A key feature entitled “On the Job” appears after several chapters and offers numerous

other practical examples.

• The URLs for companies referenced in the text have been updated and expanded.

• End-of-chapter materials include these features:

• The “Summary of Learning Objectives” is a synopsis and review of the key learning

objectives within each chapter.

• A list of key terms is provided for each chapter. These lists are new to this edition.

• “Review Questions” provide an opportunity to review chapter concepts through ques-

tions developed to test students’ memory of key issues and concepts within the chapter.

• “Discussion Questions” give students an opportunity to apply critical thinking skills to

in-depth questions.

• Two “Incidents” per chapter act as minicases students can use to analyze and dissect

chapter concepts and applications via real-life scenarios.

• Experential “Exercises” placed at the end of each chapter can be done in class or as

homework and are designed to illustrate major points emphasized in the chapter.

• “Notes and Additional Readings” provide references and more in-depth information on

covered topics.

THE TEACHING PACKAGE Each component of the teaching package has been carefully developed to assist faculty in

teaching and students in learning the important concepts and applications of HRM. The fol-

lowing items are included on the book website at www.mhhe.com/byars10e:

• The Instructor’s Manual offers opportunities for classroom instruction, student participa-

tion, and assignments or research. Each chapter includes a chapter outline, presentation

suggestions, and answers for the “Discussion Questions” and “Incident Solutions” that are

included within the text.

vi Preface

• The Test Bank includes over 600 questions and consists of true/false, multiple choice, and

short-answer questions.

• Power Point slides contain tables and fi gures from the text plus additional graphic material.

• The student center provides chapter review materials and self-grading quizzes. Premium

content access is also available for purchase, including Test Your Knowledge, Self-

Assessments, and Manager’s Hot Seat videos.

In addition, the Human Resource Management Video DVD contains a number of short clips

providing real-world illustrations of chapter concepts.

The Manager’s Hot Seat interactive video series is also available for purchase with this

textbook or online at www.mhhe.com/mhs. This popular simulation allows students to experi-

ence, as close to real-life as possible, what it’s like to be in the manager’s hot seat. Students

watch and comment on the situation as managers in unscripted scenarios make on-the-spot

decisions in confronting real-life issues, such as hiring decisions, teamwork, or the virtual

workplace.

ORGANIZATION OF THE TENTH EDITION The book’s content has been rearranged into fi ve major sections. Part 1, “Introduction and

Background of Human Resources,” is designed to provide the student with the foundation

necessary to embark on a study of the work of human resource management. This section

also explores how the legal environment and the implementation of equal employment op-

portunity infl uence all areas of human resource management. The fi nal chapter in this section

discusses job analysis and job design. Part 2, “Acquiring Human Resources,” discusses the

topics of human resource planning, recruitment, and selection. Part 3, “Training and Develop-

ing Employees,” describes orientation and employee training, management and organizational

development, career planning, and performance management systems. Part 4, “Compensating

Human Resources,” presents an introductory chapter on organizational reward systems and

has separate chapters describing base wage and salary systems, incentive pay systems, and

employee benefi ts. The chapter on employee benefi ts has been moved to this section in this

edition. Part 5, “Employee Well-Being and Labor Relations” explores employee safety and

health, employee relations, the legal environment and structure of labor unions, as well as

union organizing campaigns, and collective bargaining.

Reviewers for this edition:

Janet A. Henquinet

Metropolitan State University

Susan L. Kendall

Arapahoe Community College

Robert D. Lewallen

Iowa Western Community College

Tom J. Sanders

University of Montevallo

Romila Singh

University of Wisconsin-Milwaukee

As with all previous editions, we solicit any ideas and inputs that readers may have con-

cerning the book.

Lloyd L. Byars

Leslie W. Rue

vii

Brief Contents

PART ONE Introduction and Background of Human

Resources 1

1 Human Resource Management: A Strategic Function 3

2 Equal Employment Opportunity: The Legal Environment 23

3 Implementing Equal Employment Opportunity 45

4 Job Analysis and Job Design 65

PART TWO Acquiring Human Resources 87

5 Human Resource Planning 89

6 Recruiting Employees 111

7 Selecting Employees 125

PART THREE Training and Developing Employees 147

8 Orientation and Employee Training 149

9 Management and Organizational Development 167

10 Career Development 189

11 Performance Management Systems 213

PART FOUR Compensating Human Resources 231

12 The Organizational Reward System 233

13 Base Wage and Salary Systems 251

14 Incentive Pay Systems 273

15 Employee Benefi ts 291

PART FIVE Employee Well-Being and Labor Relations 317

16 Employee Safety and Health 319

17 Employee Relations 343

18 The Legal Environment and Structure of Labor Unions 357

19 Union Organizing Campaigns and Collective Bargaining 373

GLOSSARY 391

INDEX 401

viii

PART ONE INTRODUCTION AND BACKGROUND

OF HUMAN RESOURCES 1

Chapter 1

Human Resource Management: A Strategic

Function 3

Human Resource Functions 4

Who Performs the Human Resource Functions? 5

The Human Resource Department 5

Challenges for Today’s Human Resource

Managers 6

Diversity in the Workforce 6

Regulatory Changes 8

Structural Changes to Organizations 8

Technological and Managerial Changes within

Organizations 9

Human Resource Management in the Future 10

Organizational Performance and the Human

Resource Manager 12

Metrics and the HR Scorecard 12

Communicating Human Resource

Programs 13

Guidelines for Communicating Human Resource

Programs 13

Summary of Learning Objectives 14

Key Terms 15

Review Questions 16

Discussion Questions 16

Incident 1.1: Human Resource Management and

Professionals 16

Incident 1.2: Choosing a Major 17

Exercise 1.1: Changes in Terminology 17

Exercise 1.2: Justifying the Human Resource

Department 17

Exercise 1.3: Test Your Knowledge of

HR History 17

Exercise 1.4: Are You Poised for Success? 18

Notes and Additional Readings 20

Chapter 2

Equal Employment Opportunity: The Legal

Environment 23

Equal Employment Opportunity Laws 24

Equal Pay Act (1963) 24

Title VII, Civil Rights Act (1964) 25

Age Discrimination in Employment Act (1967) 26

Rehabilitation Act (1973) 27

Vietnam-Era Veterans Readjustment Assistance

Act (1974) 27

Pregnancy Discrimination Act (1978) 28

Immigration Reform and Control Act (1986) 28

Americans with Disabilities Act (1990) 28

Older Workers Benefi t Protection Act (1990) 29

Civil Rights Act (1991) 30

Family and Medical Leave Act (1993) 31

Executive Orders 11246, 11375, and 11478 31

State and Local Government Equal

Employment Laws 32

Landmark Court Cases 32

Griggs v. Duke Power Company 34

McDonnell Douglas v. Green 34

Albemarle Paper v. Moody 35

University of California Regents v. Bakke 35

United Steelworkers of America v. Weber 35

Connecticut v. Teal 36

Memphis Firefi ghters, Local 1784 v. Stotts 36

City of Richmond v. J. A. Crosan Company 37

Wards Cove v. Atonio 37

Martin v. Wilks 37

Adarand Contractors v. Peña 38

State of Texas v. Hopwood 38

University of Michigan’s Admission Procedures 38

Enforcement Agencies 38

Equal Employment Opportunity Commission 38

Offi ce of Federal Contract Compliance

Programs 39

Summary of Learning Objectives 39

Key Terms 41

Review Questions 41

Discussion Questions 42

Incident 2.1: Debate over Retirement Age 42

Incident 2.2: Accept Things as They Are 43

Exercise 2.1: Discrimination because of Sex,

Religion, or National Origin 43

Notes and Additional Readings 44

Chapter 3

Implementing Equal Employment

Opportunity 45

EEOC Compliance 46

Legal Powers of the EEOC 46

EEOC Posting Requirements 46

Records and Reports 46

Compliance Process 49

Preemployment Inquiry Guide 51

Affi rmative Action Plans 52

Table of Contents

Table of Contents ix

Bona Fide Occupational Qualifi cation (BFOQ) 52

Business Necessity 53

Sexual Harassment 54

Comparable Worth and Equal Pay Issues 55

Other Areas of Employment Discrimination 56

Religion 56

Native Americans 57

HIV-Positive Status 57

Sexual Orientation 57

Summary of Learning Objectives 58

Key Terms 58

Review Questions 59

Discussion Questions 59

Incident 3.1: The Layoff 59

Incident 3.2: Religion and Real Estate 60

Exercise 3.1: Affi rmative Action Debate 60

Exercise 3.2: How Much Do You Know about Sexual

Harassment? 60

Notes and Additional Readings 61

On the Job: Preemployment Inquiry Guide 61

Chapter 4

Job Analysis and Job Design 65

Basic Terminology 66

Job Analysis 66

Products of Job Analysis 68

Job Analysis Methods 69

The ADA and Job Analysis 72

Potential Problems with Job Analysis 73

Job Design 74

Job Scope and Job Depth 75

Sociotechnical Approach to Job Design 75

The Physical Work Environment 76

Flexible Work Arrangements (FWAs) 76

Summary of Learning Objectives 79

Key Terms 81

Review Questions 81

Discussion Questions 81

Incident 4.1: The Tax Assessor’s Offi ce 81

Incident 4.2: Turnover Problems 82

Exercise 4.1: Introduction to O*NET 82

Exercise 4.2: Writing a Job Description 82

Exercise 4.3: Performing a Job Analysis 83

Notes and Additional Readings 83

On the Job: Sample Job Analysis

Questionnaire 84

PART TWO ACQUIRING HUMAN RESOURCES 87

Chapter 5

Human Resource Planning 89

How HRP Relates to Organizational Planning 90

Strategy-Linked HRP 91

Time Frame of HRP 91

HRP: An Evolving Process 92

Steps in the HRP Process 92

Determining Organizational Objectives 92

Determining the Skills and Expertise Required (Demand) 94

Determining Additional (Net) Human Resource

Requirements 95

Developing Action Plans 96

Synthesizing the HRP Process 98

Succession Planning 100

Human Resource Information Systems (HRIS) 101

HR and the Internet 102

HR Intranets and Portals 102

HR and Web 2.0 104

Software as a Service 104

Summary of Learning Objectives 105

Key Terms 106

Review Questions 106

Discussion Questions 106

Incident 5.1: Human Resource Planning—

What Is That? 107

Incident 5.2: New Boss 107

Exercise 5.1: Avoiding Layoffs? 108

Exercise 5.2: Locating HR Software 108

Notes and Additional Readings 108

Chapter 6

Recruiting Employees 111

Job Analysis, Human Resource Planning, and

Recruitment 112

Personnel Requisition Form 112

Sources of Qualifi ed Personnel 113

Internal Sources 113

External Sources 115

Effectiveness of Recruitment Methods 117

Realistic Job Previews 118

Who Does the Recruiting, and How? 119

Organizational Inducements in Recruitment 120

Equal Employment Opportunity and Recruitment 120

Summary of Learning Objectives 121

Key Terms 122

Review Questions 122

Discussion Questions 122

Incident 6.1: Inside or Outside Recruiting? 123

Incident 6.2: A Malpractice Suit against a Hospital 123

Exercise 6.1: Writing a Résumé 124

Notes and Additional Readings 124

Chapter 7

Selecting Employees 125

The Selection Process 125

Employment Application Form 126

Preliminary Interview 127

Formal Testing 128

x Table of Contents

Second or Follow-Up Interview 131

Reference Checking 132

Physical Examination 132

Making the Final Selection Decision 133

Validation of Selection Procedures 133

Criterion-Related Validity 134

Content and Construct Validity 137

Reliability 137

Uniform Guidelines on Employee Selection

Procedures 137

Adverse (or Disparate) Impact 138

Where Adverse Impact Exists: The Basic Options 139

Summary of Learning Objectives 139

Key Terms 140

Review Questions 140

Discussion Questions 141

Incident 7.1: Promotions at OMG 141

Incident 7.2: The Pole Climbers 142

Exercise 7.1: Developing a Frequency Distribution 143

Notes and Additional Readings 143

On the Job: Sample Online Application

for Employment 144

PART THREE TRAINING AND

DEVELOPING EMPLOYEES 147

Chapter 8

Orientation and Employee Training 149

Orientation 151

Shared Responsibility 151

Organizational Orientation 151

Departmental and Job Orientation 151

Orientation Kit 151

Orientation Length and Timing 153

Follow-Up and Evaluation 154

Training Employees 154

Needs Assessment 155

Establishing Training Objectives 156

Methods of Training 157

On-the-Job Training and Job Rotation 157

Apprenticeship Training 159

Classroom Training 160

Virtual Classroom 160

Evaluating Training 160

Reaction 160

Learning 160

Behavior 161

Results 161

Principles of Learning 162

Motivation to Achieve Personal Goals 162

Knowledge of Results 162

Reinforcement 162

Flow of the Training Program 163

Practice and Repetition 163

Spacing of Sessions 163

Whole or Part Training 163

Summary of Learning Objectives 163

Key Terms 164

Review Questions 164

Discussion Questions 164

Incident 8.1: Starting a New Job 164

Incident 8.2: Implementing On-the-Job Training 165

Exercise 8.1: McDonald’s Training Program 166

Exercise 8.2: Virtual Classroom 166

Notes and Additional Readings 166

Chapter 9

Management and Organizational

Development 167

The Management Development Process 168

Determining the Net Management Requirements 168

Organizational Objectives 168

Management Inventory and Succession Plan 168

Changes in the Management Team 169

Needs Assessment 169

Establishing Management Development Objectives 172

Methods Used in Management Development 174

Understudy Assignments 174

Coaching 174

Experience 175

Job Rotation 175

Special Projects and Committee Assignments 175

Classroom Training 175

In-Basket Technique 176

Web-Based Training 177

Business Simulations 177

Adventure Learning 177

University and Professional Association Seminars 178

Evaluation of Management Development Activities 178

Assessment Centers 179

Organizational Development 179

Diagnosis 180

Strategy Planning 180

Education 181

Evaluation 181

Summary of Learning Objectives 182

Key Terms 182

Review Questions 182

Discussion Questions 183

Incident 9.1: The 40-Year Employee 183

Incident 9.2: Consolidating Three Organizations 184

Exercise 9.1: Training Methods 184

Notes and Additional Readings 185

On the Job: Comparison of Training Methods 185

Chapter 10

Career Development 189

Why Is Career Development Necessary? 190

Table of Contents xi

Who Is Responsible for Career Development? 191

Organization’s Responsibilities 191

Employee’s Responsibilities 191

Manager’s Responsibilities 192

Implementing Career Development 192

Individual Assessment 192

Assessment by the Organization 194

Communicating Career Options 194

Career Pathing 194

Career Self-Management 194

Career Counseling 195

Reviewing Career Progress 196

Career-Related Myths 197

Myths Held by Employees 197

Myths Held by Managers 198

Dealing with Career Plateaus 198

Rehabilitating Ineffective Plateauees 200

Career Lattices 200

The Impact of Dual-Employed Couples and

Single-Parent Employees 201

Outplacement 202

Breaking the Glass Ceiling 202

Career Development Online 203

Summary of Learning Objectives 204

Key Terms 205

Review Questions 205

Discussion Questions 206

Incident 10.1: The Unhappy Power Line Installer 206

Incident 10.2: Hire Me, Hire My Husband! 207

Exercise 10.1: How Do You Rate as a Career

Counselor? 208

Exercise 10.2: Becoming an Effective Career

Planner 209

Exercise 10.3: Online Self-Assessment 209

Notes and Additional Readings 209

On the Job: Online Self-Assessment Tools 210

Chapter 11

Performance Management Systems 213

Understanding Performance 214

Determinants of Performance 214

Environmental Factors as Performance Obstacles 214

Responsibilities of the Human Resource Department

in Performance Management 214

Performance Appraisal: Defi nition and Uses 215

Performance Appraisal Methods 216

Management by Objectives (MBO) 216

Multi-Rater Assessment (or 360-Degree Feedback) 217

Graphic Rating Scale 217

Behaviorally Anchored Rating Scale (BARS) 217

Critical-Incident Appraisal 219

Essay Appraisal 220

Checklist 220

Forced-Choice Rating 220

Ranking Methods 221

Work Standards 222

Potential Errors in Performance Appraisals 222

Overcoming Errors in Performance Appraisals 223

Providing Feedback through the Appraisal Interview 223

Developing Performance Improvement Plans 224

Performance Appraisal and the Law 225

Summary of Learning Objectives 225

Key Terms 226

Review Questions 226

Discussion Questions 227

Incident 11.1: The College Admissions Offi ce 227

Incident 11.2: The Lackadaisical Plant Manager 228

Exercise 11.1: Developing a Performance Appraisal

System 228

Notes and Additional Readings 229

PART FOUR COMPENSATING

HUMAN RESOURCES 231

Chapter 12

The Organizational Reward System 233

Defi ning the System 234

Selection of Rewards 234

Relating Rewards to Performance 235

Job Satisfaction and Rewards 236

The Satisfaction–Performance Controversy 237

Other Factors Affecting Job Satisfaction 238

Employee Compensation 238

Compensation Policies 239

Pay Secrecy 239

Government and Union Infl uence 240

Impact of Comparable Worth 241

The Importance of Fair Pay 241

Pay Equity 242

Pay Satisfaction Model 243

The Role of the Human Resource Manager in the Reward

System 244

Summary of Learning Objectives 245

Key Terms 246

Review Questions 246

Discussion Questions 247

Incident 12.1: An Informative Coffee Break 247

Incident 12.2: Does Money Motivate? 248

Exercise 12.1: Relating Rewards to Performance 249

Notes and Additional Readings 249

Chapter 13

Base Wage and Salary Systems 251

Objective of the Base Wage and Salary System 252

Conventional Job Evaluation 252

Job Ranking Method 253

Job Classifi cation Method 254

Point Method 254

Factor Comparison Method 257

Comparison of Job Evaluation Methods 258

xii Table of Contents

Pricing the Job 259

Wage and Salary Surveys 259

Wage and Salary Curves 261

Base Wage/Salary Structure 263

New Approaches to the Base Wage/Salary

Structure 263

Broadbanding 264

Skill-Based Pay 264

Competency-Based Pay 265

Market-Based Pay 266

Total Rewards 266

Summary of Learning Objectives 267

Key Terms 268

Review Questions 268

Discussion Questions 269

Incident 13.1: Fair Pay for Pecan Workers 269

Incident 13.2: A Dead-End Street? 269

Exercise 13.1: Ranking Jobs 270

Exercise 13.2: Wage/Salary Survey 270

Notes and Additional Readings 271

Chapter 14

Incentive Pay Systems 273

Requirements of Incentive Plans 274

Individual Incentives 275

Piece Rate Plans 275

Plans Based on Time Saved 275

Plans Based on Commissions 275

Individual Bonuses 276

Suggestion Systems 276

Incentives for Managerial Personnel 276

Stock Options for Nonmanagerial Personnel 281

Group Incentives 281

Gain-Sharing or Profi t-Sharing Plans 282

Scanlon-Type Plans 283

Employee Stock Ownership Plans (ESOPs) 283

Making Incentive Plans Work 285

Summary of Learning Objectives 285

Key Terms 287

Review Questions 287

Discussion Questions 287

Incident 14.1: Rewarding Good Performance at a Bank 287

Incident 14.2: Part-Time Pool Personnel 288

Exercise 14.1: Implementing Incentives 289

Exercise 14.2: Proven Suggestion Systems 289

Exercise 14.3: The Status of the Corporate and Financial

Institutions Compensation Fairness Act (CFICF) 289

Notes and Additional Readings 289

Chapter 15

Employee Benefi ts 291

What Are Employee Benefi ts? 292

Growth in Employee Benefi ts 293

Legally Required Benefi ts 294

Social Security 294

Unemployment Compensation 296

Workers’ Compensation 297

Retirement-Related Benefi ts 298

Company-Sponsored Retirement Plans 298

ERISA and Related Acts 302

Employees Not Covered by Company Retirement

Plans 303

Preretirement Planning 304

Insurance-Related Benefi ts 304

Health Insurance 305

Dental Insurance 306

Life Insurance 306

Accident and Disability Insurance 307

Payment for Time Not Worked 307

Paid Holidays and Paid Vacations 307

Other Benefi ts 307

Employee Preferences among Benefi ts 307

Flexible-Benefi t Plans 308

The Benefi t Package 309

Communicating the Benefi t Package 309

Summary of Learning Objectives 311

Key Terms 313

Review Questions 313

Discussion Questions 314

Incident 15.1: Who Is Eligible for Retirement Benefi ts? 314

Incident 15.2: Benefi ts for Professionals 314

Exercise 15.1: Taking a Raise 315

Notes and Additional Readings 315

PART FIVE EMPLOYEE WELL-BEING AND LABOR

RELATIONS 317

Chapter 16

Employee Safety and Health 319

Occupational Safety and Health Act 320

OSHA Standards 321

Penalties 322

Reporting/Record-Keeping Requirements 322

The Causes of Accidents 323

Personal Acts 323

Physical Environment 324

Accident Proneness 324

How to Measure Safety 324

Organizational Safety Programs 325

Promoting Safety 325

Establishing a Safety Training Program 325

Employee Health 326

Occupational Health Hazards 326

Stress in the Workplace 327

Alcoholism and Drug Abuse 329

AIDS 331

Employee Assistance Programs (EAPs) 332

Work/Life Programs 333

Wellness Programs 334

Table of Contents xiii

Violence in the Workplace 335

Summary of Learning Objectives 335

Key Terms 337

Review Questions 337

Discussion Questions 337

Incident 16.1: Safety Problems at Blakely 338

Incident 16.2: To Fire or Not to Fire? 338

Exercise 16.1: Filing OSHA Reports 339

Exercise 16.2: Preventing Violence in the Workplace 339

Notes and Additional Readings 339

Chapter 17

Employee Relations 343

Employment at Will 343

Causes of Disciplinary Actions 344

Administering Discipline 344

Prediscipline Recommendations 345

Guidelines for Administering Discipline 346

Legal Restrictions 347

Grievance Procedures 348

Just Cause 348

Due Process 350

Duty of Fair Representation 350

Time Delays 351

Grievance Arbitration 351

Summary of Learning Objectives 352

Key Terms 353

Review Questions 353

Discussion Questions 353

Incident 17.1: Tardy Tom 354

Incident 17.2: Keys to the Drug Cabinet 354

Exercise 17.1: Mock Arbitration 355

Notes and Additional Readings 356

Chapter 18

The Legal Environment and Structure

of Labor Unions 357

The Legal Environment of Labor–Management

Relations 358

Sherman Anti-Trust Act (1890) 359

Clayton Act (1914) 360

Railway Labor Act (1926) 360

Norris–La Guardia Act (1932) 360

National Labor Relations (Wagner) Act (1935) 361

Labor–Management Relations (Taft–Hartley)

Act (1947) 361

Labor–Management Reporting and Disclosure

(Landrum–Griffi n) Act (1959) 364

Civil Service Reform Act (1978) 364

Union Structures 365

AFL–CIO 365

National and International Unions 366

City and State Federations 366

Local Unions 366

Current and Future Developments in the Labor

Movement 367

Summary of Learning Objectives 368

Key Terms 369

Review Questions 369

Discussion Questions 369

Incident 18.1: Unions and Management 370

Incident 18.2: Voluntary Resignations during

a Strike 370

Exercise 18.1: Need for Unions 370

Notes and Additional Readings 371

Chapter 19

Union Organizing Campaigns and Collective

Bargaining 373

Union Membership Decision 374

Reasons for Joining 374

The Opposition View 374

Union Organizing Campaign 374

Determining the Bargaining Unit 375

Election Campaigns 375

Election, Certifi cation, and Decertifi cation 376

Good-Faith Bargaining 377

Participants in Negotiations 378

Employer’s Role 378

Union’s Role 379

Role of Third Parties 379

Collective Bargaining Agreements 381

Specifi c Issues in Collective Bargaining

Agreements 382

Management Rights 382

Union Security 382

Wages and Employee Benefi ts 383

Individual Security (Seniority) Rights 384

Dispute Resolution 384

Impasses in Collective Bargaining 384

Trends in Collective Bargaining 385

Summary of Learning Objectives 386

Key Terms 387

Review Questions 387

Discussion Questions 387

Incident 19.1: Florida National Guard and NAGE 387

Incident 19.2: Retiree Benefi ts 388

Exercise 19.1: Contract Negotiations 388

Notes and Additional Readings 389

Glossary 391

Index 401

Part One

Introduction and Background of Human Resources 1. Human Resource Management: A Strategic Function

2. Equal Employment Opportunity: The Legal Environment

3. Implementing Equal Employment Opportunity

4. Job Analysis and Job Design

Im a g e S

o u rc

e /P

u n ch

S to

Chapter One

Human Resource Management: A Strategic Function

Chapter Outline

Human Resource Functions

Who Performs the Human Resource

Functions?

The Human Resource Department

Challenges for Today’s Human Resource

Managers

Diversity in the Workforce

Regulatory Changes

Structural Changes to Organizations

Technological and Managerial Changes

within Organizations

Human Resource Management in the Future

Organizational Performance and the

Human Resource Manager

Metrics and the HR Scorecard

Communicating Human Resource Programs

Guidelines for Communicating Human

Resource Programs

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 1.1: Human Resource Management

and Professionals

Incident 1.2: Choosing a Major

Exercise 1.1: Changes in Terminology

Exercise 1.2: Justifying the Human

Resource Department

Exercise 1.3: Test Your Knowledge

of HR History

Exercise 1.4: Are You Poised for Success?

Notes and Additional Readings

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne human resource management.

2. Describe the functions of human

resource management.

3. Summarize the types of assistance the

human resource department provides.

4. Explain the desired relationship

between human resource managers

and operating managers.

5. Identify several challenges today’s

human resource managers currently face.

6. Outline several potential challenges

and contributions that an increasingly

diverse workforce presents.

7. Discuss the role of human resource

managers in the future.

8. Explain how human resource managers

can affect organizational performance.

9. Summarize several guidelines to follow

when communicating human resource

programs.

Human resource management (HRM) encompasses those activities designed to provide for and coordinate the human resources of an organization. The human resources (HR) of an

organization represent one of its largest investments. In fact, government reports show that ap-

proximately 64 percent of national income is used to compensate employees. 1 The value of an or-

ganization’s human resources frequently becomes evident when the organization is sold. Often the

human resource management Activities designed to provide

for and coordinate the human

resources of an organization.

4 Part One Introduction and Background of Human Resources

purchase price is greater than the total value of the physical and fi nancial assets. This difference,

sometimes called goodwill, partially refl ects the value of an organization’s human resources. In

addition to wages and salaries, organizations often make other sizable investments in their hu-

man resources. Recruiting, hiring, and training represent some of the more obvious examples.

Human resource management is a modern term for what was traditionally referred to as per-

sonnel administration or personnel management . However, some experts believe human resource

management differs somewhat from traditional personnel management. They see personnel man-

agement as being much narrower and more clerically oriented than human resource management.

For the purposes of this book, we will only use the term human resource management .

HUMAN RESOURCE FUNCTIONS

Human resource functions refer to those tasks and duties performed in both large and small organizations to provide for and coordinate human resources. Human resource functions

encompass a variety of activities that signifi cantly infl uence all areas of an organization. The

Society for Human Resource Management (SHRM) has identifi ed six major functions of

human resource management:

1. Human resource planning, recruitment, and selection.

2. Human resource development.

3. Compensation and benefi ts.

4. Safety and health.

5. Employee and labor relations.

6. Human resource research.

Table 1.1 identifi es many of the activities that comprise each major human resource function.

Ensuring that the organization fulfi lls all of its equal employment opportunity and other govern-

ment obligations is an activity that overlays all six of the major human resource functions.

human resource functions Tasks and duties human

resource managers perform

(e.g., determining the

organization’s human resource

needs; recruiting, selecting,

developing, counseling, and

rewarding employees; acting

as liaison with unions and

government organizations;

and handling other matters of

employee well-being).

TABLE 1.1 Activities of the Major

Human Resource Functions

Human Resource Planning, Recruitment, and Selection

• Conducting job analyses to establish the specifi c requirements of individual jobs within the organization.

• Forecasting the human resource requirements the organization needs to achieve its objectives.

• Developing and implementing a plan to meet these requirements.

• Recruiting the human resources the organization requires to achieve its objectives.

• Selecting and hiring human resources to fi ll specifi c jobs within the organization.

Human Resource Development

• Orienting and training employees.

• Designing and implementing management and organizational development programs.

• Building effective teams within the organizational structure.

• Designing systems for appraising the performance of individual employees.

• Assisting employees in developing career plans.

Compensation and Benefi ts

• Designing and implementing compensation and benefi t systems for all employees.

• Ensuring that compensation and benefi ts are fair and consistent.

Safety and Health

• Designing and implementing programs to ensure employee health and safety.

• Providing assistance to employees with personal problems that infl uence their work performance.

Employee and Labor Relations

• Serving as an intermediary between the organization and its union(s).

• Designing discipline and grievance handling systems.

Human Resource Research

• Providing a human resource information base.

• Designing and implementing employee communication systems.

Chapter 1 Human Resource Management: A Strategic Function 5

Talent management is a relatively new and all-encompassing term used in the human resources fi eld. Talent management refers to the broad spectrum of HR activities involved

in obtaining and managing the organization’s human resources. This includes everything

from crafting a job advertisement to tracking an employee’s progress up the career ladder to

separation of the employee from the organization. 2 The specifi c aspects of talent management

are covered in the different chapters of this book.

In an attempt to cover each of the major areas of human resource management, this

book contains six major sections. Part 1 serves as an introduction and presents material

that applies to all major human resource functions. It contains an introductory chapter,

two chapters on equal employment opportunity, and a chapter on job analysis and design.

Part 2 explores those human resource functions specifi cally concerned with acquiring

the organization’s human resources: human resource planning, recruiting, and selecting.

Part 3 concentrates on those functions related to the training and development of the or-

ganization’s human resources. This section includes chapters on orientation and employee

training, management and organization development, career planning, and performance

appraisal. Part 4 covers the basic aspects of employee compensation: the organizational

reward system, base wage and salary systems, and incentive pay systems, and employee

benefi ts. Part 5 deals with employee well-being and labor relations. This part includes

chapters on safety and health, employee relations, unions, and the collective bargaining

process. Issues related to globalization of HR are dispersed throughout the relevant chap-

ters of the book.

Who Performs the Human Resource Functions? Most managers are periodically involved to some extent in each of the major human resource

functions. For example, at one time or another, almost all managers are involved in some

aspect of employee recruiting, selecting, training, developing, compensation, team building,

and evaluation. In small organizations, most human resource functions are performed by the

owner or by operating managers . These managers perform the human resource functions in addition to their normal managerial activities. Many medium-size and even some large

organizations use human resource generalists. A human resource generalist devotes a majority of his or her working time to human resource issues, but does not specialize in

any specifi c areas of human resource management. Large organizations usually have a

human resource department that is responsible for directing the human resource functions.

In addition to one or more human resource generalists, such a department is normally staffed

by one or more human resource specialists . These specialists are trained in one or more specifi c areas of human resource management. However, even in large organizations that

have a human resource department with many human resource generalists and specialists,

most operating managers must regularly perform and be involved with many of the human

resource functions.

The Human Resource Department As mentioned previously, most medium-size and some large organizations use human resource

generalists and do not have a human resource department. In these situations, the functions

performed by human resource generalists are essentially the same as those that would be per-

formed by a human resource department. Therefore, the following discussion also applies to

the role of human resource generalists in organizations that do not have a human resource

department.

The primary function of a human resource department is to provide support to operating

managers on all human resource matters. Thus, most human resource departments fulfi ll a

traditional staff role and act primarily in an advisory capacity. In addition to advising operating

managers, a human resource department customarily organizes and coordinates hiring and

training; maintains personnel records; acts as a liaison between management, labor, and

government; and coordinates safety programs. Therefore, accomplishing the human resource

goals of an organization requires close coordination between the human resource department

and the operating managers.

Precisely how all of the functions related to human resources are split between operating

managers and the human resource department varies from organization to organization. For

talent management The broad spectrum of

HR activities involved in

obtaining and managing

the organization’s human

resources.

operating manager Person who manages

people directly involved

with the production of an

organization’s products or

services (e.g., production

manager in a manufacturing

plant, loan manager in a bank).

human resource generalist Person who devotes a majority

of working time to human

resource issues, but does not

specialize in any specifi c areas.

human resource specialist Person specially trained in

one or more areas of human

resource management (e.g.,

labor relations specialist, wage

and salary specialist).

6 Part One Introduction and Background of Human Resources

example, the human resource department in one company may do all the hiring below a certain

level. In another company, all the hiring decisions may be made by operating managers, with

the human resource department acting only in an advisory capacity.

It is helpful to view the human resource department as providing three types of assist-

ance: (1) specifi c services, (2) advice, and (3) coordination. Table 1.2 presents some typical

examples of each of these types of assistance. Figure 1.1 illustrates the different roles a human

resource department or a human resource generalist might fi ll.

As stated earlier, a human resource department normally acts in an advisory capacity

and does not have authority over operating managers. As a result, confl ict can occur when

operating managers appear to ignore the suggestions and recommendations of the human

resource department. If the human resource department is to be effective, it must continually

cultivate good relations with operating managers. Likewise, operating managers must under-

stand the human resource functions to effectively utilize the human resource department.

CHALLENGES FOR TODAY’S HUMAN RESOURCE MANAGERS

Human resource management has expanded and moved beyond mere administration of the

traditional activities of employment, labor relations, compensation, and benefi ts. Today HRM

is much more integrated into both the management and the strategic planning process of the

organization. 3

One reason for this expanded role is that the organizational environment has become much

more diverse and complex. Compared to a workforce historically dominated by white males,

today’s workforce is very diverse and projected to become more so. Diversity in the work-

force encompasses many different dimensions, including sex, race, national origin, religion,

age, sexual orientation, and disability. Diversity in the workplace presents new and differ-

ent challenges for all managers. Other challenges are the result of changes in government

requirements, organizational structures, technology, and management approaches. Each of

these issues is discussed below.

Diversity in the Workforce Recent forecasts by the U.S. Bureau of Labor Statistics project that the total U.S. labor force

will consist of only 33 percent white, non-Hispanic males by the year 2018. 4 Table 1.3 shows

the projected numbers of entrants and leavers in the total workforce of the groups shown for

FIGURE 1.1 Three Types of Assistance

Provided by a Human

Resource Department

Specific services

Human resource

department Operating managerAdvice

Coordination

Specifi c Services Advice Coordination

Maintaining employee records Disciplinary matters Performance appraisals

Handling initial phases of employee

orientation

Equal employment

opportunity matters

Compensation matters

TABLE 1.2 Examples of the Types

of Assistance Provided

by a Human Resource

Department

Chapter 1 Human Resource Management: A Strategic Function 7

the years 2008–2018. As the table indicates, almost half the new entrants during that time

span will be women. This one dimension of diversity has many ramifi cations for organizations

in the areas of child care, spouse relocation assistance programs, pregnancy leave programs,

fl exible hours, and stay-at-home jobs.

These same projections also predict that white, non-Hispanic males will comprise fewer

than one-third of new labor force entrants for the years 2008–2018. In 2008, Hispanics repre-

sented approximately 14 percent of the labor force, with over 22 million workers. This fi gure

is expected to grow by more than 7.3 million by 2018 to a total of 29.3 million. The Asian

labor force, which is the smallest group in the U.S. labor force, is expected to have the second

highest (behind Hispanics) annual rate of growth from 2.6 percent of the total U.S. work force

in 2008 to 5.6 percent by 2018. In addition to the possibility of having differing educational

backgrounds, immigrant employees are likely to have language and cultural differences.

Organizations must begin now to successfully integrate these people into their workforces.

Almost everyone has heard the phrase “the graying of America.” By the year 2018, the

average age of employees will climb to 42.3 from 41.2 in 2008 and from 34.8 in 1978. 5 With

the aging of the overall U.S. population along with the emergence of the baby boomers, the

percentage of older employees in the labor force is also expected to increase. The increase in

the percentage of older employees will have a mixed effect. The older workforce will likely

be more experienced, reliable, and stable, but possibly less adaptable to change and retraining.

One result of this trend is that the retirement age has already begun to increase.

Group*

2008–18

2008 Entrants Leavers Stayers 2018

Number, 16 years and older

Total 154,287 37,632 25,008 129,279 166,911

Men 82,520 20,429 14,267 68,253 88,682

Women 71,767 17,203 10,741 61,026 78,229

White 125,635 27,990 21,135 104,500 132,490

Men 68,351 15,554 12,174 56,177 71,731

Women 57,284 12,436 8,961 48,323 60,759

Black 17,740 5,403 2,899 14,841 20,244

Men 8,347 2,673 1,441 6,906 9,579

Women 9,393 2,730 1,458 7,935 10,665

Asian 7,202 2,837 694 6,508 9,345

Men 3,852 1,493 450 3,402 4,895

Women 3,350 1,344 244 3,106 4,450

All other groups** 3,710 1,402 280 3,430 4,832

Men 1,970 709 202 1,768 2,477

Women 1,740 693 78 1,662 2,355

Hispanic origin 22,024 9,237 1,957 20,067 29,304

Men 13,255 5,078 1,282 11,973 17,051

Women 8,769 4,159 675 8,094 12,253

Other than Hispanic 132,263 28,395 23,051 109,212 137,607

Men 69,265 15,351 12,985 56,280 71,631

Women 62,998 13,044 10,066 52,932 65,976

White Non-Hispanic 105,209 20,847 19,222 85,987 106,834

Men 55,971 11,907 10,803 45,168 57,075

Women 49,238 8,940 8,419 40,819 49,759

*Numbers in thousands.

** The “All other groups” category includes those classed as of multiple racial origin, the race categories of American Indian and Alaska

Native, or Native Hawaiian and Other Pacifi c Islanders.

TABLE 1.3 Civilian Labor Force, 2008,

and Projected 2018;

Entrants and Leavers,

Projected 2008–18

Source: Mitra Toossi, “Labor Force

Projections to 2018: Older Workers

Staying More Active,” Monthly Labor

Review , November 2009, p. 47.

8 Part One Introduction and Background of Human Resources

Globalization of HR

Another dimension of diversity is related to the increasing globalization of many companies.

As companies become more global, diversity must be defi ned in global and not just Western

terms. 6 Defi ning diversity in global terms means looking at all people and everything that makes

them different from one another, as well as the things that make them similar. Differentiating

factors often go beyond race and language and may include such things as values, habits,

and customs. A recent survey conducted by Jeitosa Group International and the International

Association for Human Resource Information Management identifi ed the following areas as

key human resource–related challenges facing global companies:

• Cultural differences (53 percent).

• Compliance with data-privacy regulations (42 percent).

• Varying economic conditions across countries (36 percent).

• Time zone differences (32 percent).

• Legal environment (32 percent).

• International compliance (26 percent).7

Keeping diversity in mind , one key to a successful global HR program is to rely on local

people to deal with local issues. This approach only makes sense when one considers the fact

that locals almost always have a better understanding of local diversity-related issues.

Challenges and Contributions of Diversity

What challenges and contributions does the increasingly diverse workforce present? From

an overall viewpoint, organizations must get away from the tradition of fi tting employees

into a single corporate mold. 8 Everyone will not look and act the same. Organizations must

create new human resource policies to explicitly recognize and respond to the unique needs

of individual employees.

Greater diversity will not only create certain specifi c challenges but also make some important

contributions. Communication problems are certain to occur, including misunderstandings

among employees and managers as well as the need to translate verbal and written materials

into several languages. Solutions to these problems will necessitate additional training involving

work in basic skills such as writing and problem solving. An increase in organizational

factionalism will require dedicating increasing amounts of time to dealing with special interest

and advocacy groups.

In addition to creating the above challenges, greater diversity presents new opportunities.

Diversity contributes to creating an organizational culture that is more tolerant of different

behavioral styles and wider views. This often leads to better business decisions. Another

potential payoff is a greater responsiveness to diverse groups of customers.

The increasing diversifi cation of the workplace is fact. Learning to effectively manage

a diverse workforce should be viewed as an investment in the future. HRM in Action 1.1

describes how and why Scotiabank of Canada encourages diversity among its workforce.

Regulatory Changes The deluge of government regulations and laws has placed a tremendous burden on human

resource managers. Organizations face new regulations routinely issued in the areas of environ-

ment, safety and health, equal employment opportunity, pension reform, and quality of work

life. Often new regulations require signifi cant paperwork and changes in operating procedures.

Implementing these changes frequently falls on human resource managers. In addition, every

year thousands of cases relating to the interpretation of human resource issues are brought

before the courts. Once a case has been decided , human resource managers must implement

the fi ndings. Many of the new changes to health care and health insurance will have to be im-

plemented by human resource personnel and will have a signifi cant impact on their activities.

Structural Changes to Organizations In recent times, organizations have undergone many structural changes that present challenges

for human resource managers—and they continue to face such changes. Some of the structural

Organizations must successfully integrate different cultures and age groups. Photodisc/PunchStock

changes are caused by downsizing, outsourcing, rightsizing, and reengineering. Downsizing is laying off large numbers of managerial and other employees. As a result of downsizing and/

or attempts to reduce costs, many companies are outsourcing services that the human resource

department previously provided. Outsourcing is subcontracting work to an outside company that specializes in that particular type of work. Some examples of human resource services

being outsourced include retirement plan administration, payroll, training, and management

development programs. Under the right circumstances outsourcing certain HR activities can be

more effi cient and less costly. A recent survey by Hewitt Associates, a global human resources

services fi rm, of 104 organizations, approximately two-thirds of which are publicly traded

companies, found that most of the responding companies have achieved their expected benefi ts

from outsourcing. The survey also reported that one-third of the responding companies were

currently more inclined to outsource than they were two years ago. 9 Organizations that human

resource tasks are outsourced to are referred to as professional employer organizations (PEO’s).

PEO’s provide integrated services to effectively manage human resource responsibilities and

employer risks for clients. 10

downsizing Laying off large numbers

of managerial and other

employees.

outsourcing Subcontracting work to

an outside company that

specializes in that particular

type of work.

Rightsizing is the continuous and proactive assessment of mission-critical work and its staffi ng requirements. 11 Rightsizing differs from downsizing in that it is an ongoing planning

process to determine the optimal number of employees in every area of the organization. Other

companies are implementing reengineering programs. Reengineering is a fundamental re- thinking and radical redesign of business processes to achieve dramatic improvements in cost,

quality, service, and speed. 12 In essence, reengineering usually results in sweeping changes in

management and organizational structures.

Technological and Managerial Changes within Organizations New technologies and management approaches have added to the challenges facing human

resource managers. While the technological changes affecting human resource managers are

widespread, none are more dramatic than those related to information systems. In addition

to their uses in performing the traditional functions of accounting and payroll calculations,

computerized information systems are now being used to maintain easily accessible employee

data that are valuable in job placement and labor utilization. Information systems are also

being used in employee training, succession planning, and compensation management, and to

track and report affi rmative action activity. Cyberspace and the Internet are changing the way

many human resource managers operate. Today more and more human resource managers are

going online to recruit personnel, conduct research using electronic databases, send e-mail,

and engage in valuable networking and discussions.

Many organizations have implemented Web-based human resource systems that allow

employees to complete many HR-related tasks online. These systems are sometimes

referred to as electronic human resources (eHR). These self-service systems have the ad-

vantages of employee convenience, immediate response, increased accuracy, and reduced

rightsizing Continuous and proactive

assessment of mission-critical

work and its staffi ng

requirements.

reengineering Fundamental rethinking and

radical redesign of business

processes to achieve dramatic

improvements in cost, quality,

service, and speed.

ENCOURAGING DIVERSITY AT SCOTIABANK Scotiabank Group, one of Canada’s leading fi nancial

institutions, is a fi rm believer that diversity is good for

business. At Scotiabank diversity is more about having an

employee population that mirrors its customers and less

about compliance measures. Cory Garlough, vice president,

employee relationships, believes there are many additional

benefi ts to diversity: “Having a more diverse workforce

has resulted in more creativity and innovation in our

services. Input from a variety of different groups infl uences

everything from branch layout to marketing materials.”

Scotiabank operates under an “inclusive umbrella” and

reaches out to attract and retain many diverse groups of

employees through university recruitment efforts, specialized

career fairs, and targeted recruitment materials. One example

of how Scotiabank attracts diverse groups is regarding

employees with disabilities. A central budget, known as the

Scotiability Fund, has been established to pay for measures

required to accommodate these employees. This ensures

that funding is not an issue for any departments or branches

when it comes to hiring employees with disabilities. Quoting

Garlough, “Our goal is to remove barriers so that employees

who have disabilities feel comfortable that they can be

accommodated and successful.”

Source: Neil Crawford and Andres Tapia, “Diving Deeper into the Talent Pool,” Benefi ts Canada, January 2008, pp. 19–23.

HRM in Action 1.1

costs. Some examples of self-service HR-related options include payroll systems that let

employees input hours worked and requests for vacation time, payroll direct deposits that

allow employees to view current and historical pay information, and various aspects of ben-

efi ts administration.

Since the introduction of eHR in the 1990s, the fundamentals of eHR products haven’t

changed because the basic problems they address are the same. 13 However, the manner in

which the eHR products are delivered and maintained has undergone a major overhaul and vast

improvement. As part of this evolution, the costs have dropped and what used to take months

to implement can now be done in hours. Another reason for the growth of eHR products is

that today’s employees are much more receptive to being sent to a Web site for information.

Because of the widespread use of information systems and technology in the HR fi eld, specifi c

applications as related to the different HR functions are discussed throughout this book. HRM

in Action 1.2 discusses some of the lessons learned from implementing eHR at two Philips

facilities in the Netherlands.

More and more frequently, companies are using telecommuting . Options range from allowing employees to work at home one day a week to running entire projects, or even fi rms,

through electronic communication, with employees all over the country or even on different

continents working closely together, yet never meeting face to face.

Empowerment of employees and self-managed work teams are two specifi c management

approaches that are having a signifi cant impact on today’s human resource managers.

Empowerment is a form of decentralization that involves giving subordinates substantial authority to make decisions. Under empowerment, managers express confi dence in the ability

of employees to perform at high levels. Employees are also encouraged to accept personal

responsibility for their work. In organizations using self-managed work teams , groups of employees do not report to a single manager; rather, groups of peers are responsible for a

particular area or task.

The breadth of the changes in so many areas—workforce diversity, the regulatory envi-

ronment, organizational structure, new technologies, management approaches—will have a

powerful impact on today’s human resource managers.

Human Resource Management in the Future To meet the challenges of the future, tomorrow’s human resource departments must possess

different competencies and be much more sophisticated than their predecessors. 14 Given the

expanding role human resource departments must fi ll, it is essential that human resource

managers be integrally involved in the organization’s strategic and policy-making activities.

Fortunately, there are signs that this is happening in many organizations. For example, in

telecommuting Working at home by using an

electronic linkup with a central

offi ce.

empowerment Form of decentralization that

involves giving subordinates

substantial authority to make

decisions.

self-managed work teams Groups of peers are responsible

for a particular area or task.

INTRODUCING eHR AT PHILIPS ELECTRONICS AND PHILIPS NETHERLANDS Philips Electronics Netherlands and Philips Netherlands

together employ over 1,000 people in Eindhoven,

Netherlands. After eHR had been implemented at both

Philips facilities, a survey was conducted to determine the

employees’ attitudes toward the new system. The survey

was conducted online and included 99 managers and 257

nommanagers.

While many factors infl uence employee attitudes toward

eHR, two main factors were found to impact attitude towards

eHR: (1) Previous experiences with Information Technology

(IT) systems and (2) the employee’s preferences as to the

role played by HR in the organization. The fi rst fi nding

implies that for an eHR implementation to be successful, the

broader IT environment should be taken into consideration.

If the image IT already has within an organization is

positive, the eHR should be relatively easy to implement. If

not, one should expect a slow process of gaining trust and

credibility while implementing eHR. The second fi nding

indicates that employees will be more positive towards an

eHR implementation if they prefer a strategic role for HR as

opposed to a more transactional role.

One overall conclusion from the Philips’ experience is

that organizations should not leave the introduction of eHR

to the technical people alone.

Sources: “The Introduction of e-HRM at Philips: Some Lessons for Large Organizations: Don’t Leave It All to the Technical Specialists,” Human Resource Management International Digest 16, No. 2 (2008), p. 20; and M. Voermons and M. van Veldhoven, “Attitudes Towards e-HRM: An Empirical Study at Philips,” Personnel Review 36, No. 6 (2007), p. 887.

HRM in Action 1.2

Chapter 1 Human Resource Management: A Strategic Function 11

the majority of Fortune 500 companies, the head of the human resource department is an

offi cer (usually a vice president) who answers to the chief executive offi cer (CEO). In many

companies, the head of the human resource department sits on the board of directors, the plan-

ning committee, or both.

If tomorrow’s human resource managers are to earn the respect of their colleagues and

top management, they must overcome certain negative impressions and biases sometimes

associated with human resource management. They can do so in several ways. First, human re-

source managers should become well-rounded businesspeople. In addition to having a sound

background in the basic disciplines of the profession, human resource professionals need to

understand business complexities and strategies. 15 The following suggestions can help human

resource managers become more familiar with their businesses:

• Know the company strategy and business plan.

• Know the industry.

• Support business needs.

• Spend more time with the line people.

• Keep your hand on the pulse of the organization.

• Learn to calculate costs and solutions in hard numbers. 16

A 2007 survey of 589 HR professionals by the Society for Human Resource Management

(SHRM) found that nearly two-thirds of HR professionals viewed their department’s role as

equally strategic and transactional; only one-third reported their department’s role as prima-

rily transactional. HR professionals from small organizations were more likely than those

from large organizations to report that they viewed their HR functions as being primarily

transactional.17 A 2008 poll also conducted by SHRM of 345 randomly selected HR profes-

sionals found that 58 percent of the respondents believed that HR’s role in their organization’s

strategic planning had increased signifi cantly.18 A British survey published in 2009 of 269 HR

professionals reported that 65 percent of the respondents believed that the HR profession

was more strategic than when they began their careers.19 Outsourcing many of the clerical

functions, eHR, and the use of other computerized information systems (discussed further in

Chapter 5) have all contributed to making today’s HR managers more strategic.

HR professionals who thoroughly understand their businesses will help overcome the

common idea that human resource people are unfamiliar with the operating problems and

issues facing the organization. Figure 1.2 lists several pertinent questions that human resource

managers should be able to answer to develop greater understanding of the organization’s

business strategies. HRM in Action 1.3 describes why and how Cardinal Health is expanding

the strategic role of its HR functions.

Human resource managers should also become fully knowledgeable about present and

future trends and issues in HR and other related fi elds. This will help them guard against

becoming enamored with passing fads or ineffective techniques.

Finally, human resource managers should promote effective human resource utilization

within the organization. Rather than taking a moralistic approach when dealing with operating

managers, human resource managers should stress the importance of increasing profi ts

through effectively using the organization’s human resources. In this light, human resource

managers should learn to be proactive and seize opportunities to demonstrate how they can

positively affect the bottom line.

FIGURE 1.2 Questions for

Understanding the

Organization’s Business

Strategy

Source: Adapted from Daphne Woolf,

“The Long Road to the Executive

Boardroom,” Canadian HR Reporter ,

June 17, 2002, pp. 7–8.

• What are the goals of the organization over the next year, 3 years, 5 years, and 10 years?

• How would you describe the organization’s core business?

• How does your organization compare with competitors in market share and customer service?

• Will the company be growing via merger and acquisition or from internal growth?

• Will growth be local, national, or global?

• Will growth be from expansion of current businesses or from an expansion in scope?

• Instead of growth, will there be downsizing and if so, why?

• What are the organization’s revenue objectives over the short and long terms?

ORGANIZATIONAL PERFORMANCE AND THE HUMAN RESOURCE MANAGER

There is no doubt that human resource managers spend considerable time working on prob-

lems and concerns related to the human side of the organization. Because of this, many people

perceive human resource managers as being concerned only with matters that relate directly to

the human side of the organization. Contrary to this view, human resource managers can have

a direct impact on organizational performance in a number of specifi c ways:

1. Reducing unnecessary overtime expenses by increasing productivity during a normal day.

2. Staying on top of absenteeism and instituting programs designed to reduce money spent

for time not worked.

3. Eliminating wasted time by employees through sound job design.

4. Minimizing employee turnover and unemployment benefi t costs by practicing sound

human relations and creating a work atmosphere that promotes job satisfaction.

5. Installing and monitoring effective safety and health programs to reduce lost-time

accidents and keep medical and workers’ compensation costs low.

6. Properly training and developing all employees so they can improve their value to the

company and do a better job of producing and selling high-quality products and services

at the lowest possible cost.

7. Decreasing costly material waste by eliminating bad work habits and attitudes and poor

working conditions that lead to carelessness and mistakes.

8. Hiring the best people available at every level and avoiding overstaffi ng.

9. Maintaining competitive pay practices and benefi t programs to foster a motivational

climate for employees.

10. Encouraging employees, who probably know more about the nuts and bolts of their jobs

than anyone else, to submit ideas for increasing productivity and reducing costs.

11. Installing human resource information systems to streamline and automate many human

resource functions. 20

Metrics and the HR Scorecard As a direct result of increasingly available information and computer systems, the human

resource department can use numerous strategies to contribute to the bottom line. 21 The basic

idea behind these strategies is to translate knowledge of human resources into terms that have

tangible and recognizable economic benefi ts, especially to operating managers.

Metrics refers to any set of quantitative measures used to assess workforce performance. Examples of metrics that HR might use include such things as analysis of the cost per hire,

metrics Any set of quantitative

measures used to assess

workforce performance.

HR TAKING A MORE STRATEGIC ROLE AT CARDINAL HEALTH Cardinal Health, based in Dublin, Ohio, ranks 19 th on the

Fortune 500 list and is a major provider of health-care

products, services, and technologies. Forty-two percent of

Cardinal’s 55,000 employees live outside the United States.

Corporate leaders at Cardinal recently decided that the

company’s competitive advantage lies in its people. As a result

of their decisions, the company is concentrating its human

resource efforts on more strategic issues and outsourcing the

more administrative functions. Cardinal is placing human

resource “business partners” across the company who focus

on strategic activities such as fi nding and developing talent

while establishing new HR fi eld operations. Cardinal has

outsourced the more administrative HR functions by signing

a multiyear contract with ExcellerateHRO, which is jointly

owned by EDS and Towers Perrin.

Cardinal’s management believes that these changes will

enable the company to make HR a more strategic player

and greatly increase its global HR capabilities. Cardinal’s

new perspective on HR comes in the aftermath of very rapid

growth, zooming from $7.8 billion to $74.9 billion over the

past 10 years.

Source: Mark Schoeff Jr., “Cardinal Health HR to Take More Strategic Role,” Workforce Management , April 24, 2006, pp. 7–8.

HRM in Action 1.3

Chapter 1 Human Resource Management: A Strategic Function 13

average length of time to fi ll a position, training cost per employee, turnover cost per employee,

and new-hire performance by recruiting strategy.

While the HR metrics discussed in the previous paragraph relate specifi cally to measures

about people in the organization, there is also a need to measure the overall contribution of the

HR function to the well-being of the organizations. The HR scorecard is one method used to do this.

The HR scorecard is basically a modifi ed version of the balance scorecard system applied

to the human resources function. The balance scorecard system is a measurement and control

system that uses a mix of quantitative and qualitative measures to evaluate performance. The

HR scorecard is discussed in more depth in Chapter 11.

COMMUNICATING HUMAN RESOURCE PROGRAMS

Communicating human resource programs has been compared to marketing a new product. 22

Consider the fact that approximately 90 percent of all new consumer products fail. In some

cases, the failure is due to a poor product that does not fi ll a current need. In other cases

however, the product fails because of a breakdown in the marketing system. The product may

have been inadequately researched , the salespeople may not have been properly trained , the

distribution system may have been poor, or the overall marketing strategy may have been

misguided. Unfortunately, many well-designed human resource programs also fail because

they are not properly “marketed.” In today’s world of global companies, communicating with

employees located throughout the world can present even greater problems. A recent survey

by Watson Wyatt found that U.S. companies “are stingy when it comes to allocating human

and fi nancial resources to communicate with their workforces overseas.” 23 Communication is much more than talking, speaking, and reading. True communication takes place when an understanding has been transferred from one party or source to another.

Therefore, communication can be defi ned as the transfer of information that is meaningful to

those involved.

In this light, each and every one of the human resource functions discussed in this book

requires some degree of effective communication to succeed. For example, think of the impor-

tant role communication plays in career planning, recruiting, and performance appraisal. In all

too many instances, human resource managers spend tremendous amounts of time developing

very good programs, only to subsequently do a poor job of communicating them. The end

result is often great programs that go largely unused.

A human resource manager’s fi rst step in becoming an effective communicator is to de-

velop an appreciation for the importance of communication. The problem is not that human

resource managers tend to belittle the importance of communication; rather, they often fail to

think consciously about it.

Guidelines for Communicating Human Resource Programs As just discussed, it is helpful for human resource managers to develop a marketing approach

when implementing their programs. Even when this is successfully done, numerous other

communication-related guidelines remain to follow. Some of these are discussed next. 24

Avoid communicating in peer group or “privileged-class” language . The level of

communication should be determined by the receiving audience and not by the instigator

of the communication. Take the common procedure for developing employee benefi t

information. Often a highly educated writer makes a fi rst draft and gives it to the

department head. The department head, being a specialist, then adds a few “clarifying”

remarks. The company lawyer and perhaps an actuary or an insurance person then add

more explanations to guard against liability and to be legally correct. Thus, the fi nal

document may be accurate and legal, but also barely understood by the employees for

whom it is intended! The key is to consciously remember for whom the communication

is intended.

Don’t ignore the cultural and global aspects of communication . Be careful with words,

symbols, and expressions. Today’s workforce is much more culturally sensitive and

HR scorecard A measurement and control

system that uses a mix of

quantitative and qualititative

measures to evaluate

performance.

communication Transfer of information that is

meaningful to those involved.

14 Part One Introduction and Background of Human Resources

global than it was one or two decades ago. Expressions like “They wear the black hats”

or “You act like an old lady” can easily be taken out of context and offend someone in the

audience.

Back up communications with management action . The old saying “People watch what

you do and not what you say” is certainly true with regard to employee communications.

Promises made either orally or in writing must be backed up by actions if they are to succeed.

Periodically reinforce employee communications . Most communications tend to be

forgotten unless they are periodically reinforced. This is especially true with many

personnel-related communications. It is a good idea, for example, to periodically remind

employees of the value of the benefi ts they receive.

Transmit information and not just data . Data can be defi ned as “the raw material from which information is developed; it is composed of acts that describe people, places,

things, or events that have not been interpreted.” Data that have been interpreted and that

meet a need of one or more managers are called information . Employees receive piles of data from numerous sources, but until the data have been interpreted, they are of little

value. Human resource managers need to guard against transmitting numbers, statistics,

and other data that have little meaning without an accompanying interpretation.

Don’t ignore the perceptual and behavioral aspects of communication . Try to anticipate

employee reactions to communications and act accordingly. For example, it might be

a good strategy to informally separate older employees from younger employees when

introducing a new pension program through employee meetings. It would only be natural

for these different groups to have different questions and levels of interest.

The preceding suggestions largely involve good common sense. It is not that human re-

source managers are not practical; rather, they often do not take the time to think through a

communication. One good approach is to ask, “How could this message be misinterpreted?” The

answer to this question should then be taken into account when structuring the communication.

The Web-based human resource systems (eHR) that many organizations have implemented

(discussed earlier in this chapter) have greatly helped to communicate human resource

programs. One survey conducted by Towers Perrin reported that 67 percent of the more than

200 respondents said that Web-based self-services for HR improved employee awareness and

appreciation of company-sponsored HR programs. 25

1. Defi ne human resource management .

Human resource management encompasses those activities designed to provide for and

coordinate the human resources of an organization. Human resource management is also

a modern term for what has traditionally been referred to as personnel administration or

personnel management.

2. Describe the functions of human resource management .

Human resource functions are those tasks and duties performed in large and small

organizations to provide for and coordinate human resources. Human resource functions

include the following:

a. Human resource planning, recruitment, and selection.

b. Human resource development.

c. Compensation and benefi ts.

d. Safety and health.

e. Employee and labor relations.

f. Human resource research.

3. Summarize the types of assistance the human resource department provides .

The primary function of the human resource department is to provide support to operating

managers of all human resource matters. In general terms, the human resource department

provides three types of assistance: (1) specifi c services, (2) advice, and (3) coordination.

data Raw material from which

information is developed;

composed of facts that describe

people, places, things, or

events and that have not been

interpreted.

information Data that have been interpreted

and that meet a need of one or

more managers.

Summary of Learning Objectives

Chapter 1 Human Resource Management: A Strategic Function 15

4. Explain the desired relationship between human resource managers and operating

managers .

The human resource department normally acts in an advisory capacity and does not have

authority over operating managers. To be effective, human resource managers must continually

cultivate good relations with operating managers. Likewise, operating managers must under-

stand the human resource functions to effectively utilize the human resource department.

5. Identify several challenges today’s human resource managers currently face .

Today’s human resource managers currently face several challenges. Some of the more

signifi cant issues include an increasingly diverse workforce and changes in government

regulations, organization structures, technology, and managerial approaches.

6. Outline several potential challenges and contributions that an increasingly diverse

workforce presents .

An increasingly diverse workforce creates specifi c challenges in the areas of communication,

more training, and potentially higher factionalism. On the positive side, increased diversity

will contribute to an organizational culture that is more tolerant of different views,

which may lead to better decisions. Another potential payoff is greater organizational

responsiveness to diverse groups of customers.

7. Discuss the role of human resource managers in the future .

Human resource managers are predicted to play an increasingly important role in the

management of organizations. In fulfi lling this role, human resource managers should

become thoroughly familiar with the business and business strategies, be knowledgeable

about present and future trends, and learn to emphasize the impact human resources can

have on organizational performance.

8. Explain how human resource managers can affect organizational performance .

Human resource managers can have a direct impact on organizational performance in

many ways. Some of them include reducing unnecessary overtime expenses by increasing

productivity, instituting programs to reduce absenteeism, eliminating wasted time through

sound job design, minimizing employee turnovers and unemployment costs by practicing

sound human relations and creating a work atmosphere that promotes job satisfaction,

installing and monitoring effective safety and health programs, properly training and

developing employees, decreasing costly material waste by eliminating bad work habits

and attitudes, hiring the best people available, maintaining competitive pay practices and

benefi t programs, encouraging employees, and installing human resource information

systems to streamline many human resource functions.

9. Summarize several guidelines to follow when communicating human resource

programs .

Overall, it is helpful for human resource managers to develop a marketing approach when

implementing and communicating their programs. In addition, they can follow several spe-

cifi c guidelines: avoid communicating in peer group or privileged-class language, remem-

ber the cultural aspects of communication, back up communications with management

action, periodically reinforce employee communications, transmit information and not

just data, and consider the perceptual and behavioral aspects of communication.

communication, 13

data, 14

downsizing, 9

empowerment, 10

HR scorecard, 13

human resource functions, 4

human resource generalist, 5

human resource

management, 3

human resource specialist, 5

information, 14

metrics, 12

operating manager, 5

outsourcing, 9

reengineering, 9

rightsizing, 9

self-managed work teams, 10

talent management, 5

telecommuting, 10

Key Terms

16 Part One Introduction and Background of Human Resources

1. What is human resource management? Distinguish between a human resource generalist

and a human resource specialist.

2. What functions does a human resource department normally perform? Why are these

functions important in today’s organizations?

3. What does the term talent management mean?

4. List several challenges facing today’s human resource managers.

5. What is meant by an “increasingly diverse workforce”?

6. Differentiate among downsizing, outsourcing, rightsizing, and reengineering.

7. What are Web-based human resource systems?

8. What are some things human resource managers should do to become more familiar with

the organization’s business?

9. Differentiate between the terms HR metrics and HR scorecard .

10. List several guidelines to follow when communicating human resource programs.

11. Name several specifi c ways human resource managers can positively affect an

organization’s profi ts.

Review Questions

Discussion Questions

1. Some people believe human resource management is an area reserved for those “who can’t

do anything else.” Why do you think this belief has emerged? Is there any factual basis for it?

2. Describe some current trends that you believe will have an impact on human resource

management in the next 10 years.

3. Many human resource managers claim to love their work because they like to work

with people. Do you think liking people is the most important ingredient in becoming a

successful human resource manager?

4. As a human resource manager, how might you go about convincing top management that

you should be heavily involved in the company’s strategic planning process?

Incident 1.1

Human Resource Management and Professionals

You are a senior member of a national law fi rm in New York City. The managing partner

of the fi rm has asked you to head up the southern branch in Raleigh, North Carolina. This

branch is 1 of 10 under the main offi ce. On the whole, the fi rm has been successful since

its establishment in the mid-1950s, but in the last fi ve years, many of the younger staff have

elected to leave the fi rm. The managing partner is convinced the problem is not salary, be-

cause a recent survey indicated that the fi rm’s salary structure is competitive with that of

other major fi rms. However, he requests that you study this matter fi rsthand in your new

assignment.

After getting settled in Raleigh, one of your fi rst projects is to meet with the four senior

managers to determine why the branch has had such a high attrition rate among the younger

staff. Harding Smith, age 45, states that the younger staff lacks dedication and fails to appre-

ciate the career opportunities the fi rm provides. Wilma Thompson, age 50, says the younger

staff members are always complaining about the lack of meaningful feedback on their per-

formance, and many have mentioned that they would like to have a sponsor in the organiza-

tion to assist with their development. Thompson further explains that the fi rm does provide

performance ratings to staff and the previous manager had always maintained an open-door

policy. Brian Scott, age 40, says he has received complaints that training is not relevant and

is generally dull. He explains that various persons in the fi rm who worked with training from

time to time acted mainly on guidance from New York. Denise Rutherford, age 38, says she

believes the root of the problem is the lack of a human resource department. However, she

says that when the idea was mentioned to the managing partner in New York, it was totally

rejected.

Web site: Society for Human Resource Management www.shrm.org

Chapter 1 Human Resource Management: A Strategic Function 17

EXERCISE 1.1

Changes in

Terminology

Go to your college or university library or go online and search under the terms Personnel Man- agement and Human Resources Management. Based on your fi ndings, approximately when was the term Personnel Management replaced by the term Human Resource Management? Why do you think this change occurred? Be prepared to present your fi ndings to the class.

Questions

1. What do you think about the idea of a human resource department in a professional offi ce?

2. How would you sell the idea of a human resource department to the managing partner?

3. What type of organizational structure would you propose?

Incident 1.2

Choosing a Major

Tom Russell is a junior in the school of business administration at a large midwestern university.

Tom, who is an honor student, hasn’t fully decided what his major should be. He has considered

majoring in management, but just can’t get excited about the fi eld; it seems to be too general.

Tom’s fi rst course in management did appeal to him; however, this was largely because of

the professor. Tom decided to talk to this professor about his dilemma. The following conver-

sation occurred:

Tom: Professor, I would like your advice on selecting a major fi eld of study. Right now,

I just don’t know what to do.

Professor: Tom, just let me say that you are making an important decision, and your

concern is justifi ed. How many courses have you taken in the School of Business

Administration?

Tom: Only your introductory course in management, a basic course in marketing, and a

statistics course, I do know that I don’t want to major in statistics!

Professor: How about majoring in human resource management?

Tom: I don’t think so. That is basically a staff job that can’t really lead anywhere.

Professor: Hold on, Tom, I think I’d better tell you a little more about human resource

management.

Questions

1. If you were the professor, what would you tell Tom?

2. Specifi cally, what future trends do you see that might help persuade Tom to major in human

resource management?

EXERCISE 1.2

Justifying the

Human Resource

Department

Assume you work in the human resource department of a medium-size manufacturing company (annual sales of $300 million). The company has been unionized for many years but has never had a strike. The president of the company has just requested that all departments develop a budget for the coming fi scal year and be prepared to justify their budget requests. As part of this justifi cation, your boss, the director of human resources, has just asked you to prepare a list of at least 10 reasons why the human resource department and its performance are important to the

success of the entire company. Be prepared to present your list to the class.

EXERCISE 1.3

Test Your Knowledge

of HR History *

Each of these events happened in the 20th century. See if you can put them in the correct chrono- logical order. For a greater challenge, name the year that the event occurred. Search for clues with your Web browser. Hint: Summaries of many labor laws can be found at the U.S. Department of

Labor, Major Laws & Regulations Enforced by the Department of Labor, Web site.

18 Part One Introduction and Background of Human Resources

A. The minimum wage is raised to $7.25 an hour.

B. Executive Order 11246 is issued to provide for equal employment opportunity for those working for government contractors.

C. President Clinton signs the Family and Medical Leave Act (FMLA).

D. Congress passes the Railway Labor Act, requiring employers to bargain with unions.

E. Congress passes the Fair Labor Standards Act (FLSA), banning child labor.

F. Congress passes the Occupational Safety and Health Act.

G. President Truman seizes the steel industry when steel companies reject recommendations made by the Wage Stabilization Board.

H. The Uniformed Services Employment and Reemployment Rights Act (USERRA) is signed to protect workers who are called to active military duty.

I. Congress passes the Employment Retirement Income Security Act regulating all private pension plans.

J. The North American Free Trade Agreement is passed.

K. Congress passes the Equal Pay Act prohibiting wage differentials based on gender for workers covered by the FLSA.

L. President Reagan signs a welfare reform bill requiring single parents with children over 3 years old to get regular jobs.

M. United States enters World War II.

N. Frances Perkins becomes secretary of labor and the fi rst woman named to a presidential cabinet.

* Source: Adapted from Workforce , Workforce Extra Supplement, October 1998, p. 7, and the U.S.

Department of Labor, Major Laws & Regulations Enforced by the Department of Labor, Web site.

Web site www.dol.gov/dol/compliance/

compliance-majorlaw.htm

EXERCISE 1.4

Are You Poised

for Success? **

As discussed in this chapter, a successful career in HR demands a broader range of skills and experiences than ever before. While designed for people currently employed in HR positions, the following exam provides good insights into what is necessary to succeed in HR today. If you are currently employed in HR, take the exam and see how well you are doing. If you are not currently in HR, go over the exam questions to learn how you might prepare yourself for a career in HR.

I . Starting Points (10 points)

(10 points if you have a managerial, directorial, or VP title) _____

II . Knowledge of General Business and Finance (10 points)

During the past six months, have you initiated conversations with the CFO or other fi nance executive to discuss the fi nancial implications of HR programs? If yes, add 2 points. _____

Have you completed some general business courses at the college level? If yes, add 2 points. _____

Do you have an MBA? If yes, add 2 points. _____

Do you develop the fi rst draft of the company’s annual HR budget and then advocate for it during the corporate budget-setting sessions? If yes, add 2 points. _____

Did you meet HR budget goals (⫹ or ⫺5%) during the most recent fi scal year? If yes, add 2 points. _____

III . Mastery of HR Disciplines (10 points)

Have you initiated, developed, and implemented a specifi c HR program within a specifi c HR niche (e.g., training or compensation)? If yes, add 1 point for each program, to a maximum of 4 points. _____

Before assuming your present position, did you hold a title of manager or director of a specifi c HR function, such as benefi ts or staffi ng? If yes, add 2 points for each title, to a maximum of 4 points. _____

Have you mentored someone else in HR who was designing a program within a specifi c HR niche? If yes, add 2 points. _____

Chapter 1 Human Resource Management: A Strategic Function 19

IV . Knowledge of Your Organization (10 points)

Can you state your company’s earnings for the most recent fi scal year? If yes, add 1 point . _____

Can you state your company’s profi t (or loss) for the most recent fi scal year? If yes, add 1 point. _____

Can you identify your organization’s primary product or service lines and the relative revenue generated by each? If yes, add 1 point. _____

Can you identify your chief competitors and state your competitive position relative to them? If yes, add 2 points. _____

Do you report directly to the CEO? If yes, add 2 points. _____

During the past year, have you initiated a meeting or meetings with a line manager or other colleague at the management level for the express purpose of learning about their business needs or objectives? If yes, add 3 points. _____

V . Cross-Functional Experience (10 points)

Have you ever “shadowed” another executive or accepted a temporary assignment to gain a better understanding of another business function? If yes, add 2 points. _____

Have you ever held a position in an industry outside the one in which you’re presently working? If yes, add 4 points. _____

Have you ever held a position in a discipline outside HR (e.g., marketing, communication, or fi nance)? If yes, add 4 points. _____

VI . International/Cross-Cultural Experience (10 points)

Have you ever participated in a cross-cultural training program? If yes, add 1 point. _____

Have you ever served as a member of a task force addressing a global business issue? If yes, add 1 point. _____

Have you ever traveled abroad? If yes, add 1 point for each country you’ve visited, to a maximum of 3 points. _____

Have you ever held an overseas assignment of six months or longer? If yes, add 5 points. _____

VII . Mentors (10 points)

Have you had one or more mentors during your career? If yes, add 4 points. _____

Have any of your mentors been

a. the opposite gender? _____

b. another race or ethnic group? _____

c. in a discipline other than HR? _____

Add 2 points for each yes answer.

VIII . Career Decisions (10 points)

Have you developed a specifi c career goal for yourself? If yes, add 4 points. _____

Have you initiated activities intended to give you the skills/responsibility needed to progress toward your career goal? If yes, add 3 points. _____

Have you sought or accepted a lateral transfer for the purpose of expanding your career opportunities? If yes, add 3 points. _____

IX . Technology (10 points)

Have you directed a project in which the application of technology (computers, voice-response systems, etc.) improved HR’s value or productivity? If yes, add 5 points. _____

Have you been a member of a group or task force responsible for applying technology to solve an HR-related issue? If yes, add 3 points. _____

Do you use a computer yourself in the course of doing your job? If yes, add 1 point. _____

20 Part One Introduction and Background of Human Resources

Do you consider yourself conversant in the current technological lingo (e.g., client/server, open architecture)? If yes, add 1 point. _____

X . Continual Learning (10 points)

Do you subscribe to and read at least two business/professional publications? If yes, add 2 points. _____

Do you keep current on general issues that have implications for HR (e.g., health care reform)? If yes, add 2 points. _____

Do you periodically take classes or attend seminars in areas not directly related to HR, such as creativity or statistics? If yes, add 2 points. _____

Do you participate in professional organizations or attend conferences specifi cally directed to HR executives? If yes, add 2 points. _____

Do you regularly engage in right-brain activities, such as reading for pleasure, going to museums, or attending performing-arts events? If yes, add 2 points. _____

HOW DID YOU DO? To calculate your score, add all the numbers you entered on the spaces provided.

Enter Subtotal Here _____

Review the score sheet. For each section in which you gave yourself no points (for example, you earned no points under Career Decisions or Technology), deduct 10 points from the subtotal above.

Enter the Total Points Deducted Here _____

Subtract the deductions (if any) from the subtotal.

Enter the Grand Total Here _____

85–100 Congratulations! You’re clearly a leader in HR.

70–84 The foundation you’ve built for your career is solid. You’re on the way to the top.

55–69 You’ve got a good start; additional experience in one or two key areas should help you get to the top. Set specifi c goals.

40–54 You have valuable experience in some key areas, but to get to the top you need additional experience. Start now.

0–39 Getting to the top in HR will be very diffi cult.

**Source: Adapted from “Are You Poised for Success in the 90’s? Take the Quiz and Find Out,” Personnel

Journal , June 1994, pp. 72–73.

Notes and Additional Readings

1. U.S. Department of Commerce, Bureau of Economic Analysis, NIPA Tables, Table 1.12, www.bea.

gov/bea/dn/nipaweb/Tableview.asp . Accessed January 5, 2010.

2. “Many Actions Add Up to Successful Talent Management,” HR Focus , July 2006, pp. 3–4.

3. Laurence O’Neil, “Executing Strategies for a New Way of Doing Business,” HR Magazine,

June 2009, p. 12; John Hobel, “The Time Is Right for Strategic HR,” Canadian HR Reporter ,

October 23, 2006, p. 30; and “How Strategic Is HR Now? The Latest Research Shows Progress,” HR

Focus , December 2006, pp. 3–5.

4. Mitra Toossi, “Labor Force Projections to 2018: Older Workers Staying More Active,” Monthly

Labor Review , November 2009, pp. 44–45.

5. Ibid ., p. 47.

6. Ibid ., p. 46.

7. John M. Ivancevich and Jacqueline A. Gilbert, “Diversity Management: Time for a New Approach,”

Public Personnel Management 29, No. 1 (Spring 2000), pp. 75–92.

8. Much of this section is drawn from Benson Rosen and Kay Lovelace, “Piecing Together the

Diversity Puzzle,” HR Magazine , June 1991, pp. 78–84; and John D. Wheeler, “Managing Workforce

Diversity,” Tax Executive , November/December 1997, pp. 493–95.

Chapter 1 Human Resource Management: A Strategic Function 21

9. “HR Outsourcing Trends and Insights 2009,” www.hewitt.com. Accessed January 6, 2010.

10. “What Is a Professional Employer Organization?” www.NAPEO.org. Accessed January 6, 2010.

11. Duncan Davidson, Duane Dickson, and Jane Trice, “Rightsizing for Success,” Business Forum ,

Winter–Spring 1993, pp. 10–12.

12. M. Hammer and J. Champy, Reengineering the Corporation: A Manifesto for Business Revolution

(New York: HarperCollins, 1993).

13. Much of this paragraph is drawn from Alan Cohen, “New Electronic HR Tools Are Hitting Their

Stride,” National Underwriter , February 9, 2004, pp. 27–28.

14. Bradford S. Bell, Sae-Won Lee, and Sarah K. Yeung, “The Impact of E-HR on Professional

Competencies in HRM: Implications for the Development of HR Professionals,” Human Resource

Management , Fall 2006, pp. 295–308; and Thomas W. Garvey and Brian S. Klass, “The Use and

Impact of eHR: A survey of HR Professionals,” People and Strategy 31, No. 3 (2008), pp. 50–55.

15. “Tips for Expanding Your Corporate Role,” HR Focus , September 2000, p. 1.

16. Phil Farish, “Broader View Needed,” Personnel Administrator , February 1987, p. 27; and Donald

M. Burrows, “Increase HR’s Contribution to Profi ts,” HR Magazine , September 1996, pp. 103–10.

17. HR’s Evolving Role in Organizations and Its Impact on Business Strategy (Alexandria, Va.; The

Society for Human Resource Management, 2008), p. 27.

18. “Changes in the Human Resources Profession in the Last 10 Years,” SHRM weekly online survey,

March 18, 2008, accessed January 7, 2010.

19. Helen Williams, “HR Careering Ahead,” Personnel Today, June 16, 2009, pp. 14–15.

20. Todd Raphael, “Think Twice: HR and an RX for the Bottom Line,” Workforce , October 2001, p. 104;

Samuel Greengard, “Increase the Value of Your Intranet,” Workforce , March 1997, pp. 80–90.

21. Samuel Greengard, “Catch the Wave,” Personnel Journal , July 1995, p. 59; Shari Caudron, “How

HR Drives Profi ts,” Workforce , December 2001, pp. 26–31, and Alan Cohen, “New Electronic HR

Tools Are Hitting Their Stride,” Natural Underwriter , February 9, 2004, pp. 27–28.

22. Joseph A. Banik, “The Marketing Approach to Communicating with Employees,” Personnel

Journal , October 1985, pp. 62–64; Joe Pasqueletto, “An HRS Marketing Strategy,” Personnel

Journal , June 1989, pp. 62–71.

23. Gina Ruiz, “Communication Often Bypasses Those Overseas,” Workforce Management , February 13,

2006, pp. 7–8.

24. Much of this section is drawn from Banik, “The Marketing Approach,” pp. 62–68.

25. “Three New Surveys Track the Growth of eHR,” HR Focus , April 2002, pp. 4–6.

Chapter Two

Equal Employment Opportunity: The Legal Environment

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne equal employment opportunity.

2. Describe the intent of the Equal Pay

Act of 1963.

3. Describe the intent of Title VII of the

Civil Rights Act of 1964.

4. Defi ne disparate treatment and

disparate impact.

5. Discuss the purpose of the Age

Discrimination in Employment

Act of 1967.

6. Discuss the purpose of the

Rehabilitation Act of 1973.

7. Describe the intent of the Vietnam-Era

Veterans Readjustment Assistance Act

of 1974.

8. Discuss the purpose of the Pregnancy

Discrimination Act of 1978.

9. Describe the intent of the Immigration

Reform and Control Act of 1986.

10. Describe the purpose of the Americans

with Disabilities Act of 1990.

11. Explain the purpose of the Older

Workers Benefi t Protection Act of 1990.

12. Discuss the intent of the Civil Rights

Act of 1991.

13. Explain the intent of the Family and

Medical Leave Act of 1993.

14. Discuss the purposes of Executive

Orders 11246, 11375, and 11478.

15. Describe the signifi cance of the

following Supreme Court decisions:

Griggs v. Duke Power, McDonnell

Douglas v. Green, Albemarle Paper

v. Moody, University of California

Regents v. Bakke, United Steelworkers

of America v. Weber, Connecticut

v. Teal, Memphis Firefi ghters, Local

1784 v. Stotts, City of Richmond v.

J. A. Crosan Company, Wards Cove

v. Atonio, Martin v. Wilks, Adarand

Contractors v. Peña, State of Texas

v. Hopwood, and University of

Michigan’s admissions procedures.

16. Name the federal agencies that have

primary responsibility for enforcing

equal employment opportunity.

Chapter Outline

Equal Employment Opportunity Laws

Equal Pay Act (1963)

Title VII, Civil Rights Act (1964)

Age Discrimination in Employment

Act (1967)

Rehabilitation Act (1973)

Vietnam-Era Veterans Readjustment

Assistance Act (1974)

Pregnancy Discrimination Act (1978)

Immigration Reform and Control Act (1986)

Americans with Disabilities Act (1990)

Older Workers Benefi t Protection Act (1990)

Civil Rights Act (1991)

Family and Medical Leave Act (1993)

Executive Orders 11246, 11375, and 11478

State and Local Government Equal

Employment Laws

24 Part One Introduction and Background of Human Resources

Two of the most important external infl uences on human resource management are government

legislation and regulations and court interpretations of the legislation and regulations. Numerous

laws infl uence recruitment and selection of personnel, compensation, working conditions and

hours, discharges, and labor relations. Whenever appropriate, this text describes government

legislation and its court interpretations as they relate to the specifi c area of human resource

management being discussed.

However, because equal employment opportunity is so important and covers so many areas

of human resource management, two separate chapters are devoted to the topic. This chapter

describes the legal framework of equal employment opportunity. Chapter 3 describes specifi c

organizational requirements for implementing equal employment opportunity.

EQUAL EMPLOYMENT OPPORTUNITY LAWS

In 1865, the Thirteenth Amendment to the U.S. Constitution abolished slavery. In addition,

Congress passed the Civil Rights Act of 1866, the Fourteenth Amendment to the U.S.

Constitution in 1868, and the Civil Rights Act of 1871. Yet Americans continued to live and

work in a dual society, one black and one white. Businesses often refused to hire black workers

or, if they did, placed them in low-paying and low-skilled jobs.

Discrimination against women was based on the view that men should work to support

their families and women should care for their families at home. Furthermore, it was a rather

commonly held belief that women were not equipped to do certain jobs.

Discrimination in society and in the workplace gave impetus to the civil rights movement,

which in turn pressured the U.S. Congress to pass laws designed to eliminate discrimination.

As a result, Congress has passed numerous laws to ensure equal employment opportunity.

Unfortunately, a common misconception is that equal employment opportunity means that an

employer must give preference to women and minorities in the workplace. However, equal employment opportunity refers to the right of all people to work and to advance on the basis of merit, ability, and potential.

Equal Pay Act (1963) The Equal Pay Act of 1963 prohibits sex-based discrimination in rates of pay for men and women working on the same or similar jobs. Specifi cally, the act states:

No employer having employees subject to [the minimum wage provisions of the Fair Labor

Standards Act] shall discriminate, within any establishment . . ., between employees on the basis

of sex by paying wages to employees in such establishment at a rate less than the rate at which

he pays wages to employees of the opposite sex in such establishment for equal work on jobs the

performance of which requires equal skill, effort, and responsibility, and which are performed

under similar working conditions.

equal employment opportunity The right of all people to work

and to advance on the basis of

merit, ability, and potential.

Equal Pay Act Prohibits sex-based

discrimination in rates of pay

for men and women working

on the same or similar jobs.

Landmark Court Cases

Griggs v. Duke Power Company

McDonnell Douglas v. Green

Albemarle Paper v. Moody

University of California Regents v. Bakke

United Steelworkers of America v. Weber

Connecticut v. Teal

Memphis Firefi ghters, Local 1784 v. Stotts

City of Richmond v. J. A. Crosan Company

Wards Cove v. Atonio

Martin v. Wilks

Adarand Contractors v. Peña

State of Texas v. Hopwood

University of Michigan’s Admission

Procedures

Enforcement Agencies

Equal Employment Opportunity Commission

Offi ce of Federal Contract Compliance

Programs

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 2.1: Debate over Retirement Age

Incident 2.2: Accept Things as They Are

Exercise 2.1: Discrimination because of

Sex, Religion, or National Origin

Notes and Additional Readings

Chapter 2 Equal Employment Opportunity: The Legal Environment 25

The act permits differences in wages if the payment is based on seniority, merit, quantity and

quality of production, or a differential due to any factor other than sex. The act also prohibits an

employer from attaining compliance with the act by reducing the wage rate of any employee.

The Equal Pay Act is actually part of the minimum wage section of the Fair Labor

Standards Act (FLSA), described in more detail in Chapter 12. Thus, coverage of the Equal Pay

Act is coextensive (covers the same groups) with the coverage of the minimum wage provisions

of the FLSA. Generally, the act covers employers engaged in commerce or in the production of

goods for commerce, employers that have two or more employees, and labor organizations. Re-

sponsibility for enforcing the Equal Pay Act was originally assigned to the secretary of labor but

was transferred to the Equal Employment Opportunity Commission (EEOC) on July 1, 1979.

Title VII, Civil Rights Act (1964) Title VII of the Civil Rights Act of 1964 is the keystone federal legislation in equal employment opportunity. Several important provisions of Section 703 of the act state the

following:

Sec. 703.

(a) It shall be an unlawful employment practice for an employer—

(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate

against any individual with respect to his compensation, terms, conditions, or privileges of

employment, because of such individual’s race, color, religion, sex, or national origin; or

(2) to limit, segregate, or classify his employees or applicants for employment in any way

which would deprive or tend to deprive any individual of employment opportunities or

otherwise adversely affect his status as an employee, because of such individual’s race,

color, religion, sex, or national origin.

(b) It shall be an unlawful employment practice for an employment agency to fail or refuse

to refer for employment, or otherwise to discriminate against, any individual because of

his race, color, religion, sex, or national origin, or to classify or refer for employment any

individual on the basis of his race, color, religion, sex, or national origin.

(1) to exclude or to expel from its membership, or otherwise to discriminate against any

individual because of his race, color, religion, sex, or national origin;

(2) to limit, segregate, or classify its membership or applicants for membership or to classify

or fail or refuse to refer for employment any individual, in any way which would deprive

or tend to deprive any individual of employment opportunities, or would limit such

employment opportunities or otherwise adversely affect his status as an employee or as

an applicant for employment, because of such individual’s race, color, religion, sex, or

national origin; or

(3) to cause or attempt to cause an employer to discriminate against an individual in

violation of this section.

(d) It shall be an unlawful employment practice for any employer, labor organization, or joint

labor–management committee controlling apprenticeship or other training or retraining,

including on-the-job training programs, to discriminate against any individual because of his

race, color, religion, sex, or national origin in admission to, or employment in, any program

established to provide apprenticeship or other training.

Section 703 covers two basic areas of discrimination: disparate treatment and disparate

impact. Disparate treatment , Section 703(a)(1), refers to intentional discrimination and in- volves treating one class of employees differently from other employees. Disparate impact , Section 703(a)(2), refers to unintentional discrimination and involves employment practices

that appear to be neutral but adversely affect a protected class of people.

Title VII, the name most frequently used to describe the Civil Rights Act, was amended by

the Equal Employment Opportunity Act of 1972. Organizations covered by the provisions of

Title VII include the following:

• All private employers of 15 or more people who are employed 20 or more weeks per year.

• All public and private educational institutions.

• State and local governments.

• Public and private employment agencies.

Title VII of the Civil Rights Act of 1964 Keystone federal legislation

that covers disparate treatment

and disparate impact

discrimination; created

the Equal Employment

Opportunity Commission.

disparate treatment Intentional discrimination;

treatment of one class of

employees differently from

other employees.

disparate impact Unintentional discrimination

involving employment

practices that appear to be

neutral but adversely affect a

protected class of people.

• Labor unions that maintain and operate a hiring hall or hiring offi ce or have 15 or more

members.

• Joint labor–management committees for apprenticeships and training.

Title VII also created the Equal Employment Opportunity Commission (EEOC) to admin-

ister the act and to prohibit covered organizations from engaging in any unlawful employment

practices. The composition and powers of the EEOC are described later in this chapter. HRM

in Action 2.1 illustrates gender discrimination.

Age Discrimination in Employment Act (1967) The Age Discrimination in Employment Act (ADEA) , passed in 1967, prohibits discrim- ination in employment against individuals aged 40 through 69. An amendment to the ADEA

that took effect on January 1, 1987, eliminates mandatory retirement at age 70 for employees

of companies with 20 or more employees. The prohibited employment practices of ADEA

include failure to hire, discharge, denial of employment, and discrimination with respect to

terms or conditions of employment because of an individual’s age within the protected age

group. Organizations covered by the ADEA include the following:

• Private employers of 20 or more employees for each working day in each of 20 or more

calendar weeks in the current or preceding calendar year.

• Labor organizations.

• Employment agencies.

• State and local governments.

• Federal government agencies, with certain differences; for example, federal employees

cannot be forced to retire at any age.

One exception specifi ed in the law concerns employees in bona fi de executive or high policy-

making positions. The act permits mandatory retirement at age 65 for high-level executives

whose pensions exceed $44,000 a year.

Section 4(f ) of the ADEA sets forth several conditions under which the act does not

apply. The act does not apply where age is a bona fi de occupational qualifi cation, that is,

reasonably necessary to the normal operation of the particular business. For example, pi-

lots and copilots face mandatory retirement at age 60. In addition, a bus company’s refusal

to consider applications of individuals between ages 40 and 65 for initial employment as

intercity bus drivers was ruled legal. 1 Furthermore, it is not illegal for an employer to dis-

cipline or discharge an individual within the protected age group for good cause, such as

unsatisfactory job performance.

Originally, the secretary of labor was responsible for enforcing the ADEA. On July 1,

1979, the EEOC assumed that responsibility. HRM in Action 2.2 describes growth in age-

descrimination changes.

Age Discrimination in Employment Act (ADEA) Prohibits discrimination against

employees over 40 years of age

by all companies employing 20

or more people in the private

sector.

GENDER DISCRIMINATION A $150,000 settlement was granted to a woman in a gender-

discrimination suit brought forth by the Equal Employment

Opportunity Commission. The suit was fi led against a

construction company by a female employee. She claimed

the company refused to install portable toilets for its

employees on job sites. Thus, she was forced to wear adult

diapers if no public bathrooms were available near job sites.

The woman, Lisa Drozdowski, worked as a fl agger for

Danella Construction Corp. in 2005. Drozdowski also claimed

that when she inquired about being promoted to a laborer’s

position she was told the company did not hire female

laborers, and that after she lodged a complaint regarding

the policy, the company stopped assigning her work. Danella

Construction denied the claim and stated that restrooms are

always available on job sites.

Source: Adapted from Stephanie Farr, “Woman Forced to Wear Diapers at Work,” Philadelphia Daily News, November 5, 2009.

HRM in Action 2.1

Rehabilitation Act (1973) The Rehabilitation Act of 1973 , as amended , contains the following general provisions. It

• Prohibits discrimination against handicapped individuals by employers with federal

contracts and subcontracts in excess of $2,500.

• Requires written affi rmative action plans (AAPs) from employers of 50 or more employees

and federal contracts of $50,000 or more.

• Prohibits discrimination against handicapped individuals by federal agencies.

• Requires affi rmative action by federal agencies to provide employment opportunities for

handicapped persons.

• Requires federal buildings to be accessible to handicapped persons.

• Prohibits discrimination against handicapped individuals by recipients of federal fi nancial

assistance.

Section 7(7)(B) of the Rehabilitation Act defi nes a handicapped individual as follows:

any person who:

(i) has a physical or mental impairment which substantially limits one or more of such

person’s major life activities,

(ii) has a record of such an impairment, or

(iii) is regarded as having such an impairment. . . . Such term does not include any individual

who is an alcoholic or drug abuser whose current use of alcohol or drugs prevents such

individual from performing the duties of the job in question or whose employment, by

reason of such current alcohol or drug abuse, would constitute a direct threat to property

or the safety of others.

The primary responsibility for enforcing this act lies with the Offi ce of Federal Contract

Compliance Programs (OFCCP) of the Department of Labor. OFCCP will be described in

more depth later in this chapter.

Vietnam-Era Veterans Readjustment Assistance Act (1974) The Vietnam-Era Veterans Readjustment Assistance Act of 1974 prohibits federal government contractors and subcontractors with federal government contracts of $10,000 or

more from discriminating in hiring and promoting Vietnam and disabled veterans. Further-

more, the act requires employers with 50 or more employees and contracts that exceed $50,000

to have written affi rmative action programs with regard to the people protected by this act.

The protected class consists of disabled veterans with a 30 percent or more disability rating or

veterans discharged or released for a service-connected disability and veterans on active duty

for any part of the time period between August 5, 1964, and May 7, 1975. Covered contractors

and subcontractors must also list job openings with the state employment service. The OFCCP

enforces this act.

Rehabilitation Act of 1973 Prohibits discrimination against

handicapped individuals.

handicapped individual Person who has a physical or

mental impairment that

substantially limits one or more

of major life activities, has a

record of such impairment, or

is regarded as having such an

impairment.

Vietnam-Era Veterans Readjustment Assistance Act of 1974 Prohibits federal government

contractors and subcontractors

with federal government

contracts of $10,000 or more

from discriminating in hiring

and promoting Vietnam and

disabled veterans.

AGE DISCRIMINATION While age-discrimination claims against employers have

jumped in recent years, a U.S. Supreme Court ruling has

made it more diffi cult for employees to win such cases. Age-

discrimination allegations reached their highest point in

2008, up 29 percent from 2007 numbers. The main causes

are the recession and the “graying” of the American work

force.

Advocates for older workers say the June 18, 2009 Court

ruling in the case of Gross v. FBL Financial Services Inc. has

made it more diffi cult for employees to prevail in age-related

discrimination cases. “The court ruled that employees who

sue under a federal law that bans discrimination against

those 40 or older must prove that age was the ‘but-for

cause’—widely interpreted as meaning the ‘sole cause—of

an employer’s actions, rather than one of the motivating

factors,” says Dan Kohrman, a senior attorney with AARP.

However, legislation introduced in Congress would override

the Supreme Court ruling. It would require plaintiffs to

show that age was only one factor behind an employment

decision.

Source: Adapted from Anne Tergesen, “Age Bias Harder to Prove at Work,” Wall Street Journal, Nov 29, 2009, pg. 2.

HRM in Action 2.2

28 Part One Introduction and Background of Human Resources

Pregnancy Discrimination Act (1978) The Supreme Court decision, General Electric Co. v. Gilbert, had a signifi cant impact on the

passage of the Pregnancy Discrimination Act. 2 In that case, General Electric (GE) provided

nonoccupational sickness and accident benefi ts to all employees under its sickness and

accident insurance plan in an amount equal to 60 percent of an employee’s normal straight-time

weekly earnings. Several female employees at GE’s Salem, Virginia, plant who were pregnant

presented a claim for disability benefi ts under the plan to cover the period they were absent

from work as a result of their pregnancies. The company denied these claims on the grounds

that the plan did not provide disability benefi t payments for such absences. The employees

fi led suit alleging a violation of Title VII, which prohibits sex discrimination. The Supreme

Court ruled that the exclusion of pregnancy-related absences from the plan did not constitute

sex discrimination.

As a result of this decision, in an effort to protect the rights of pregnant workers, Congress

passed the Pregnancy Discrimination Act (PDA) as an amendment to the Civil Rights Act in 1978. The PDA, formally referenced as Section 701(K) of Title VII, states:

Women affected by pregnancy, childbirth, or related medical conditions shall be treated the same

for all employment-related purposes, including receipt of benefi ts under fringe benefi t programs,

as other persons not so affected but similar in their ability or inability to work.

Under the PDA, employers must treat pregnancy just like any other medical condition with

regard to fringe benefi ts and leave policies. The EEOC, which is responsible for administering

the act, has taken the view that an employer may not deny its unmarried employees pregnancy

benefi ts and that if pregnancy benefi ts are given to female employees, they must also be

extended to the spouses of male employees.

Immigration Reform and Control Act (1986) Recent years have seen an increasing infl ux of illegal aliens into the United States. When these

people are unskilled or do not speak English, employment abuses may result. Thus, in 1986,

the Immigration Reform and Control Act was passed, making it illegal for anyone to hire, recruit, or refer for employment in the United States a person known to be an unauthorized

alien. To meet the requirements of the law, a company must attest, under penalty of perjury,

that it has verifi ed that the individual is not an unauthorized alien by one of the following

measures:

1. Examining the individual’s U.S. passport; certifi cate of U.S. citizenship; certifi cate of

naturalization; unexpired foreign passport, if the passport has an appropriate, unexpired

endorsement of the attorney general authorizing the individual’s employment in the United

States; or resident alien card.

2. Examining documents demonstrating employment authorization (Social Security card,

birth certifi cate, or other documentation that the attorney general deems acceptable as proof).

3. Examining documentation establishing identifi cation (e.g., state driver’s license with a

photograph or other documentation that the attorney general deems acceptable as proof ).

Americans with Disabilities Act (1990) In May 1990, Congress approved the Americans with Disabilities Act (ADA) , which gives people with disabilities sharply increased access to services and jobs. Under this law,

employers may not:

• Discriminate, in hiring and fi ring, against disabled persons who are qualifi ed for a job.

• Inquire whether an applicant has a disability, although employers may ask about his or her

ability to perform a job.

• Limit advancement opportunity for disabled employees.

• Use tests or job requirements that tend to screen out disabled applicants.

• Participate in contractual arrangements that discriminate against disabled persons.

Pregnancy Discrimination Act (PDA) Requires employers to treat

pregnancy just like any other

medical condition with regard

to fringe benefi ts and leave

policies.

Immigration Reform and Control Act 1986 act making it illegal to

hire, recruit, or refer for U.S.

employment anyone known to

be an unauthorized alien.

Americans with Disabilities Act (ADA) Gives disabled persons sharply

increased access to services

and jobs.

Chapter 2 Equal Employment Opportunity: The Legal Environment 29

Employers must also provide reasonable accommodations for employees with dis-

abilities, such as making existing facilities accessible, providing special equipment and

training, arranging part-time or modifi ed work schedules, and providing readers for blind

emplo yees. Employers do not have to provide accommodations that impose an undue hard-

ship on business operations. Table 2.1 summarizes the ADA’s suggestions for making the

workplace accessible to disabled individuals. The bill covers all employers with 15 or more

employees.

In 1997, the Equal Employment Opportunity Commission, which enforces the ADA

and will be discussed in more detail later in this chapter, issued guidelines specifying that

qualifi ed individuals with psychiatric disabilities are protected from discrimination and are

entitled to reasonable accommodations on the job. Mental disability is defi ned broadly as

a mental impairment that substantially limits one or more of the major life activities of an

individual, or a record of such impairment or being regarded as having such an impairment.

Under this defi nition, the fact that an individual is regarded as having a mental disability or

has a record of such disability is grounds for that person to claim that he or she has a mental

disability. Obviously, these guidelines will raise many issues for human resource managers.

HRM in Action 2.3 shows the complexity of issues under the ADA.

Older Workers Benefi t Protection Act (1990) The Older Workers Benefi t Protection Act of 1990 resulted from a 1989 decision of the U.S. Supreme Court. In that decision, an Ohio county agency denied disability benefi ts

to an employee who had been laid off at age 61 because its disability plan cut off at age 60.

The Court ruled that the agency had not violated the Age Discrimination in Employment Act

because, it said, the law did not cover benefi ts, just hirings, fi rings, and promotions.

Under the Older Workers Benefi t Protection Act, employers may integrate disability and

pension pay by paying the retiree the higher of the two; integrate retiree health insurance and

severance pay by deducting the former from the latter; and, in cases of plant closings or mass

layoffs, integrate pension and severance pay by deducting from severance pay the amount

added to the pension.

The act also gives employees time to consider a company’s early retirement package—

21 days for an individual or 45 days if a group is involved. Employees also have seven days to

change their minds if they have signed a waiver of their right to sue. Coverage of this law is

the same as that under the Age Discrimination in Employment Act.

Older Workers Benefi t Protection Act of 1990 Provides protection for

employees over 40 years of

age in regard to fringe benefi ts

and gives employees time to

consider an early retirement

offer.

TABLE 2.1 Suggestions for Making the

Workplace Accessible to

Disabled Workers

• Install wheelchair ramps.

• Make curb cuts in sidewalks and entrances.

• Reposition shelves so those with disabilities can reach materials.

• Rearrange tables, chairs, vending machines, display racks, and other furniture.

• Reposition telephones and water fountains.

• Add raised markings on elevator control buttons.

• Install fl ashing alarm lights.

• Widen doors.

• Install offset hinges to widen doorways.

• Eliminate turnstiles or revolving doors or provide an alternative accessible path.

• Install accessible door hardware (such as levers) instead of, or in addition to, doorknobs.

• Install grab bars in toilet stalls.

• Rearrange toilet partitions to increase maneuvering space.

• Move lavatory pipes underneath sinks to prevent burns.

• Add raised toilet seats.

• Add a full-length bathroom mirror.

• Reposition paper towel dispensers.

• Create designated accessible parking spaces.

• Add a paper cup dispenser at existing accessible water fountains.

• Remove high-pile, low-density carpeting.

• Install vehicle hand controls.

Employers must accommodate the needs of disabled employees. © Digital Vision

Civil Rights Act (1991) The Civil Rights Act of 1991 permits women, persons with disabilities, and persons who are religious minorities to have a jury trial and sue for punitive damages of up to $300,000 if

they can prove they are victims of intentional hiring or workplace discrimination. The law cov-

ers all employers with 15 or more employees. Prior to the passage of this law, jury trials and

punitive damages were not permitted except in intentional discrimination lawsuits involving

racial discrimination. The law places a cap on the amount of damages a victim of nonracial,

intentional discrimination can collect. The cap is based on the size of the employer: $50,000

for companies with 15 to 100 employees; $100,000 for companies with 101 to 200 employees;

$200,000 for companies with 201 to 500 employees; and $300,000 for companies with more

than 500 employees.

A second aspect of this act concerns the burden of proof for companies with regard to in-

tentional discrimination lawsuits. In a series of Supreme Court decisions beginning in 1989,

the Court began to ease the burden-of-proof requirements on companies. Several of these

decisions are described later in this chapter. This act, however, requires that companies must

provide evidence that the business practice that led to the discrimination was not discrimina-

tory but was job related for the position in question and consistent with business necessity.

Business necessity is defi ned in detail in Chapter 3.

Civil Rights Act (1991) Permits women, persons with

disabilities, and persons who

are religious minorities to

have a jury trial and sue for

punitive damages if they can

prove intentional hiring and

workplace discrimination.

Also requires companies to

provide evidence that the

business practice that led to

the discrimination was not

discriminatory but was job

related for the position in

question and consistent with

business necessity.

OBESITY AND THE ADA The case, EEOC v. Watkins Motor Lines, Inc., 18 AD cases 641

(6th Cir. 2006), dealt with a man, Stephen Grindle, employed

by the defendant company as a driver/dock worker, Grindle

had been hired in August 1990. At that time, he weighed

approximately 345 pounds. About 65 percent of his job

involved dock work. That work included loading, unloading,

and arranging freight. The job description stated that the

work included “climbing, kneeling, bending, stooping,

balancing, reaching, and repeated heavy lifting.” Over the

course of the next fi ve years, Grindle’s weight ranged from

about 340 to 450 pounds. According to Grindle, he was

unaware of any psychological or physiological reason that

would explain his weight.

In November 1995, Grindle suffered a knee injury at work

when a rung on a ladder he was climbing broke. Grindle

returned to work the next day and worked 50 to 60 hours

a week through December. However, in January he began a

six-month leave of absence because of his knee injury. The

company informed Grindle that he would be terminated

if he was unable to return at the end of the six months.

To return, he had to have a release from his physician and

perhaps undergo a physical examination.

While on leave, Grindle’s knee injury was treated by

Dr. Zancan. At the end of the six months, Zancan gave

Grindle a work release. However, the company would not

accept it and return Grindle to work because the physician

did not look at the job responsibilities before signing the

release form. The company sent Zancan a list of Grindle’s job

responsibilities and a return to work form. However, Zancan

never responded. The company ordered Grindle to see the

industrial clinic physician, Dr. Lawrence. Lawrence found

that Grindle had limited range of motion. Furthermore, he

observed that Grindle could duck and squat but was short

of breath after taking a few steps. Lawrence stated that the

most notable fact emerging from his physical examination

of Grindle was that Grindle weighed 405 pounds. Lawrence

concluded that, even though Grindle met Department of

Transportation standards for truck drivers, he could not

safely perform his job duties. The company put Grindle on

safety hold. This resulted in Grindle’s termination because

he was unable to return to work after his six-month leave.

Grindle believed that he was terminated because of his

weight and fi led a claim with the EEOC in September 1998.

In October 2002, the EEOC fi led a federal action in which

it claimed that the company violated the Americans with

Disabilities Act by terminating Grindle. In February 2004, the

company fi led a motion for summary judgment. The district

court granted the company’s motion for summary judgment

on the grounds that obesity not caused by a physiological

reason was not an impairment under the ADA. Grindle

appealed.

The EEOC acknowledged that merely being overweight

did not satisfy the ADA’s defi nition of an impairment.

However, it argued that it could be an ADA impairment if

an individual was overweight as a result of a physiological

condition or morbid obesity no matter what the cause.

Morbid obesity is defi ned as body weight that is more than

100 percent more than the norm. In this case, neither Grindle

nor the EEOC argued that Grindle’s weight resulted from

a physiological condition. Rather, the argument proffered

was that Grindle was morbidly obese and the cause of that

condition did not matter because morbid obesity is beyond

the range of what is normal. The Sixth Circuit disagreed and

upheld the district court’s fi nding that, while physiologically

caused morbid obesity may be an impairment under the

ADA, nonphysiological morbid obesity is not. Therefore,

Grindle’s morbid obesity was not an ADA impairment.

Source: Adapted from Mary Kathryn Zachary, “Obesity & the ADA— The Reason Matters,“ Super Vision , December 2006, pp. 23–27.

HRM in Action 2.3

Family and Medical Leave Act (1993) The Family and Medical Leave Act (FMLA) was enacted on February 5, 1993, to enable qualifi ed employees to take prolonged unpaid leave for family- and health-related reasons with-

out fear of losing their jobs. Under the law, employees can use this leave if they are seriously

ill, if an immediate family member is ill, or in the event of the birth, adoption, or placement for

foster care of a child. To qualify for the leave, employees must have been employed for at least

a year and must have worked for no less than 1,250 hours within the previous 12-month period.

FMLA took effect in August 1993 for companies without collective bargaining agreements.

For companies with collective bargaining agreements, the law took effect on termination of the

labor contract or on February 5, 1994, whichever came fi rst. HRM 2.4 illustrates one issue that

has been decided by the courts.

Executive Orders 11246, 11375, and 11478 Executive orders are issued by the president of the United States to give direction to gov- ernmental agencies. Executive Order 11246, issued in 1965, requires every nonexempt federal

contractor and subcontractor not to discriminate against employees and applicants because

of race, sex, color, religion, or national origin. The primary exemption from the order is for

contracts and subcontracts that do not exceed $10,000. The OFCCP within the Department

of Labor is responsible for administering this executive order. The equal opportunity clause

specifi ed by Executive Order 11246 requires the contractor or subcontractor to agree to do the

following:

1. Comply with the provisions of the executive order.

2. Comply with those rules, regulations, and orders of the secretary of labor that are issued

under the order.

3. Permit access to its books and records for purposes of investigation by the secretary of

labor.

4. Include the equal employment clause in every subcontract or purchase order so that such

provisions will be binding on each subcontractor or vendor.

Moreover, in the event of noncompliance with the executive order, the contract may be

canceled , terminated , or suspended. After a hearing on the noncompliance, the contractor may

be declared ineligible for future government contracts.

Executive Order 11246 also requires employers with 50 or more employees and contracts

and subcontracts that exceed $50,000 to have a written affi rmative action program (AAP).

The AAP must include an identifi cation and analysis of minority employment problem areas

within the employers’ workforce, and where defi ciencies exist, employers must establish goals

and timetables for the prompt achievement of equal employment opportunity. Part of the AAP

Family and Medical Leave Act (FMLA) Enables qualifi ed employees

to take prolonged unpaid leave

for family- and health-related

reasons without fear of losing

their jobs.

executive orders Orders issued by the president

of the United States for

managing and operating federal

government agencies.

ELIMINATING TRAVEL DID NOT VIOLATE FMLA The East Baton Rouge, Louisiana, Parish School Board

employed Phyllis Smith as its assistant supervisor of school

accounts. Prior to her maternity leave, this position required

her to travel to various schools and directly assist school

principals and staff members in keeping accurate accounting

records. During Smith’s leave, the board restructured the

school accounts department and revised her job description

so that she would audit the schools’ books from a central

offi ce rather than by traveling to schools.

Smith sued under the FMLA after she returned, but the

5th U.S. Circuit Court of Appeals granted summary judgment

to the board, holding that Smith’s position after her FMLA

leave was equivalent to her former position. In discussing

“equivalent,” the court cited the FMLA and stated that the

position must be virtually identical to the former position

in pay, benefi ts, and working conditions; must involve

substantially similar duties, skills, and authority; must have

similar opportunities for promotion and pay increases; and

must be viewed as equally desirable to employees.

The court concluded that “de minimis, intangible changes”

to an employee’s position do not violate the FMLA. The

elimination of travel responsibilities when the position no

longer required travel to audit the schools’ accounts, combined

with providing the same salary and similar job description

and title, amounted to only an intangible difference in

employment position that did not violate the law.

Source: Adapted from Sarah T. Zaffi na, “Eliminating Travel Did Not Violate FMLA,” HRMagazine , October 2006, p. 120.

HRM in Action 2.4

32 Part One Introduction and Background of Human Resources

is called the utilization evaluation , which contains analyses of minority group representa- tion in all job categories; present and past hiring practices; and upgrading, promotions, and

transfers. Chapter 4 describes AAPs in more detail.

Executive Order 11246 also gave the U.S. Offi ce of Personnel Management (OPM) author-

ity to issue regulations dealing with discrimination within federal agencies. In 1966, the OPM

(then called the Civil Service Commission) issued regulations that required agencies to cor-

rect discriminatory practices and develop affi rmative action programs.

In 1967, Executive Order 11375 amended Executive Order 11246 and prohibited sex-based

wage discrimination for government contractors. Finally, in 1969 the OPM issued Executive

Order 11478, which in part suspended Executive Order 11246, along with revised regulations.

The new regulations merely modifi ed a number of the procedures under the previous orders

and regulations.

State and Local Government Equal Employment Laws Many state and local governments have passed equal employment laws. For example, almost

all states have some form of protection against employment discrimination on the basis of

disability. However, at this point it is important to note the Supremacy Clause of the U.S.

Constitution, 3 which states:

The laws of the United States dealing with matters within its jurisdiction are supreme, and the

judges in every state shall be bound thereby, anything in the Constitution or Laws of any State to

the contrary notwithstanding.

As a result of this clause, as would be expected , many state and local laws became invalid after

the passage of the Civil Rights Act and other equal employment legislation. For example, the

California Supreme Court invalidated a state statute prohibiting females from tending bar.

No federal laws prohibit states from passing laws against discrimination in areas not

covered by the federal law as long as the law does not require or permit an act that is unlawful

under federal legislation.

One signifi cant development at the state level on affi rmative action occurred in California.

Over the years, an array of programs based on race had been adopted throughout California.

One particular concern was a set of affi rmative action programs that had been applied to the

University of California. The California Civil Rights Initiative (CCRI), known as Proposition

209, was placed on the November 1996 election ballot and was adopted by a 54 to 46 percent

margin. Proposition 209 calls for the state not to discriminate for or against any group in state

employment and benefi ts.

As is true with most laws, however, ambiguities in language leave much room for interpre-

tation by the federal agencies that enforce the laws. Furthermore, court decisions regarding the

laws often raise additional questions of interpretation. For these reasons and others, equal em-

ployment opportunity is one of the most challenging and complex aspects of human resource

management. Nevertheless, a good beginning point for understanding equal employment op-

portunity is to know the basic legislation covering the area. Table 2.2 provides a chronological

listing of the equal employment opportunity laws and executive orders discussed in this sec-

tion. It also provides a brief statement of the purpose or intent and coverage of these laws and

executive orders.

LANDMARK COURT CASES

Laws passed by Congress are usually broad in nature and are refi ned when applied to specifi c

situations. Furthermore, the general nature of the equal employment laws both allowed and

caused enforcement agencies such as the EEOC to develop guidelines and enforce the acts as

they interpreted them. Unfortunately, employers were often confused about the guidelines and

enforcement of equal employment laws by the EEOC and OFCCP. The confusion and anger

that resulted have led to many lawsuits concerning the interpretation of equal opportunity laws

and guidelines. Again unfortunately, many court decisions have been not only confusing but,

in some instances, apparently confl icting.

utilization evaluation Part of the affi rmative action

plan that analyzes minority

group representation in all job

categories; past and present

hiring practices; and upgrades,

promotions, and transfers.

Chapter 2 Equal Employment Opportunity: The Legal Environment 33

TABLE 2.2 Summary of Equal Employment Opportunity Laws and Executive Orders

Law/Executive Order Year Purpose or Intent Coverage

Equal Pay Act 1963 Prohibits sex-based discrimination in rates of

pay for men and women working in the same

or similar jobs.

Private employers engaged in commerce or

in the production of goods for commerce

and with two or more employees; labor

organizations.

Title VII, Civil Rights Act

(as amended in 1972)

1964 Prohibits discrimination based on race, sex,

color, religion, or national origin.

Private employers with 15 or more employees

for 20 or more weeks per year, institutions,

state and local governments, employment

agencies, labor unions, and joint

labor–management committees.

Executive Order 11246 1965 Prohibits discrimination on the basis of race,

sex, color, religion, or national origin; requires

affi rmative action with regard to these factors.

Federal contractors and subcontractors with

contracts in excess of $10,000; employers

with 50 or more employees and contracts in

excess of $50,000.

Executive Order 11375 1967 Prohibits sex-based wage discrimination. Government contractors and subcontractors.

Executive Order 11478 1967 Supersedes Executive Order 11246 and

modifi es some of the procedures under the

previous orders and regulations.

Same as Executive Order 11246.

Age Discrimination in

Employment Act (ADEA)

1967 Prohibits discrimination against individuals

who are at least 40 years of age but less than

70. An amendment eliminates mandatory

retirement at age 70 for employees of

companies with 20 or more employees.

Private employers with 20 or more employees

for 20 or more weeks per year, labor

organizations, employment agencies, state

and local governments, and federal agencies,

with some exceptions.

Rehabilitation Act, as

amended

1973 Prohibits discrimination against handicapped

persons and requires affi rmative action

to provide employment opportunity for

handicapped persons.

Federal contractors and subcontractors with

contracts in excess of $2,500, organizations

receiving federal fi nancial assistance, and

federal agencies.

Vietnam-Era Veterans

Readjustment Assistance Act

1974 Prohibits discrimination in hiring disabled

veterans with 30 percent or more disability

rating, veterans discharged or released for a

service connected disability, and veterans on

active duty between August 5, 1964, and

May 7, 1975. Also requires written AAPs for

certain employers.

Federal contractors and subcontractors with

contracts in excess of $10,000; employers

with 50 or more employees and contracts in

excess of $50,000.

Pregnancy Discrimination

Act (PDA)

1978 Requires employers to treat pregnancy just

like any other medical condition with regard

to fringe benefi ts and leave policies.

Same as Title VII, Civil Rights Act.

Immigration Reform and

Control Act

1986 Prohibits hiring of illegal aliens. Any individual or company.

Americans with Disabilities Act 1990 Increases access to services and jobs for

disabled workers.

Private employers with 15 or more

employees.

Older Workers Benefi t

Protection Act

1990 Protects employees over 40 years of age in

regard to fringe benefi ts and gives employees

time to consider an early retirement offer.

Same as ADEA.

Civil Rights Act 1991 Permits women, persons with disabilities, and

persons who are religious minorities to have a

jury trial and sue for punitive damages if they

can prove intentional hiring and workplace

discrimination. Also requires companies to

provide evidence that the business practice

that led to the discrimination was not

discriminatory but was job-related for the

position in question and consistent with

business necessity.

Private employers with 15 or more

employees.

Family and Medical Leave

Act (FMLA)

1993 Enables qualifi ed employees to take

prolonged unpaid leave for family and health-

related reasons without fear of

losing their jobs.

Private employers with 15 or more

employees.

34 Part One Introduction and Background of Human Resources

Nevertheless, several Supreme Court decisions have provided guidance for interpreting

equal employment opportunity laws. Some of the more important decisions are described in

the following sections.

Griggs v. Duke Power Company 4 The Griggs case concerned the promotion and transfer policies of the Duke Power company

at its Dan River Steam Station. Duke permitted incumbent employees who lacked a high

school education to transfer from an “outside” job to an “inside” job by passing two tests: the

Wonderlic Personnel Test, which purports to measure general verbal facility, and the Bennett

Mechanical Aptitude Test. The passing scores approximated the national median for high

school graduates.

In a class action suit, African American employees argued that these practices violated

Title VII, since neither having a high school education nor passing the tests was necessary

for successful performance on the jobs in question. The suit also argued that the practices

were illegal because a much higher percentage of African Americans did not have high school

educations. The company argued that the requirements were based on the company’s judgment

that they would generally improve the overall quality of the workforce and that the company

had no discriminatory intent in instituting the requirements. The company argued that its lack

of discriminatory intent was demonstrated by its efforts to help undereducated employees

through fi nancing two-thirds of the cost of tuition for high school education.

In 1971, the Supreme Court ruled in favor of the African American employees. The

decision established several signifi cant points concerning equal employment opportunity:

(1) The consequences of employment practices, not simply the intent or motivation of the

employer, are the thrust of Title VII in that practices that discriminate against one group

more than another or continue past patterns of discrimination are illegal regardless of the

nondiscriminatory intent of the employer; (2) the disparate impact doctrine provides that when the plaintiff shows that an employment practice disproportionately excludes groups

protected by Title VII, the burden of proof shifts to the defendant to prove that the standard

reasonably relates to job performance; and (3) the EEOC’s guidelines that permitted the use of

only job-related tests are appropriate.

McDonnell Douglas v. Green 5 Percy Green, an African American man who had been employed by McDonnell Douglas,

was laid off as a result of a reduction in McDonnell’s workforce. After the layoff, Green

participated in a protest against alleged racial discrimination by McDonnell in its employment

practices. The protest included a “stall-in,” whereby Green and others stopped their cars

along roads leading to the plant to block access during the morning rush hour. At a later date,

McDonnell advertised for mechanics. Green applied for reemployment and was rejected by

the company on the grounds of his participation in the stall-in, which the company argued was

unlawful conduct.

On technical grounds, the Supreme Court remanded the case back to the district court, but

at the same time its ruling set forth standards for the burden of proof in discrimination cases.

These standards were as follows:

1. The complainant in a Title VII case carries the initial burden of proof in establishing a

prima facie (at fi rst sight or before closer inspection) case of discrimination. This can be

done by showing (a) that he or she belongs to a racial minority; (b) that he or she applied

and was qualifi ed for a job for which the employer was seeking applicants; (c) that, despite

his or her qualifi cations, the applicant was rejected; and (d) that, after the rejection, the

position remained open and the employer continued to seek applicants from persons of

the complainant’s qualifi cations.

2. If the complainant establishes a prima facie case, the burden shifts to the employer to

provide some legitimate, nondiscriminatory reason for the employer’s rejection.

3. The burden then shifts to the employee to prove that the employer’s allegedly legitimate

reason was pretextual (i.e., that the offered reason was not the true reason for the employer’s

action).

Web site: National Employment Lawyers Association www.nela.org

disparate impact doctrine States that when the plaintiff

shows that an employment

practice disproportionately

excludes groups protected by

Title VII, the burden of proof

shifts to the defendant to prove

that the standard reasonably

relates to job performance.

Chapter 2 Equal Employment Opportunity: The Legal Environment 35

In its ruling, the Court stated that Green had established a prima facie case and that

McDonnell had shown a nondiscriminatory reason for not hiring Green because of his partici-

pation in the stall-in.

Albemarle Paper v. Moody 6 In the Albemarle Paper v. Moody case, the company required applicants for hire into various

skilled lines of progression to take the Beta examination, which purportedly measures nonver-

bal intelligence, and the Wonderlic test, which purportedly measures general verbal facil-

ity. The company made no attempt to determine the job-relatedness of the tests and simply

adopted the national norm score as a cutoff for new job applicants.

The company allowed African American workers to transfer to the skilled lines if they

could pass the Beta and Wonderlic tests, but few succeeded. Incumbents in the skilled lines,

some of whom had been hired before the adoption of the tests, were not required to pass them

to retain their jobs or their promotion rights.

Four months before the case went to trial, Albemarle engaged an expert in industrial

psychology to validate the relatedness of its testing program. He spent half a day at the plant

and devised a study, which was conducted by plant offi cials without his supervision. This

study showed the tests to be job related.

However, in June 1975, the Supreme Court found Albemarle’s validation study to be

materially defective. The Court’s decision was based on the fact that Albemarle’s study failed to

comply with EEOC guidelines for validating employment tests. Thus, this decision reaffi rmed

that tests used in employment decisions must be job related, and it reaffi rmed the use of EEOC

guidelines in validating tests. The Court also held that if an employer establishes that a test is

job related, it is the plaintiff’s burden to demonstrate the existence of other tests that could com-

parably serve the employer’s legitimate interests with a lesser impact on a protected group.

University of California Regents v. Bakke 7 The medical school of the University of California at Davis opened in 1968 with an

entering class of 50 students. No African American, Hispanic, or Native American students

were in this class. Over the next two years, the faculty developed a special admissions

program to increase the participation of minority students. In 1971, the size of the entering

class doubled, and 16 of the 100 positions were to be fi lled by “disadvantaged” applicants

chosen by a special admissions committee. In actual practice, disadvantaged meant a minority

applicant.

Allan Bakke, a white male, was denied admission to the medical school in 1973 and 1974.

Contending that minority students with lower grade averages and test scores were admitted un-

der the special program, Bakke brought suit. He argued that he had been discriminated against

because of his race when he was prevented from competing for the 16 reserved positions, and

he alleged that the medical school’s special two-track admissions system violated the Civil

Rights Act of 1964. Thus, the Bakke case raised the issue of reverse discrimination , al- leged preferential treatment of one group (minority or female) over another group rather than

equal opportunity.

On June 28, 1978, the Supreme Court ruled in a fi ve-to-four decision that Allan Bakke

should be admitted to the medical school of the University of California at Davis and found the

school’s two-track admissions system to be illegal. However, by another fi ve-to-four vote, the

Court held that at least some forms of race-conscious admissions procedures are constitutional.

The Court stated that race or ethnic background may be deemed a plus in a particular applicant’s

fi le, but it does not insulate the individual from comparison with all other candidates for the

available positions. As could be expected, the somewhat nebulous decisions in the Bakke case

provided an environment for further court tests of the legal status of reverse discrimination.

United Steelworkers of America v. Weber 8 In 1974, the Kaiser Aluminum and Chemical Corporation and the United Steelworkers of

America signed a collective bargaining agreement that contained an affi rmative action plan

designed to reduce racial imbalances in Kaiser’s then almost exclusively white workforce.

That plan set hiring goals and established on-the-job training programs to teach craft skills to

reverse discrimination Condition under which there is

alleged preferential treatment

of one group (minority or

women) over another group

rather than equal opportunity.

Web site: United States National Labor Relations Board www.nlrb.gov

36 Part One Introduction and Background of Human Resources

unskilled workers. The plan reserved 50 percent of the openings in the training programs for

African Americans.

At Kaiser’s Gramercy, Louisiana, plant, Brian F. Weber, a white male, fi led a class ac-

tion suit against the company because African American employees were accepted into the

company’s in-plant craft-training program before white employees with more seniority.

Lower-level courts supported Weber’s suit. However, in its 1979 decision on this case, the

Supreme Court ruled that the voluntarily agreed-on plan between Kaiser and the steelwork-

ers was permissible. The Court stated that the Title VII prohibition against racial discrimina-

tion did not condemn all private, voluntary, race-conscious affi rmative action programs. The

Court ruled that Kaiser’s affi rmative action plan was permissible because it (1) was designed

to break down old patterns of segregation, (2) did not involve the discharge of innocent third

parties, (3) did not have any barriers to the advancement of white employees, and (4) was a

temporary measure to eliminate discrimination. Thus, this decision provided important guide-

lines for determining the legality of an affi rmative action plan.

Connecticut v. Teal 9 A Connecticut agency promoted several African American employees to supervisory positions

contingent on their passing a written examination. When they later failed the exam, the agency

refused to consider them as permanent candidates for the positions. These employees alleged

that Connecticut violated Title VII by requiring as an absolute condition for consideration

for promotion that applicants pass a written test that disproportionately excluded African

Americans and was not job related. The passing rate on the test for African Americans was

only 68 percent of the passing rate for whites.

The agency gave promotions from the eligibility list generated by the written examination.

As it turned out, however, the overall result was that 22.9 percent of the African American

candidates and 13.5 percent of the white candidates were promoted. The district court ruled

that the bottom line percentages, which were more favorable to African Americans than

whites, precluded a Title VII violation. The bottom line concept is based on the view that the government should generally not concern itself with individual components of

the selection process if the overall effect of that process is nondiscriminatory. However, the

Supreme Court, on June 21, 1982, held that the nondiscriminatory bottom line results of the

employer’s selection process did not preclude the employees from establishing a prima facie

case of discrimination and did not provide the employers with a defense in such a case. Thus,

the conclusion reached from this case is that bottom line percentages are not determinative.

Rather, the EEOC or a court will look at each test to determine whether it by itself has a dis-

parate impact on a protected group.

Memphis Firefi ghters, Local 1784 v. Stotts 10 The Stotts case concerned a confl ict between a seniority system and certain affi rmative action

measures taken by the city of Memphis. In 1980, the Memphis Fire Department entered into

a consent decree under which the department would attempt to ensure that 20 percent of the

promotions in each job classifi cation would be granted to African Americans. The decree was

silent on the issues of layoffs, demotions, or seniority.

In May 1981, budget defi cits made layoffs of personnel in the fi re department necessary.

The layoffs were to be based on seniority. The district court issued an injunction ordering the

city to refrain from applying the seniority system because it would decrease the percentage of

African American employees in certain jobs.

The city then used a modifi ed plan to protect African American employees. The modifi ed

plan laid off 24 employees, 3 of whom were African American. If the traditional seniority

system had been used, six African American employees would have been laid off.

The Memphis Firefi ghters Local 1784 fi led a lawsuit objecting to this modifi ed plan. In

1984, the Supreme Court ruled that the district court had exceeded its powers in issuing the

injunction requiring white employees to be laid off when the normal seniority system would

have required laying off African American employees with less seniority. This decision did not

ban the use of affi rmative action programs, but it does indicate that a seniority system may

limit the use of certain affi rmative action measures.

bottom line concept When the overall selection

process does not have an

adverse impact, the government

will usually not examine the

individual components of that

process for adverse impact or

evidence of validity.

Chapter 2 Equal Employment Opportunity: The Legal Environment 37

City of Richmond v. J. A. Crosan Company 11 In 1983, the Richmond city council adopted, in an ordinance, a minority business utilization

“set-aside” plan, which required nonminority-owned prime contractors awarded city construc-

tion contracts to subcontract at least 30 percent of the dollar amount of the contract to one or

more minority business enterprises.

After the adoption of the ordinance, the city issued an invitation to bid on a project for

the provision and installation of plumbing fi xtures at the city jail. The only bidder, the J. A.

Crosan Company, submitted a proposal that did not include minority subcontracting suffi cient

to satisfy the ordinance. The company asked for a waiver of the set-aside requirement, but

the request was denied and the company was informed that the project was to be rebid. The

company fi led suit claiming that the ordinance was unconstitutional under the equal protection

clause of the Fourteenth Amendment to the U.S. Constitution.

In January 1989, the Supreme Court ruled that the city of Richmond’s plan was unconsti-

tutional. The Court stated that state and local governments must avoid racial quotas and must

take affi rmative action steps only to correct well-documented examples of past discrimination.

The Court went on to say that the Fourteenth Amendment to the U.S. Constitution, which

guarantees equal protection of the laws, requires that government affi rmative action programs

that put whites at a disadvantage should be viewed with the same legal skepticism that has

been applied to many state and local laws discriminating against minorities. The impact this

decision will have on affi rmative action plans for private companies is yet to be determined,

but its implications may be wide-ranging.

Wards Cove v. Atonio 12 In June 1989, the Supreme Court, in a close decision (fi ve to four), made it easier for em-

ployers to rebut claims of racial bias based on statistical evidence. The case developed from

discrimination charges against Wards Cove Packaging Company, Inc., of Seattle and Castle &

Cooke, Inc., of Astoria, Oregon. The companies operate salmon canneries in remote areas of

Alaska during the summer salmon run.

Minorities (in this particular case, the minorities were largely Filipinos, Alaskan

natives, and Asians) alleged that while they held nearly half the jobs at the canneries, the jobs were

racially stratifi ed, with whites dominating higher-paying jobs such as machinists, carpenters, and

administrators. The company argued that statistics showing that minorities held most of the lower-

paying seasonal jobs and fewer better positions did not prove discrimination by the company.

The Supreme Court’s decision said that when minorities allege that statistics show they

are victims of discrimination, employers only have the burden of producing evidence that

there is a legitimate reason for its business practices. The Court further stated that the plaintiff

bears the burden of disproving an employer’s assertion that the adverse employment practice

is based solely on a legitimate neutral consideration. The Court also limited the statistical

evidence that minorities can use to prove discrimination. It ruled that an absence of minorities

in skilled jobs is not evidence of discrimination if the absence refl ects a dearth of qualifi ed

minority applicants for reasons that are not the employer’s fault. The Civil Rights Act of 1991

in effect reversed this Supreme Court decision.

Martin v. Wilks 13 A group of white fi refi ghters sued the city of Birmingham, Alabama, and the Jefferson County

Personnel Board, alleging they were being denied promotions in favor of less qualifi ed Afri-

can American fi refi ghters. Prior to the fi ling of the suit, the city had entered into two consent

decrees that included goals for hiring and promoting African American fi refi ghters. In fi l-

ing their suit, the white fi refi ghters claimed that the city was making promotion decisions

on the basis of race in reliance on the consent decrees and that these decisions constituted

racial discrimination in violation of the Constitution and federal statutes. The district court

held that the white fi refi ghters were precluded from challenging employment decisions taken

pursuant to the decrees. However, on June 12, 1989, the Supreme Court ruled that the white

fi refi ghters could challenge the promotion decisions made pursuant to the consent decrees.

Thus, the Court ruled that white fi refi ghters could bring reverse discrimination claims against

court-approved affi rmative action plans.

38 Part One Introduction and Background of Human Resources

Adarand Contractors v. Peña 14 Adarand Contractors, a guardrail contracting fi rm, sued the U.S. government for allegedly

applying race-based standards in granting public works contracts in Colorado. The lawsuit

stemmed from a subcontract for guardrail work that Adarand lost in 1990 despite submitting

the lowest bid. The subcontract was given to Gonzales Construction, a minority-owned busi-

ness, by the main contractor, Mountain Gravel & Construction Company, because the Central

Federal Lands Highway Division gave cash bonuses to prime contractors that hired minority-

owned businesses. In a fi ve-to-four decision, the Supreme Court questioned the constitutional-

ity of government measures designed to help minorities obtain contracts, jobs, or education.

The decision did not scrap outright the federal programs that for decades have given some

minority-owned businesses a competitive edge over majority-owned businesses. The decision

does require lower courts to apply “strict scrutiny” to those programs, meaning the govern-

ment may have to prove that each program helps only those individuals who can show they

were victims of past discrimination, as opposed to simply trying to help all minorities.

State of Texas v. Hopwood 15 On March 18, 1996, the U.S. District Court of Appeals, 5th Circuit, rendered a decision con-

cerning the affi rmative action program at the School of Law of the University of Texas. This

affi rmative action program gave preferences to African Americans and Mexican Americans

in the admissions program to the School of Law. This program was initiated in response to a

history of discrimination against African Americans and Mexican Americans in the state of

Texas. The district court decision found no compelling justifi cation to allow the School of Law

to continue to elevate some races over others, even for the purpose of correcting perceived

racial imbalance in the student body. The court concluded that the law school may not use race

as a factor in law school admissions. On June 25, 2001, the Supreme Court turned down an

appeal by the School of Law of The University of Texas.

University of Michigan’s Admission Procedures In June 2003, the Supreme Court issued two decisions dealing with the affi rmative action

measures the University of Michigan used in its undergraduate and law school programs. Both

cases were brought by white applicants who had been rejected for admission to the university.

In the law school case ( Grutter v. Bollinger ) 16 the court approved the use of a holistic ap-

proach that considered race as one tool in the admission process to achieve a diverse student

body. However, in the undergraduate program case ( Gratz v. Bollinger ) 17 the court rejected the

point-based process that gave an automatic boost to African Americans, Hispanics, or Native

Americans. The court said that schools cannot maintain quotas or separate admissions tracks

for racial groups and that diversity cannot be defi ned solely on the basis of race. These two

decisions are viewed as a victory for affi rmative action. 18

ENFORCEMENT AGENCIES

Two federal agencies have the primary responsibility for enforcing equal employment oppor-

tunity legislation. These agencies are the Equal Employment Opportunity Commission and

the Offi ce of Federal Contract Compliance Programs.

Equal Employment Opportunity Commission The Civil Rights Act created the Equal Employment Opportunity Commission (EEOC) to administer Title VII of the act. The commission is composed of fi ve members, not more

than three of whom may be members of the same political party. Members of the commission

are appointed by the president of the United States, by and with the advice and consent of the

Senate, for a term of fi ve years. The president designates one member to serve as chairper-

son of the commission and one member to serve as vice chairperson. The chairperson is

responsible on behalf of the commission for its administrative operations.

In addition, a general counsel of the commission, appointed by the president with the

advice of the Senate for a term of four years, is responsible for conducting litigation under the

provisions of Title VII.

Equal Employment Opportunity Commission (EEOC) Federal agency created under

the Civil Rights Act of 1964

to administer Title VII of

the act and to ensure equal

employment opportunity; its

powers were expanded in 1979.

Web site: United States Equal Employment Opportunity Commission www.eeoc.gov

Chapter 2 Equal Employment Opportunity: The Legal Environment 39

Originally, the EEOC was responsible for investigating discrimination based on race,

color, religion, sex, or national origin. Now it is also responsible for investigating equal pay

violations, age discrimination, and discrimination against disabled persons. The EEOC has the

authority not only to investigate charges and complaints in these areas but also to intervene

through the general counsel in a civil action on the behalf of an aggrieved party. The EEOC

also develops and issues guidelines to enforce nondiscriminatory practices in all of these

areas. Several of these guidelines are discussed in this and the next chapter.

Offi ce of Federal Contract Compliance Programs Unlike the EEOC, which is an independent agency within the federal government, the Offi ce of Federal Contract Compliance Programs (OFCCP) is within the U.S. Department of Labor. It was established by Executive Order 11246 to ensure that federal contractors and

subcontractors follow nondiscriminatory employment practices. Prior to 1978, 11 different

government agencies had contract compliance sections responsible for administering and

enforcing Executive Order 11246. The OFCCP generally supervised and coordinated their

activities. In 1978, Executive Order 12086 consolidated the administration and enforcement

functions within the OFCCP.

1. Defi ne equal employment opportunity.

Equal employment opportunity refers to the right of all people to work and to advance on

the basis of merit, ability, and potential.

2. Describe the intent of the Equal Pay Act of 1963.

This act prohibits sex-based discrimination in rates of pay for men and women working

in the same or similar jobs.

3. Describe the intent of Title VII of the Civil Rights Act of 1964.

Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, sex,

color, religion, or national origin.

4. Defi ne disparate treatment and disparate impact.

Disparate treatment refers to intentional discrimination and involves treating one class

of employees differently than other employees. Disparate impact refers to unintentional

discrimination and involves employment practices that appear to be neutral but adversely

affect a protected class of people.

5. Discuss the purpose of the Age Discrimination in Employment Act of 1967.

This act prohibits discrimination against employees who are between the ages of 40

and 69.

6. Discuss the purpose of the Rehabilitation Act of 1973.

This act prohibits discrimination against handicapped individuals and requires affi rmative

action to provide employment opportunities for such persons.

7. Describe the intent of the Vietnam-Era Veterans Readjustment Assistance Act of 1974.

This act prohibits discrimination in hiring disabled veterans with a 30 percent or more

disability rating, veterans discharged or released for a service-related disability, and

veterans on active duty between August 5, 1964, and May 7, 1975. It also requires that

employers with 50 or more employees and contracts in excess of $50,000 have a written

AAP for the people protected under this act.

8. Discuss the purpose of the Pregnancy Discrimination Act of 1978.

This act requires employers to treat pregnancy like any other medical condition with

regard to fringe benefi ts and leave policies.

9. Describe the intent of the Immigration Reform and Control Act of 1986.

This act prohibits the hiring of illegal aliens.

10. Describe the purpose of the Americans with Disabilities Act of 1990.

This act increases access to services and jobs for disabled individuals with private

employers having 15 or more employees.

Offi ce of Federal Contract Compliance Programs (OFCCP) Offi ce within the U.S.

Department of Labor that is

responsible for ensuring equal

employment opportunity

by federal contractors and

subcontractors.

Summary of Learning Objectives

40 Part One Introduction and Background of Human Resources

11. Explain the purpose of the Older Workers Benefi t Protection Act of 1990.

This act protects employees over 40 years of age with respect to fringe benefi ts and gives

employees time to consider an early retirement offer.

12. Discuss the intent of the Civil Rights Act of 1991.

This act permits women, persons with disabilities, and persons who are religious

minorities to have a jury trial and sue for punitive damages if they can prove intentional

hiring and workplace discrimination. It also requires companies to provide evidence that

the business practice that led to the discrimination was not discriminatory but was job

related for the position in question and consistent with business necessity.

13. Explain the content of the Family and Medical Leave Act of 1993.

The FMLA enables qualifi ed employees to take prolonged unpaid leave for family- and

health-related reasons without fear of losing their jobs.

14. Discuss the purposes of Executive Orders 11246, 11375, and 11478.

Executive Order 11246 prohibits discrimination by federal contractors and subcontractors

with contracts in excess of $10,000 on the basis of race, sex, color, religion, or national

origin. Also, it requires contractors and subcontractors with 50 or more employees and

contracts in excess of $50,000 to have a written AAP with regard to the protected classes.

Executive Order 11375 prohibits sex-based wage discrimination. Executive Order 11478

supersedes Executive Order 11246 and modifi es some of the procedures under the

previous orders and regulations.

15. Describe the signifi cance of the following Supreme Court decisions:

Griggs v. Duke Power —Established that the consequences of employment practices, not

simply the intent of the employer, are the thrust of Title VII.

McDonnell Douglas v. Green —Set forth standards for the burden of proof in disparate

treatment discrimination cases.

Albemarle Paper v. Moody —Affi rmed that tests used in employment decisions must be

job related and affi rmed the use of EEOC guidelines on validating tests.

University of California Regents v. Bakke —Raised the issue of reverse discrimination.

Stated that race or ethnic background may be deemed a plus in a particular applicant’s

fi le, but it does not insulate the individual from comparison with all other candidates for

the available position.

United Steelworkers of America v. Weber —Provided important guidelines for determining

the legality of affi rmative action programs.

Connecticut v. Teal —Ruled that the bottom line results of an employer’s selection process

do not preclude employees from establishing a prima facie case of discrimination and do

not provide the employer with a defense in such a case.

Memphis Firefi ghters, Local 1784 v. Stotts —Provided that a seniority system may limit

the use of certain affi rmative action measures.

City of Richmond v. J. A. Crosan Company— Stated that the Fourteenth Amendment

requires government affirmative action programs that put whites at a disadvantage

to be viewed with the same legal skepticism as laws that discriminate against

minorities.

Wards Cove v. Atonio —Changed the requirements in job discrimination suits. Now

employees have to prove there was no legitimate business reason for a fi rm’s alleged

discriminatory acts.

Martin v. Wilks —Ruled that whites may bring reverse discrimination claims against

court-approved affi rmative action plans.

Adarand Contractors v. Peña —Required the lower courts to apply strict scrutiny to minority

set-aside programs, meaning the government may have to prove that each program helps only

those individuals who can show they were victims of past discrimination, as opposed to

simply trying to help all minorities.

Texas v. Hopwood —Concluded that the law school may not use race as a factor in law

school admissions.

Chapter 2 Equal Employment Opportunity: The Legal Environment 41

University of Michigan’s Admissions Procedures—Two cases brought by white applicants

who had been rejected for admission to the university upheld affi rmative action

provisions. In a law school case ( Grutter v. Bollinger ), the court approved the use of a holistic approach that considers race as one tool in the admission process to achieve a

diverse student body. However, in the undergraduate program case ( Gratz v. Bollinger ) the

court rejected the point-based process that gave an automatic boost to African Americans,

Hispanics, or Native Americans. The court said that schools cannot maintain quotas or

separate admissions tracts for racial groups and that diversity cannot be defi ned solely on

the basis of race.

Review Questions

1. What is equal employment opportunity?

2. Outline the intent and coverage of each of the following laws:

a. Equal Pay Act.

b. Title VII, Civil Rights Act.

c. Age Discrimination in Employment Act.

d. Rehabilitation Act.

e. Vietnam-Era Veterans Readjustment Assistance Act.

f. Pregnancy Discrimination Act.

g. Immigration Reform and Control Act.

h. Americans with Disabilities Act.

i. Older Workers Benefi t Protection Act.

j. Civil Rights Act of 1991.

k. Executive Order 11246.

l. Executive Order 11375.

m. Executive Order 11478.

3. Defi ne disparate treatment and disparate impact.

4. Describe the impact of the following Supreme Court decisions:

a. Griggs v. Duke Power.

b. McDonnell Douglas v. Green.

c. Albemarle Paper v. Moody.

d. University of California Regents v. Bakke.

e. United Steelworkers of America v. Weber.

f. Connecticut v. Teal.

Key Terms Age Discrimination in Employment Act

(ADEA), 26

Americans with Disabilities

Act (ADA), 28

bottom line concept, 36

Civil Rights Act (1991), 30

disparate impact, 25

disparate impact

doctrine, 34

disparate treatment, 25

equal employment

opportunity, 24

Equal Employment

Opportunity Commission

(EEOC), 38

Equal Pay Act, 24

executive orders, 31

Family and Medical Leave

Act (FMLA), 31

handicapped individual, 27

Immigration Reform and

Control Act, 28

Offi ce of Federal Contract

Compliance Programs

(OFCCP), 39

Older Workers Benefi t

Protection Act of 1990, 29

Pregnancy Discrimination

Act (PDA), 28

Rehabilitation Act

of 1973, 27

reverse discrimination, 35

Title VII of the Civil Rights

Act of 1964, 25

utilization evaluation, 32

Vietnam-Era Veterans

Readjustment Assistance

Act of 1974, 27

42 Part One Introduction and Background of Human Resources

g. Memphis Firefi ghters, Local 1784 v. Stotts.

h. City of Richmond v. J. A. Crosan Company.

i. Wards Cove v. Atonio.

j. Martin v. Wilks.

k. Adarand Contractors v. Peña.

l. State of Texas v. Hopwood.

m. University of Michigan’s admission procedures.

5. Discuss the bottom line concept.

6. What two federal agencies have primary responsibility for enforcing equal employment

opportunity legislation?

1. What area of human resource management is most affected by equal employment opportunity

legislation? Discuss.

2. Do you believe most organizations meet the requirements of equal employment opportunity?

Why or why not?

3. What problems do you believe have resulted from equal employment opportunity

legislation?

4. Do you think misconceptions exist about equal employment opportunity? Discuss.

Incident 2.1

Debate over Retirement Age *

Hundreds of U.S. airline pilots are asking Congress to raise their mandatory retirement to 65,

up from the present 60 years of age. They say the change won’t threaten safety and could ease

problems associated with pension cuts. Sen, James Inhofe (R-Okla.) has sponsored legislation

raising the limit, which the Federal Aviation Administration (FAA) opposes. “There’s just no

scientifi c consensus that would give us a basis for changing that age-60 limit,” said an FAA

offi cial. The agency has argued that the decline in a pilot’s cognitive functions and the in-

creased risk of illness over age 60 may affect safety.

Testifying before the House Aviation Subcommittee in March 2003, Paul Emens of the

Air Line Pilots Against Age Discrimination (ALPAAD) said, “The world does not see this

as a safety issue. Most of the world is moving to a retirement age of 65 for airline pilots.

Japan and the Netherlands, to name but two, have done extensive studies which showed

that raising an airline pilot’s age is not a risk. Countries such as Japan, Australia, those of

the Joint Aviation Authority in Europe—all have raised their pilots’ retirement age. Some

45 nations now allow their airline pilots to fl y past the age of 60. Some do so in United

States airspace.”

Testifying in March 2001 before the Senate Committee on Commerce, Science and Trans-

portation, Nick Lacey, then the FAA’s director of fl ight standards, said, “Proponents of raising

the retirement age cite action in 1999 by the Joint Aviation Authority (JAA) in Europe which

relaxed the standard, allowing a pilot in command to work until age 65, so long as the co-pilot

is under age 60.”

“We are not aware of any comprehensive or defi nitive study that was the basis for the JAA

action,” Lacey said.

Questions

1. Should all pilots have to retire at the age of 60?

2. How would you study this issue to raise the age to 65?

* Source: “Debate over Retirement Age,” Air Safety Week , June 13, 2005, p. 1.

Discussion Questions

Chapter 2 Equal Employment Opportunity: The Legal Environment 43

Incident 2.2

Accept Things as They Are

Jane Harris came to work at the S&J department store two years ago. In Jane’s initial assignment

in the fi nance department, she proved to be a good and hard worker. It soon became obvious

to both Jane and her department head, Rich Jackson, that she could handle a much more

responsible job than the one she held. Jane discussed this matter with Rich. It was obvious to

him that if a better position could not be found for Jane, S&J would lose a good employee. As

there were no higher openings in the fi nance department, Rich recommended her for a job in

the accounting department, which she received.

Jane joined the accounting department as payroll administrator and quickly mastered

her position. She became knowledgeable in all aspects of the job and maintained a

good rapport with her two employees. A short time later, Jane was promoted to assist-

ant manager of the accounting department. In this job, Jane continued her outstanding

performance.

Two months ago, Bob Thomas was hired in the accounting department. Ralph Simpson,

vice president of administration for S&J, explained to Jane and Steve Smith, head of

the accounting department, that Bob was a trainee. After Bob had learned all areas of

the department, he would be used to take some of the load off both Jane and Steve and

also undertake special projects for the department. Several days after Bob’s arrival, Jane

learned that Bob was the son of a politician who was a close friend of the president of

S&J. Bob had worked in his father’s successful election campaign until shortly before

joining S&J.

Last week, Steve asked Jane to help him prepare the accounting department’s budget for

next year. While working on the budget, Jane got a big surprise: She found that Bob had been

hired at a salary of $3,200 per month. At the time of Bob’s hiring, Jane, as assistant manager

of the accounting department, was making only $3,000 per month.

After considering her situation for several days, Jane went to see Ralph Simpson, the divi-

sion head, about the problem. She told Ralph that she had learned of the difference in salary

while assisting Steve with the budget and stated that it was not right to pay a trainee more

than a manager. She reminded Ralph of what he had said several times—that Jane’s position

should pay $40,000 per year considering her responsibility—but S&J just could not afford to

pay her that much. Jane told Ralph that things could not remain as they were at present, and

she wanted to give S&J a chance to correct the situation. Ralph told Jane he would get back to

her in several days.

About a week later, Ralph gave Jane a reply. He stated that while the situation was wrong

and unfair, he did not feel that S&J could do anything about it. He told her that sometimes one

has to accept things as they are, even if they are wrong. He further stated that he hoped this

would not cause S&J to lose a good employee.

Questions

1. What options does Jane have?

2. What infl uence, if any, would the federal government have in this case?

The “Existing Regulations” of the Equal Employment Opportunity Commission (EEOC) are published annually in Title 29 of the Code of Federal Regulations (CFR). The EEOC also publishes on a semiannual basis in the Federal Register Notice a regulatory agenda. The agenda lists all regulations that are scheduled for review or development during the next 12 months or that have been fi nalized since the publication of the last agenda. Your professor will establish teams of three to four students. Each team will be required to use the Internet to fi nd guidelines on discrimination because of sex, religion, or national origin. Each team will be required to make a 10–15 minute presentation of the current status of these forms of discrimination.

EXERCISE 2.1

Discrimination

because of Sex,

Religion, or National

Origin

44 Part One Introduction and Background of Human Resources

1. Usery v. Tamiami Trail Tours, Inc., 531 F. 2d 224, 12FEP1233 (5th Cir. 1976).

2. General Electric Co. v. Gilbert, 429 U.S. 125 (1976).

3. Art. VI, cl. 2.

4. Griggs v. Duke Power Company, 401 U.S. 424, FEP 175.

5. McDonnell Douglas v. Green, 411 U.S. 792 (1973).

6. Albemarle Paper v. Moody, 422 U.S. 405, 95 S.CT. 2362.

7. University of California Regents v. Bakke, 483 U.S. 265.

8. United Steelworkers of America v. Weber, 99 S.CT. 2721.

9. Connecticut v. Teal, 457 U.S. 440 (1982).

10. Memphis Firefi ghters, Local 1784 v. Stotts, 104 S.CT. 2576.

11. City of Richmond v. J. A. Crosan Company, 488 U.S. 469 (1989).

12. Wards Cove v. Atonio, 490 U.S. 642 (1989).

13. Martin v. Wilks, 490 U.S. 755 (1989).

14. Adarand Contractors v. Peña, 115 S.CT. 2097.

15. State of Texas v. Hopwood, Case H 95-1773.

16. Grutter v. Bollinger, No. 02-291, Decided June 23, 2003.

17. Gratz v. Bollinger, No. 02-516, Decided June 23, 2003.

18. See June Kronhotz, “Does a White Mom Add Diversity?—Barbara Grutter Believed She Was a

Prime Candidate for Michigan’s Law School,” Wall Street Journal, June 25, 2003, p. B3.

Notes and Additional Readings

Web site: Federal Legal Information through Electronics www.fedworld.gov/supcourt

Chapter Three

Implementing Equal Employment Opportunity

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Explain the role of the Employer

Information Report, EEO–1.

2. Defi ne employment parity,

occupational parity, systemic

discrimination, underutilization,

and concentration.

Chapter Outline

EEOC Compliance

Legal Powers of the EEOC

EEOC Posting Requirements

Records and Reports

Compliance Process

Preemployment Inquiry Guide

Affi rmative Action Plans

Bona Fide Occupational Qualifi cation

(BFOQ)

Business Necessity

Sexual Harassment

Comparable Worth and Equal Pay Issues

Other Areas of Employment Discrimination

Religion

Native Americans

HIV-Positive Status

Sexual Orientation

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 3.1: The Layoff

Incident 3.2: Religion and Real Estate

Exercise 3.1: Affi rmative Action Debate

Exercise 3.2: How Much Do You Know

about Sexual Harassment?

Notes and Additional Readings

On the Job: Preemployment

Inquiry Guide

3. Describe an affi rmative action plan.

4. Defi ne bona fi de occupational

qualifi cation (BFOQ).

5. Explain what business necessity

means.

6. Defi ne sexual harassment.

7. Describe the comparable worth

theory.

As the previous chapter indicated, the legal requirements of equal employment opportunity

are quite complex. Nevertheless, each organization must develop its own approach to equal

employment within the legal guidelines. Chapter 2 presents the history of equal employment

opportunity. Chapter 3 presents management practice issues that HR managers confront be-

cause of EEO law. Thus, this chapter provides specifi c information and guidelines for imple-

menting equal employment opportunity.1

Web site: United States Equal Employment Opportunity Commission www.eeoc.gov

EEOC COMPLIANCE

The Equal Employment Opportunity Commission (EEOC) and the Offi ce of Federal Contract

Compliance Programs (OFCCP), both described in the previous chapter, are the two primary

enforcement agencies for equal employment opportunity. All organizations with 20 or more

employees must keep records that the EEOC or OFCCP can request.

Legal Powers of the EEOC Section 713 of Title VII (Civil Rights Act of 1964), the Age Discrimination in Employment

Act (ADEA), the Equal Pay Act, the Americans with Disabilities Act (ADA) of 1990, and the

Civil Rights Act of 1991 authorize the EEOC to develop and publish procedural regulations

regarding the enforcement of these acts. As a result, the EEOC has issued substantive

regulations (or guidelines, as they are more frequently called) interpreting Title VII, the

ADEA, the Equal Pay Act, the ADA, and the Civil Rights Act of 1991. The EEOC also has

enforcement authority to initiate litigation and to intervene in private litigation. HRM in

Action 3.1 describes a legal action undertaken by EEOC.

EEOC Posting Requirements Title VII requires employers, employment agencies, and labor organizations covered by the

act to post EEOC-prepared notices summarizing the requirements of Title VII, the ADEA, the

Equal Pay Act, the ADA, and the Civil Rights Act of 1991. The EEOC has prepared such a

poster, and a willful failure to display it is punishable by a fi ne of not more than $100 for each

offense. Organizations subject to notice requirements by Executive Order 11246 and Title VII

can display a poster meeting the requirements of both the EEOC and the OFCCP. Figure 3.1

shows a copy of this poster.

Records and Reports Employers with 100 or more employees must annually fi le Standard Form 100, known as the

Employer Information Report, EEO–1. Figure 3.2 shows the form. The EEO–1 report requires a breakdown of the employer’s workforce in specifi ed job categories by race, sex, and

national origin. Other, similar types of forms are required of unions, political jurisdictions,

Web site: National Employment Lawyers Association www.nela.org

Web site: United States National Labor Relations Board www.nlrb.gov

Employer Information Report (Standard Form 100) Form that all employers

with 100 or more employees

are required to fi le with the

EEOC; requires a breakdown

of the employer’s workforce

in specifi ed job categories by

race, sex, and national origin.

MATERNITY STORE SETTLES PREGNANCY DISCRIMINATION AND RETALIATION LAWSUIT A Philadelphia-based maternity clothes retailer will pay

$375,000 to settle a pregnancy discrimination and retaliation

lawsuit brought by the U.S. Equal Employment Opportunity

Commission (EEOC), the agency announced today. The

EEOC had charged that Mothers Work, Inc., doing business

as Motherhood Maternity, refused to hire qualifi ed female

applicants because they were pregnant.

According to the EEOC’s lawsuit (Case No. 3:05-CV-990-J-

32TEM in U.S. District Court for the Middle District of Florida,

Jacksonville Division), LaShonda Burns, a former assistant

manager, complained about Motherhood’s policy and

practice of discrimination against pregnant applicants. The

EEOC said Motherhood illegally disciplined and ultimately

fi red Burns because it believed she was pregnant and in

retaliation for her complaints.

Such alleged conduct violates the Pregnancy Discrimina-

tion Act. The EEOC fi led suit after fi rst attempting to reach

a voluntary settlement, and Burns also took part in the suit

with a private attorney.

The three-year consent decree settling the suit requires

Motherhood to pay Ms. Burns $135,000 in compensatory

and punitive damages; $50,000 in back pay; $130,000 for

Burns’s private attorney’s fees and costs; and $20,000 in

compensatory and punitive damages to each of three

women who were denied emloyment opportunities because

they were pregnant—Lakevia Rollins, Aimee Tart, and

Jackie Ciardiello. Motherhood must also adopt and distribute

an antidiscrimination policy that specifi cally prohibits

denying women employment opportunities because of

their pregnancy; train all of its current and future Florida

employees on the new policy and federal employment

discrimination laws; post notice of resolution of the lawsuit;

and report to EEOC twice annually regarding pregnancy

discrimination complaints.

According to company information, Motherhood, which

began its operations in 1982, employs over 5,000 people.

It is the leading designer, manufacturer, and retailer of

maternity fashion in the United States, with over 1,000

stores nationwide and Internet retailing. Motherhood owns

leading brands including Mimi Maternity, A Pea in the Pod,

and Maternitymail.com.

Source: Adapted from “Maternity Store Giant to Pay $375,000 to Settle EEOC Pregnancy Discrimination, Retaliation Lawsuit,” U.S. Fed News Service, Washington, D.C., January 8, 2007.

HRM in Action 3.1

Chapter 3 Implementing Equal Employment Opportunity 47

FIGURE 3.1 EEOC Poster

Employers

Holding Federal

Contracts or

Subcontracts

Applicants to and employees of companies with a Federal govern- ment contract or subcontract are protected under the following Federal authorities:

RACE, COLOR, RELIGION,

SEX, NATIONAL ORIGIN

Executive Order 11246, as amended, prohibits job discrimination on the basis of race, color, religion, sex or national origin, and requires affirma- tive action to ensure equality of opportunity in all aspects of employment.

INDIVIDUALS WITH

DISABILITIES

Section 503 of the Rehabilitation Act of 1973, as amended, prohibits job discrimination because of disability and requires affirmative action to employ and advance in employment qualified individuals with disabilities who, with reasonable accommodation, can perform the essential functions of a job.

VIETNAM ERA, SPECIAL

DISABLED, RECENTLY

SEPARATED, AND OTHER

PROTECTED VETERANS

38 U.S.C. 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended, prohibits job discrimination and requires affirmative action to employ and advance in employment qualified Vietnam era veterans, qualified special disabled veterans, recently separated veterans, and other protected veterans.

Any person who believes a contractor has violated its nondiscrimination or affirmative action obligations under the authorities above should contact immediately:

The Office of Federal Contract Compliance Programs (OFCCP), Employment Standards Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210 or call (202) 693-0101, or an OFCCP regional or district office, listed in most telephone directories under U.S. Government, Department of Labor.

Equal Employment Opportunity is

THE LAW Private Employment,

State and Local

Governments,

Educational Institutions

Applicants to and employees of most private employers, state

and local governments, educational institutions, employment

agencies and labor organizations are protected under the following

Federal laws:

RACE, COLOR, RELIGION, SEX, NATIONAL

ORIGIN

Title VII of the Civil Rights Act of 1964, as amended, prohibits

discrimination in hiring, promotion, discharge, pay, fringe benefits,

job training, classification, referral, and other aspects of employment,

on the basis of race, color, religion, sex or national origin.

DISABILITY

The Americans with Disabilities Act of 1990, as amended, protects

qualified applicants and employees with disabilities from discrim-

ination in hiring, promotion, discharge, pay, job training, fringe

benefits, classification, referral, and other aspects of employment on

the basis of disability. The law also requires that covered entities

provide qualified applicants and employees with disabilities with

reasonable accommodations that do not impose undue hardship.

AGE

The Age Discrimination in Employment Act of 1967, as amended,

protects applicants and employees 40 years of age or older from

discrimination on the basis of age in hiring, promotion, discharge,

compensation, terms, conditions or privileges of employment.

SEX (WAGES)

In addition to sex discrimination prohibited by Title VII of the Civil

Rights Act of 1964, as amended (see above), the Equal Pay Act of

1963, as amended, prohibits sex discrimination in payment of wages

to women and men performing substantially equal work in the same

establishment.

Retaliation against a person who files a charge of discrimination,

participates in an investigation, or opposes an unlawful employment

practice is prohibited by all of these Federal laws.

If you believe that you have been discriminated against under any of

the above laws, you should contact immediately:

The U.S. Equal Employment Opportunity Commission (EEOC),

1801 L Street, N.W., Washington, D.C. 20507 or an EEOC field

office by calling toll free (800) 669-4000. For individuals with

hearing impairments, EEOC’s toll free TDD number is (800) 669-6820.

Programs or

Activities Receiving

Federal Financial

Assistance

RACE, COLOR, RELIGION,

NATIONAL ORIGIN, SEX

In addition to the protection of Title

VII of the Civil Rights Act of 1964, as

amended, Title VI of the Civil Rights

Act prohibits discrimination on the

basis of race, color or national origin

in programs or activities receiving

Federal financial assistance. Employ-

ment discrimination is covered by

Title VI if the primary objective of the

financial assistance is provision of

employment, or where employment

discrimination causes or may cause

discrimination in providing services

under such programs. Title IX of the

Education Amendments of 1972

prohibits employment discrimination

on the basis of sex in educational

programs or activities which receive

Federal assistance.

INDIVIDUALS WITH

DISABILITIES

Sections 501, 504 and 505 of the

Rehabilitation Act of 1973, as

amended, prohibits employment

discrimination on the basis of disabil-

ity in any program or activity which

receives Federal financial assistance in

the federal government. Discrimina-

tion is prohibited in all aspects of

employment against persons with

disabilities who, with reasonable

accommodation, can perform the

essential functions

of a job.

If you believe you have been

discriminated against in a program

of any institution which receives

Federal assistance, you should contact

immediately the Federal agency

providing such assistance.

Publication OFCCP 1420 Revised 2004

48 Part One Introduction and Background of Human Resources

educational institutions, school districts, and joint labor–management committees that control

apprenticeship programs. Persons willfully making false statements on EEOC reports may be

punished by fi ne or imprisonment.

In addition to EEO–1, Title VII requires the covered organizations to make and keep certain

records that may be used to determine whether unlawful employment practices have been or

are being committed. Thus, it is a good practice for covered organizations to maintain records

relating to job applicants, payroll records, transfers, recalls, and discharges. The length of time

required for the retention of these records varies, but a good time frame for retaining such

records is three years.

Since the EEOC and OFCCP are interested in the recruitment and selection of protected

groups and because the collection of certain data about the protected groups is not permitted

FIGURE 3.2 Standard Form 100

EQUAL EMPLOYMENT OPPORTUNITY

EMPLOYER INFORMATION REPORT EEO—1

Joint Reporting

Committee

Standard Form 100

(Rev, 3/97)

Equal Employment

Opportunity Com-

mission

Office of Federal

Contract Compli-

ance Programs (Labor)

1. Indicate by marking in the appropriate box the type of reporting unit for which this copy of the form is submitted (MARK ONLY

ONE BOX).

1. Parent Company

2. Establishment for which this report is filed. (Omit if same as label)

Address (Number and street)

City or town State ZIP code

ZIP codeStateCountyCity or Town

OFFICE USE ONLY

a. Name of parent company (owns or controls establishment in item 2) omit if same as label

a. Name of establishment

b. Employer Identification No. (IRS 9-DIGIT TAX NUMBER)

c. Was an EEO–1 report filed for this establishment last year? Yes No

2. Total number of reports being filed by this Company (Answer on Consolidated Report only)

Section A—TYPE OF REPORT

Section B—COMPANY IDENTIFICATION (to be answered by all employers)

Section C—EMPLOYERS WHO ARE REQUIRED TO FILE (To be answered by all employers)

Refer to instructions for number and types of reports to be filed.

Single-establishment Employer Report(1)

O.M.B. No. 3046-007

EXPIRES 10/31/99

100-214

•

Consolidated Report (Required)

Headquarters Unit Report (Required)

Individual Establishment Report (submit one for each es- tablishment with 50 or more employees)

Special Report

(2)

Multi-establishment Employer:

(3)

(4)

(1)

Yes No 1. Does the entire company have at least 100 employees in the payroll period for which you are reporting?

Yes No 2. Is your company affiliated through common ownership and/or centralized management with other entitles in an enterprise with a total employment of 100 or more?

Yes No 3. Does the company or any of its establishments (a) have 50 or more employees AND (b) is not exempt as provided by 41 CFR 60–1.5, AND either (1) is a prime government contractor or forst-tier subcontractor, and has a contract, subcontractor, or purchase order amounting to $50,000 or more, or (2) serves as a depository of Government funds in any amount or is a financial institution which is an issuing and paying agent for U.S. Savings Bonds and Savings Notes?

If the response to question C–3 is yes, please enter your Dun and Bradstreet identification number (if you have one ):

NOTE: If the answer is yes to questions 1, 2, or 3, complete the entire form, otherwise skip to Section G.

Chapter 3 Implementing Equal Employment Opportunity 49

on an organization’s application form, the EEOC allows organizations to use a separate form,

often called an applicant diversity chart, for collecting certain data. An example of such a

form is shown in Figure 3.3. The data on this form must be maintained separately from all

employment information.

Compliance Process An individual may fi le a discrimination charge at any EEOC offi ce or with any representative

of the EEOC. If the charging party and respondent are in different geographic areas, the of-

fi ce where the charging party resides forwards the charge to the offi ce where the respondent

is located. Class action charges or charges requiring extensive investigations are processed in

the EEOC’s Offi ce of Systemic Programs.

FIGURE 3.2 Standard Form 100 (Concluded)

SF 100 Page 2

Section D—EMPLOYMENT DATA

Section E—ESTABLISHMENT INFORMATION (Omit on the Consolidated Report)

Section F—REMARKS Use this item to give any identification data appearing on last report which differs from that given above, explain major

changes in composition of reporting units and other pertinent information.

NUMBER OF EMPLOYEES

JOB

Categories

Source: Adapted from W. B. Tornov

and P. R. Pinto, “The Development of a

Managerial Job Taxonomy: A System for

Describing, Classifying, and Evaluating

Executive Positions,” Journal of Applied

Psychology 61, No. 4 (1976), p. 414.

1. Product, marketing, and fi nancial strategy planning.

2. Coordination of other organizational units and personnel.

3. Internal business control.

4. Products and services responsibility.

5. Public and customer relations.

6. Advanced consulting.

7. Autonomy of actions.

8. Approval of fi nancial commitments.

9. Staff service.

10. Supervision.

11. Complexity and stress.

12. Advanced fi nancial responsibility.

13. Broad personnel responsibility.

72 Part One Introduction and Background of Human Resources

concepts for describing employee attributes and workplace requirements that can be broadly

understood. By using comprehensive terms to describe knowledge, skills, abilities (KSAs),

interests, and content of work, the O*NET database can accommodate rapidly changing job

requirements. The O*NET database is continually updated by surveying a broad range of

employees from each occupation. The goal is to replenish the entire database every fi ve years.

Figure 4.2 displays the conceptual foundation of O*NET. Called the Content Model, this

model encapsulates the key features of an occupation into a standardized, measurable set

of variables called “descriptors.” The model starts with six domains (see Figure 4.2) that

describe the day-to-day aspects of the job and the qualifi cations and interests of the typical

worker. The model expands to 277 descriptors collected by the O*NET program, with more

collected by other federal agencies such as the Bureau of Labor Statistics. As Figure 4.2

shows, the Content Model uses both job-oriented descriptors and worker-oriented descrip-

tors. The model also allows occupational information to be applied across jobs, sectors,

or industries (cross-occupation descriptors) and within occupations (occupational- specifi c

descriptors).

While the Content Model identifi es the information structure for a single occupation, the

O*NET-SOC taxonomy identifi es existing work occupations. The June 2009 release of the

O*NET-SOC taxonomy includes 1,102 occupational titles, 965 of which have data collected

from job incumbents or occupation experts. New workforce requirements brought about by

changes in technology, society, law, and business practices are resulting in new and emerging

(N&E) occupations. In order to refl ect these changes, the O*NET system periodically incor-

porates the N&E occupations into the O*NET-SOC taxonomy. O*NET data can be linked to

other occupational, educational, and labor market information databases. HRM in Action 4.1

describes how the American Foundation for the Blind is using O*NET.

The ADA and Job Analysis7

As discussed in Chapter 2, the Americans with Disabilities Act (ADA) and its amendments

(ADAAA) prohibit discrimination against qualifi ed individuals with disabilities in regard to

all employment practices, terms, conditions, or privileges of employment. In essence, this

prohibition covers the entire employment process. “Qualifi ed individuals with disabilities”

are persons who have a disability and meet the skill, education, experience, and other job-

related requirements of the position held or desired and can perform the essential functions

FIGURE 4.2 The Content Model

Forming the Foundation

of O*NET

Source: O*Net Online, http://

www.onetcenter.org/content.html

O*NET

Worker requirements

Skills

Knowledge

Education

Worker characteristics

Abilities

Occupational interests

Work values

Work styles

Experience requirements

Experience and training

Skills

Entry requirement

Licensing

Workforce characteristics

Labor market information

Occupational outlook

Occupational requirements

Generalized work activities

Detailed work activities

Organizational context

Work content

Occupation-specific information

Tasks

Tools and technology

Cross

occupation

Worker-oriented

Job-oriented

Occupation

specific

of the position with or without reasonable accommodation. The ADA and the ADAAA also

require the identifi cation of the essential functions of each job and a reasonable accommoda-

tion to the disabilities of qualifi ed individuals. The job analysis process is the basic method

used to identify essential job functions. An essential job function is one that is fundamental

to successful performance of the job; in contrast, marginal job functions may be performed

at certain times but are incidental to the main purpose of the job. A particular job function

is considered marginal if its performance is a matter of convenience and not a necessity.

Table 4.5 presents several questions that should be asked to determine whether a particular

job function is essential.

Reasonable accommodation means the employer may be required to alter the conditions of

a particular job so as to enable the candidate to perform all essential functions. However, an

employer cannot be required to make an accommodation that causes undue hardship for the

employer. Undue hardship refers to any accommodation that would be unduly costly, substan-

tial, or disruptive or that would fundamentally alter the nature or operation of the business.

Potential Problems with Job Analysis In analyzing jobs, certain problems can occur. Some of these problems result from natural

human behavior; others stem from the nature of the job analysis process. Some of the most

frequently encountered problems associated with job analyses are the following:8

Top management support is missing. Top management should at least make it clear to all

employees that their full and honest participation is extremely important to the process.

Unfortunately, the message is often not communicated.

O*NET USED TO HELP THE BLIND AND VISUALLY IMPAIRED BROADEN THEIR CAREER OPPORTUNITIES According to studies by the American Foundation for the

Blind (AFB), a majority of blind and visually impaired adults of

working age are capable and want to work. However, over a

million (55–60 percent) are unemployed. Dr. Karen Wolffe of

AFB realized that one problem was that many blind and visually

impaired people possessed a limited view of the available

workplace opportunities simply because they could not see

what most other employees could see. As a result of their lack

of understanding about the diversity of jobs available in the

labor market, many often made very poor decisions.

Aware of the O*NET system, Dr. Wolffe decided to

download the database and make those items best

suited to her clients accessible to them. The result was

CareerConnect™, which helps the blind and visually impaired

learn about the range and diversity of occupations available

in the labor market. CareerConnect incorporates selected

O*NET data and makes it possible for users to browse by

job category, personal interest, or by title or keyword. The

search results include detailed occupational descriptions, a

list of related occupations, a list of available mentors as well

as practical tips.

In its fi rst year of operation, the service logged almost

3,000 visitors and 100,000 page views. Statistics suggest

that visitors mostly found information of interest since the

average visit was for 15 minutes.

Source: www.workforceaguirre.org. Accessed January 9, 2007.

HRM in Action 4.1

TABLE 4.5 Questions to Be Addressed

to Determine Essential

Functions

Source: Wayne E. Barlow and Edward

Z. Hare, “A Practical Guide to the

Americans with Disabilities Act,”

Personnel Journal, June 1992, p. 54.

1. Does the position exist to perform these functions? If the performance of a particular function is the

principal purpose for hiring a person, it would be an essential function.

2. Would the removal of the function fundamentally alter the position? If the purpose of the position

can be fulfi lled without performing the function, it isn’t essential.

3. What’s the degree of expertise or skill required to perform the function? The fact that an employee is

hired for his or her specialized expertise to perform a particular function is evidence that the function

is essential.

4. How much of the employee’s time is spent performing the function? The fact that an employee

spends a substantial amount of time performing a particular function is evidence that the function is

essential.

5. What are the consequences of failure to perform the function? The fact that the consequences of

failure are severe is evidence that the function is essential.

6. How many other employees are available among whom the function can be distributed? The smaller

the number of employees available for performing a group of functions, the greater the likelihood that

any one of them will have to perform a particular function.

Only a single means and source are used for gathering data. As discussed in this

chapter, there are many proven methods for gathering job data. All too often, a job

analysis relies on only one of these methods when a combination of methods might

provide better data.

The supervisor and the jobholder do not participate in the design of the job analysis

procedure. Too many analyses are planned and implemented by one person who assumes

exclusive responsibility for the project. The jobholder and his or her supervisor should be

involved in the planning of the project.

No training or motivation exists for jobholders. Job incumbents are potentially a great

source of information about the job. Unfortunately, they are seldom trained or prepared

to generate quality data for a job analysis. Also, jobholders are rarely made aware of the

importance of the data and almost never rewarded for providing good data.

Employees are not allowed suffi cient time to complete the analysis. Usually a job analysis

is conducted as though it were a crash program, and employees are not given suffi cient

time to do a thorough job analysis.

Activities may be distorted. Without proper training and preparation, employees may

submit distorted data, either intentionally or not. For example, employees are likely to

speed up if they know they are being watched. Employee involvement from the beginning

of the project is a good way to minimize this problem.

Participants fail to critique the job. Many job analyses do not go beyond the initial phase

of reporting what the jobholder currently does. These data are extremely valuable, but the

analysis should not stop here. The job should be critiqued to determine whether it is being

done correctly or whether improvements can be made.

JOB DESIGN

As mentioned in the introduction to this chapter, job design is the process of structuring work

and designating the specifi c work activities of an individual or group of individuals to achieve

certain organizational objectives. Designing a job involves making decisions as to who, what,

where, when, why, and how the job will be performed.

The job design process can generally be divided into three phases:

1. The specifi cation of individual tasks: What different tasks must be performed?

2. The specifi cation of the method of performing each task: Specifi cally, how will each task

be performed?

3. The combination of individual tasks into specifi c jobs to be assigned to individuals: How

will the different tasks be grouped to form jobs?9

Phases 1 and 3 determine the content of the job, while phase 2 indicates precisely how the job

is to be performed. The overall goal of job design is to develop work assignments that meet the

requirements of the organization and the technology, and that satisfy the personal and individual

requirements of the jobholder.10 The key to successful job design is to balance the requirements

of the organization and the jobholder. For many years, the prevailing practice in designing jobs

was to focus almost entirely on simplifying the tasks to be undertaken. This usually resulted

in making jobs as specialized as possible. While job specialization has many advantages, as

outlined in Table 4.6, it can result in boredom and even degradation of the jobholder. A clas-

sic example of specialization is the automobile assembly line. The idea is to specialize but not

overdo it. HRM in Action 4.2 discusses a very early example of specialization.

74 Part One Introduction and Background of Human Resources

TABLE 4.6 Advantages of Job

Specialization

1. Fewer skills required per person, which makes it easier to recruit and train employees.

2. Increased profi ciency through repetition and practice of the same tasks.

3. More effi cient use of skills by primarily utilizing each employee’s best skills.

4. Low wages due to the ease with which labor can be substituted.

5. More conformity in the fi nal product or service.

6. Different tasks performed concurrently.

Job Scope and Job Depth Job scope and job depth are two important dimensions of job design. Job scope refers to the number and variety of different tasks performed by the jobholder. In a job with narrow scope,

the jobholder performs a few different tasks and repeats those tasks frequently. The negative

effects of jobs limited in scope vary with the jobholder, but can result in more errors and lower

quality. The job of a toll booth operator would be an example of a job with narrow scope.

Job depth refers to the freedom of jobholders to plan and organize their own work, work at their own pace, and move around and communicate as desired. A lack of job depth can result

in job dissatisfaction, which in turn can lead to tardiness, absenteeism, and even sabotage. The

job of most traveling salespeople would be relatively high in job depth.

A job can be high in job scope and low in job depth, or vice versa. For example, newspaper

delivery involves the same few tasks each time, but there is considerable freedom in organiz-

ing and pacing the work. Therefore, the job is low in scope but high in depth. Of course, many

jobs are low (or high) in both job scope and job depth. Most assembly line jobs are narrow

(or low) in job scope and low in job depth.

Sociotechnical Approach to Job Design The sociotechnical approach to job design was fi rst introduced as an alternative to viewing

job design strictly as a matter of specializing the job as much as possible. The thrust of the

sociotechnical approach is that both the technical system and the accompanying social system

should be considered when designing jobs.11 According to this concept, employers should de-

sign jobs by taking a holistic, or systems, view of the entire job situation, including its physical

and social environment. The sociotechnical approach is situational because few jobs involve

identical technical requirements and social surroundings. Specifi cally, the sociotechnical

approach requires that the job designer carefully consider the role of the employees in the

sociotechnical system, the nature of the tasks performed, and the autonomy of the work group.

Ideally, the sociotechnical approach merges the technical needs of the organization with the

social needs of the employees involved in decision making. The following guidelines use the

sociotechnical approach to designing jobs:12

1. A job needs to be reasonably demanding for the individual in terms other than sheer

endurance, yet provide some variety (not necessarily novelty).

2. Employees need to be able to learn on the job and to continue learning.

3. Employees need some minimum area of decision making that they can call their own.

4. Employees need some minimal degree of social support and recognition in the workplace.

5. Employees need to be able to relate what they do and what they produce to their social lives.

6. Employees need to believe that the job leads to some sort of desirable future.

The sociotechnical approach to job design has been applied in many countries, often under the

heading “autonomous work groups,” “Japanese-style work groups,” or employee involvement

job scope Number and variety of tasks

performed by the jobholder.

job depth Freedom of jobholders to

plan and organize their own

work, work at their own

pace, and move around and

communicate.

ADAM SMITH AND SPECIALIZATION Specialization was of concern to managers at least as early as

1776. In An Inquiry into the Nature and Causes of the Wealth

of Nations, Adam Smith discussed at length the importance

of the benefi ts. According to Smith, specialization in

pinmaking meant that “one man draws out the wire,

another straightens it, a third cuts it, a fourth points, a

fi fth grinds it at the top for receiving the head, and so on.

In a factory of 10 men, . . . they could, when they exerted

themselves, make among them about 12 pounds of pins in a

day. There are in a pound upwards of 4,000 pins of middling

size.” Smith says, “If they had all wrought separately and

independently . . . they certainly could not each have made

20, perhaps not 1 pin in a day.” Smith concluded that three

different circumstances led to the benefi ts of specialization:

(1) the increased dexterity of every individual worker, (2)

the saving of time lost in moving from one type of work to

another, and (3) the invention of machines that enabled one

worker to do the work of many.

Source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Edinburgh, Scotland: Arch. Constable, 1806), pp. 7–8.

HRM in Action 4.2

(EI) teams.13 Modern-day job designs based on the concepts of self-managed work teams or

group productivity usually have their roots in the sociotechnical approach. HRM in Action 4.3

discusses a very early sociotechnical system.

The Physical Work Environment The physical work environment, which includes factors such as temperature, humidity, ventila-

tion, noise, lighting, color, and spatial density, can have an impact on the design of jobs. While

studies clearly show that adverse physical conditions have a negative effect on performance

and health, the degree of infl uence varies from individual to individual. In general, the physi-

cal work environment should allow for normal lighting, temperature, ventilation, and humidity.

Baffl es, acoustical wall materials, and sound absorbers should be used where necessary to re-

duce unpleasant noises. Soothing colors should be used whenever possible. If employees must

be exposed to less-than-ideal physical conditions, it is wise to limit these exposures to short

periods of time to minimize the probability that the employee will suffer any permanent physical

or psychological damage.

When designing jobs, thought should also be given to the mental and psychological im-

pacts of the physical environment. Consideration should be given to how the physical work

environment of the job impacts the mental stress of the jobholder. For example, one recent

study found that employees in spacially dense work areas (those with relatively little space

available per person) experienced higher levels of tardiness and intentions to transfer as well

as lower satisfactions with their work areas.14 Stress in the workplace is discussed in depth in

Chapter 16 (Employee Safety and Health).

The implementation of the Occupational Safety and Health Act (OSHA) in 1970 magnifi ed

the importance of safety considerations in the design process. Designed to reduce the incidence

of job-related injuries and illnesses, the act outlines very specifi c federal safety guidelines that

all organizations in the United States must follow. Chapter 16 discusses OSHA at length.

Flexible Work Arrangements (FWAs) Other factors and arrangements that affect job design are the work schedule and alternative

work arrangements. In the last several years, organizations have increasingly departed from

traditional work schedules and work arrangements in an attempt to increase productivity or

decrease cost. While changes in work schedules and work arrangements do not generally

alter work to be done, they can affect how the work is allocated. Flexible work arrangements

SOCIOTECHNICAL SYSTEM HUNDREDS OF YEARS AGO? The origins of modern-day sociotechnical systems are usually

attributed to the Travistock Institute in England and their

work immediately following World War II. The attempt of

these researchers was to “optimize” the relationship between

the social and technical systems within an organization.

There is evidence, however, that early forms of sociotechnical

systems existed much earlier and specifi cally among the

miners in Cornwall, England.

Mining in Cornwall can be traced back to before recorded

history. Cornish miners were afforded a signifi cant amount

of political autonomy from the early 1200s, and this resulted

in an economic environment conducive to successful

resource development as well as technological innovation

and a spirit of entrepreneurship. Individual miners organized

themselves in self-selected work teams and worked under

compensation arrangements that aligned the interests of

the miners and the owners. The teams’ immediate bosses,

known as “captains,” were typically elected by the miners

and empowered by the owners. Miners were not considered

to be laborers who, at the time, were paid straight wages.

The system resulted in the miners being in a form of

partnership with the mine owners. Cornish miners also

made many technological advances in mining and, thus, had

to integrate these changes into their jobs.

It is also interesting to note that Cornish mining

expatriates were widely present in California by 1865 and

that they brought their effective sociotechnical systems with

them. As in Cornwall, these systems utilized the skills and

abilities of the miners to effectively carry out their work

roles and tasks, while meeting the goals and values of both

the miners and mine management.

Source: Frederick Wolf, Bruce Finnie, and Linda Gibson, “Cornish Miners in California: 150 Years of a Unique Sociotechnical System,” Journal of Management History, 2008, vol. 14, iss. 2, pp. 144–160.

HRM in Action 4.3

(FWAs) is a relatively new term that refers to alternative work schedules and arrangements.

FWAs allow an employee to alter the time and/or place when/where work is conducted on a

regular basis, consistent and predictable with the employer’s operations.”15 Some of the most

commonly encountered FWAs are fl extime, telecommuting, job sharing, condensed work

week, and the use of contingent workers. HRM in Action 4.4 describes why and how First

Tennessee Bank is utilizing fl exible work arrangements.

Flextime

Flextime, or fl exible working hours, allows employees to choose, within certain limits, when

they start and end their workday. Usually the organization defi nes a core period (such as

10 A.M. to 3 P.M.) when all employees will be at work. Each employee then decides when to

start and end the workday as long as the hours encompass the core period. Some fl extime

programs allow employees to vary the hours worked each day as long as they meet some

specifi c weekly total, which is usually 40 hours. Flextime has the advantage of allowing em-

ployees to accommodate different lifestyles and schedules. Other potential advantages include

avoiding rush hours, having less absenteeism and tardiness, and improved health.16 From

the employer’s viewpoint, fl extime can have the advantage of providing an edge in recruiting

new employees and also in retaining hard-to-fi nd qualifi ed employees. Organizations with

fl extime schedules may also see an increase in productivity.17 On the downside, fl extime can

create communication and coordination problems for supervisors and managers. The 2009

Employee Benefi ts Survey conducted by SHRM reported that 54 percent of the respondents

offered fl extime that allowed employees to select their work hours within limits established

by the employer.18

Telecommuting

Telecommuting is the practice of working at home or while traveling and being able to interact

with the offi ce. Today’s information technology (PCs, the Internet, cellular phones, etc.) has

made telecommuting a reality for many companies. Higher gasoline prices have also had an

impact on the popularity of telecommuting. According to a survey sponsored by the Telework

Advisory Group for World at Work, approximately 17.2 million Americans worked from home

or remotely at least one day per month for their employer in 2008.19 These telecommuters

are known as employee telecommuters. This same survey also reported that approximately

16.6 million Americans who work on contract, are self-employed, or are business owners

work at home or remotely at least one day per month. These telecommuters are known as

contract telecommuters. The sum total of employee telecommuters and contract telecommut-

ers increased by 43 percent from 2003 to 2008. The previously referenced 2009 survey by the

FLEXIBILITY AT FIRST TENNESSEE BANK First Tennessee Bank, headquartered in Memphis, has a

culture that puts employees fi rst. As explained by bank

president Frank Schriner, “We learned that when our

employees were delighted, they made our customers happy

too.” When management asked the employees what they

needed to be happy at work, fl exibility was a big part of their

answer. The bank management took their answer seriously

and subsequently implemented a wide range of practices to

encourage fl exible work arrangements throughout the bank.

Recruiting conversations by the bank employees

emphasize fl exibility from the start. The same message is

interwoven into training for incoming managers. The bank’s

Leadership Success Guide and Web site also emphasize

fl exibility guidelines. The bank measures how it’s doing with

its employees through yearly surveys. The following specifi c

examples are from the bank’s Chattanooga offi ce:

• All tellers can reschedule their hours every three weeks.

• Many employees are allowed to work from home using

their laptops.

• Employees can take time to care for an ailing relative.

• Unpaid leaves of up to 16 weeks can be obtained.

• Part-time schedules can be arranged.

First Tennessee boasts one of the highest customer retention

rates of any bank in the United States.

Source: When Work Works: Making Work “Work” (New York: Families and Work Institute, 2007), pp. 1–2.

HRM in Action 4.4

SHARING THE TOP JOB Almost four years ago, national children’s charity, the Daycare

Trust in England, appointed two chief executives to share the

job. Alison Garnham and Emma Knights each work alone

for two days each week and together on Wednesdays. Both

women are involved in all aspects of the charity’s operations

with each taking the major responsibility for different areas.

According to Garnham the arrangement has worked for two

main reasons: (1) they know each other well and (2) they have

agreed to a set of ground rules to live by such as not interfering

in each other’s decisions and sticking by the decisions of the

other. Since they began the job, their approach has remained

mostly unchanged except for the addition of a single and

shared “to do” list.

The idea of job sharing ties in with the Trust’s advocacy

for fl exible work arrangements. Garnham also believes that

the arrangement brings other benefi ts to the Trust. “We’ve

got the energy of two people and there is less downtime in

the week. There’s the advantage that when one of us is not

in the offi ce, there is someone else who can make a decision.

And we have two people’s backgrounds and experience to

call on.”

Source: Tristan Donovan, “How We Share the Top Job,” Third Sector, June 9, 2009, p. 21.

HRM in Action 4.5

Society for Human Resource Management found that 51 percent of their respondents offered

some type of telecommuting.20 The same respondents also reported that 45 percent of their

organizations offered telecommuting on an ad-hoc basis, 34 percent on a part-time basis, and

19 percent on a full-time basis.

Advantages of telecommuting include less travel time and travel expenses, avoiding rush

hour, avoiding distractions at the offi ce, and being able to work fl exible hours. Potential

disadvantages of telecommuting are insurance concerns relating to the health and safety of

employees working at home and the lack of the professional and social environment of the

workplace. Another drawback is that some state and local laws restrict just what work can be

done at home. Evidence has emerged indicating that, when given a choice, employees prefer a

mix of working part of the time from home and part of the time in the offi ce.21

Job Sharing

Job sharing is a relatively new concept whereby two or more part-time individuals perform

a job that would normally be held by one full-time person. Job sharing can be in the form of

equally shared responsibilities, split duties, or a combination of both. Job sharing is especially

attractive to people who want to work, but not full-time. From the organization’s viewpoint,

job sharing aids in the retention of valuable employees. A critical factor relating to job shar-

ing is how benefi ts are handled. Often benefi ts are prorated between the part-time employees.

Some organizations allow job-sharing employees to purchase full health insurance by paying

the difference between their prorated benefi t and the premium for a full-time employee. In

recessionary times and when organizations are cutting back, job sharing can be used to avoid

layoffs and to retain trained employees. The 2009 survey conducted by SHRM reported that

51 percent of the respondents’ companies offered some type of job sharing.22 HRM in Action

4.5 discusses how two people share the top job in one organization.

Condensed Workweek

Under the condensed workweek, the number of hours worked per day is increased and the

number of days in the workweek is decreased. Typically, this is done by having employees

work 10 hours per day for four days per week (known as 4/40). Other variations of the con-

densed workweek include reducing the total hours worked to 36 or 38 hours. Advantages of

the condensed workweek are lower absenteeism and tardiness, less start-up time, and more

time available for employees to take care of personal business. One potential disadvantage is

the fatigue that often accompanies longer hours. As with telecommuting, the price of gasoline

has also affected the desire of people to use a condensed workweek. A 2008 survey conducted

by Chicago consultant Challenger, Gray & Christmas found that 23 percent of the responding

companies offered a condensed workweek.23 The previously referenced 2009 survey by the

Society of Human Resource Management reported that 37 percent of responding companies

offered some type of compressed workweek.24

Technology such as the Internet and PCs make it possible for employees to work from home, while still interacting with the offi ce. © image100/PunchStock

Chapter 4 Job Analysis and Job Design 79

Contingent Workers

The U.S. Labor Department’s Bureau of Labor Statistics (BLS) separates contingent workers into two groups: (1) independent contractors and on-call workers, who are called to work only when needed, and (2) temporary or short-term workers. Both of these groups have

been growing and represented approximately 10.7 percent and 4.1 percent respectively of the

U.S. workforce in 2005, which is the last year that BLS collected this data. Some people also

include part-time and leased employees under the category of contingent workers.25 In 2008,

the contingent workforce was estimated to be approximately 13 percent of the entire U.S.

workforce and some predicted that it could rise in the near future to as much as 30–50 per-

cent.26 The reasons that organizations use contingent workers include seasonal fl uctuations,

project-based work, the desire to acquire skill sets not available in the normal employee popu-

lation, hiring freezes, and rapid growth.

Contingent workers present certain challenges for human resource people, among which

are the following:

• Management issues. Who manages the different contingent workers and what role does HR

play?

• Tracking and reporting. How do contingents fi t into the different HR system such as

payroll?

• Compensation. How are contingents compensated compared to other employees?

• Retention. Since most contingents don’t receive benefi ts they can be hard to retain.

• Attitude and work quality. Most contingents do not share the same degree of commitment

as other employees.

• Orientation and training. Orientation and training can be diffi cult to schedule because of

scheduling confl icts with other jobs.

• Legal issues. Contingent workers must meet the legal defi nition of “independent contractor”

under IRS rules.

• Use of company resources. This can include everything from company discounts to

participation in company educational programs.

• Physical security. Do contingent workers have the same access to company facilities as

other employees?

The above list is certainly not exhaustive but it does identify many of the major challenges

that accompany contingent workers. Despite these challenges, using contingent workers

can have tremendous benefi ts. Some of the major benefi ts include fl exibility for dealing

with fl uctuating product or service demand, increasing workplace diversity, determining

potential as a future full-time employee, and providing skills the organization doesn’t have

in-house.

1. Defi ne job analysis and job design.

Job analysis is the process of determining and reporting pertinent information relating to

the nature of a specifi c job. It is the determination of the tasks that comprise the job and of

the skills, knowledge, abilities, and responsibilities required of the holder for successful

job performance. Job design is the process of structuring work and designating the specifi c

work activities of an individual or group of individuals to achieve certain organizational

objectives. Job design addresses the basic question of how the job is to be performed, who

is to perform it, and where it is to be performed.

2. Distinguish among a position, a job, and an occupation.

Job duties, when combined with responsibilities, defi ne a position. A group of positions

that are identical with respect to their major tasks and responsibilities form a job. A group

of similar jobs forms an occupation.

contingent workers Employees who are

independent contractors and

on-call workers or temporary

short-term workers.

Summary of Learning Objectives

80 Part One Introduction and Background of Human Resources

3. Describe several common uses of a job analysis.

Several of the most common uses of a job analysis include job defi nition, job redesign,

recruitment, selection and placement, orientation, training, career counseling, employee

safety, performance appraisal, and compensation.

4. Defi ne job description and job specifi cation.

A job description concentrates on the job. It explains what the job is and what the duties,

responsibilities, and general working conditions are. A job specifi cation concentrates on

the characteristics needed to perform the job. It describes the qualifi cations the incumbent

must possess to perform the job.

5. Identify four frequently used methods of job analysis.

Four frequently used methods of job analysis are observation, interviews, questionnaires,

and functional job analysis.

6. Discuss what O*NET is and briefl y explain why it was developed.

O*NET stands for Occupational Information Network, which is a comprehensive online

database of employee attributes and job characteristics. By using comprehensive terms

to describe knowledge, skills, abilities (KSAs), interests, content, and context of work,

O*NET provides a common language and form of reference for understanding what is

involved in effectively performing a given job. O*NET was developed to replace the old

dictionary of occupational titles (DOT) that had become obsolete and ineffi cient.

7. Defi ne essential functions and reasonable accommodation as interpreted under the

Americans with Disabilities Act.

Under the Americans with Disabilities Act, an essential job function is one that is

fundamental to successful performance of the job as compared to marginal job functions,

which may be performed at certain times but are incidental to the main purpose of the job.

Reasonable accommodation means the employer may be required to alter the conditions

of a particular job to enable the candidate to perform all essential functions.

8. Identify several problems frequently associated with job analyses.

Some of the most frequently encountered problems with job analyses include the following:

top management support is missing; only a single means and source for gathering data

are used; the supervisor and jobholder do not participate in the design of the job analysis

procedure; no training or motivation is provided; employees are not allowed suffi cient time to

complete the analysis; jobholder activities may be distorted; participants fail to critique the job.

9. Defi ne job scope and job depth and explain their relationship to job design.

Job scope and job depth are both dimensions of job design. Job scope refers to the number

and variety of tasks performed by the jobholder. Job depth refers to the freedom of

jobholders to plan and organize their own work, work at their own pace, and move around

and communicate as desired.

10. Explain the sociotechnical approach to job design.

The sociotechnical approach to job design stresses that both the technical system and the

accompanying social system should be considered in designing jobs.

11. Distinguish among the following types of alternative work schedules: fl extime,

telecommuting, job sharing, and condensed workweek.

Flextime allows employees to choose, within certain limits, when they start and end their

workday. Telecommuting is the practice of working at home or while traveling and being

able to interact with the offi ce. Job sharing is the practice whereby two or more part-time

individuals perform a job that would normally be held by one full-time person. Under the

condensed workweek, the number of hours worked per day is increased and the number

of days in the workweek is decreased.

12. Defi ne the term contingent worker.

Contingent workers include (a) independent contractors and on-call workers, who are

called to work only when needed and (b) temporary or short-term workers. Some people

also consider part-time and leased employees to be contingent workers.

Chapter 4 Job Analysis and Job Design 81

contingent workers, 79

duties, 66

element, 66

job, 67

job analysis, 65

job depth, 75

job description, 68

job design, 66

job scope, 75

job specifi cation, 68

micromotion, 66

motion study, 69

occupation, 67

Occupational Information

Network (O*NET), 71

orientation, 67

position, 66

recruitment, 67

responsibilities, 66

selection, 67

task, 66

time study, 69

training, 67

work sampling, 70

Key Terms

1. Defi ne job analysis and job design.

2. Differentiate among the terms duties, position, and job.

3. From a human resource manager’s viewpoint, what are several potential uses of a job

analysis?

4. Defi ne job descriptions and job specifi cations. How do they relate to the job analysis

process?

5. Briefl y describe four of the most frequently used methods for analyzing jobs.

6. Briefl y describe O*NET.

7. Defi ne the concepts of essential functions and reasonable accommodation as interpreted

under the Americans with Disabilities Act.

8. What are some potential problems associated with job analysis?

9. What is the sociotechnical approach to job design?

10. Briefl y explain the following types of alternative work schedules: fl extime, telecommuting,

job sharing, and the condensed workweek.

11. What differentiates contingent workers from other employees? 1. What method of job analysis do you think would be most applicable for jobs in a large grocery store? For jobs in a public library?

2. Comment on the following statement, which is attributed to Robert Heinlein: “A human

being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship,

design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort

the dying, take orders, give orders, cooperate, act alone, solve equations, analyze new

problems, pitch manure, program a computer, cook a tasty meal, fi ght effi ciently, die

gallantly. Specialization is for insects.”

3. How do the requirements of the Americans with Disabilities Act affect the job analysis

process?

4. Describe an actual work situation in which O*NET might be useful to you as an HR

manager.

Incident 4.1

The Tax Assessor’s Offi ce

A workday begins each morning at 8 A.M. in the tax assessor’s offi ce. The staff is composed

of the director, two secretaries, two computer-typists, and three fi le clerks. Until last year, the

offi ce operated smoothly, with even workloads and well-defi ned responsibilities.

Over the last year or so, the director has noticed more and more disagreements among

the computer-typists and fi le clerks. When they approached the director to discuss their disa-

greements, it was determined that problems had arisen from misunderstandings concerning

responsibility for particular duties. A strong undercurrent of discontent developed because

the computer-typists feel the fi le clerks have too much free time to spend running personal er-

rands and socializing. On the other hand, the secretaries and computer-typists frequently have

to work overtime doing work they believe could easily be picked up by the fi le clerks. The fi le

Review Questions

Discussion Questions

Chapter 4 Job Analysis and Job Design 81

82 Part One Introduction and Background of Human Resources

clerks claim they should not have to take on any additional duties because their paychecks

would not refl ect the extra responsibilities.

Each person in the offi ce has a general job description that was written several years ago.

However, the nature of most positions has changed considerably since then because of the

implementation of the computer system. No attempt has been made to put these changes in

writing. The director formerly held staff meetings to discuss problems that arose within the

offi ce; however, no meetings have been held in several months.

Questions

1. What actions would you recommend to the director?

2. Why do you think job descriptions are not updated in many organizations?

Incident 4.2

Turnover Problems

Ms. Shivers is the manager of a computer division in the federal government. Among her vari-

ous responsibilities is the central data entry offi ce, with 10 GS–4 data entry clerks and one

GS–5 supervisor.

The starting salary range for a GS–4 data entry clerk with limited skills is comparable to

the starting salary in private industry. However, after about six months of on-the-job experi-

ence, most data entry clerks can get a substantial pay increase by taking a job in private indus-

try. It has become common knowledge in industry that Ms. Shivers has a very good training

program for data entry clerks and that her division represents a good source of personnel. As a

result of this reputation, Ms. Shivers has experienced a heavy turnover during the last several

months. In fact, the problem has recently become severe enough to create a tremendous work

backlog in her division. In short, she has had to oversee so many trainees that the division’s

overall productivity has declined.

Within the data entry section are three notable exceptions who have worked for Ms. Shivers

for several years. These three have recently been responsible for most of the work turned out

in the division. The GS–5 supervisor has been running the section for fi ve years. Just recently,

she informed Ms. Shivers that she had been offered a job with another company with a small

pay increase and no supervisory responsibilities.

Ms. Shivers has always felt that the data entry clerks should be upgraded to the GS–5 level

and the supervisor’s job to GS–6. In fact, on several occasions, Ms. Shivers has mentioned this

idea to her boss, John Clayton. She believes not only that these jobs should be upgraded but

also that this action would go a long way toward solving her turnover problem. Unfortunately,

Clayton has never shown much interest in Ms. Shivers’ idea.

Questions

1. What do you suggest Ms. Shivers do to further promote the idea of upgrading the data entry

clerk and supervisory positions?

2. What can Ms. Shivers do from a job design standpoint to help with the turnover problem?

Go to the O*NET Web site at http://online.onetcenter.org and experiment with the data. Choose

a job (your current job, a job you held in the past, or a job you would like to have) and see if the

skills listed by O*NET match your expectations and experiences for the job.

Using Table 4.2 as a guideline, write a job description for the last job you held. Your job may

have been a summer, part-time, or full-time job. If you have never had a job, choose a job of

one of your parents. Your fi nal product should normally be between one and two pages in

length.

EXERCISE 4.1

Introduction to

O*NET

EXERCISE 4.2

Writing a Job

Description

Chapter 4 Job Analysis and Job Design 83

Your instructor may ask you to do both parts of this exercise or only part a or part b.

a. Use the job analysis questionnaire in the On the Job example at the end of this chapter (p. 84)

to analyze the most recent job you have held. Your job may have been a summer, part-time,

or full-time job. You need not fi ll in the heading information. After you have completed the

questionnaire, answer the following questions:

1. Do you believe the job analysis captured the essence of your job? If not, what was left out?

2. What improvements would you recommend in the job analysis questionnaire?

3. Do you think your boss would have answered the questionnaire basically the same way

you did? Why or why not?

b. Using the same job analysis questionnaire change referenced in part a above, go out and

interview an actual jobholder of your choice. After you have completed the job analysis

questionnaire, write a complete job description for the job.

1. War Manpower Commission, Division of Occupational Analysis, Training and Reference Manual

for Job Analysis (Washington, D.C.: U.S. Government Printing Offi ce, June 1944), p. 7.

2. This list is partially adapted from J. Markowitz, “Four Methods of Job Analysis,” Training and

Development Journal, September 1981, p. 112.

3. U.S. Department of Labor, Handbook for Analyzing Jobs (Washington, D.C.: U.S. Government

Printing Offi ce, 1972).

4. The Position Analysis Questionnaire (PAQ) is copyrighted by the Purdue Research Foundation. The

PAQ and related materials are available from PAQ Services, Inc., 11 Bellweather Way, Suite 107,

Bellingham, WA 98225, phone (800) 292-2198 or (360) 733-2364 or www.paq.com.

5. W. W. Tornov and P. R. Pinto, “The Development of a Managerial Job Taxonomy: A System for

Describing, Classifying, and Evaluating Executive Positions,” Journal of Applied Psychology 61,

No. 4 (1976), p. 413.

6. An updated electronic version of the abandoned DOT is available for a fee from PAQ Services, Inc.,

www.paq.com.

7. Much of this section is based on Wayne E. Barlow and Edward Z. Hare, “A Practical Guide to

the Americans with Disabilities Act,” Personnel Journal, June 1992, p. 53, and Eric J. Felsberg,

“Conducting Job Analyses and Drafting Lawful Job Description under the Americans with

Disabilities Act,” Employment Relations Today, Fall 2004, pp. 91–93.

8. Parts of this list are adapted from Philip C. Grant, “What Use Is a Job Description?” Personnel

Journal, February 1988, pp. 50–55; see also Brenda Paik Sunoo, “Generic or Non-Generic Job

Descriptions?” Personnel Journal, February 1996, p. 102.

9. L. E. Davis, “Job Design and Productivity: A New Approach,” Personnel, March 1957, p. 420; Shari

Caudron, “On the Contrary: Job Stress Is in Job Design” Workforce, September 1998, pp. 21–23.

10. Richard B. Chase, F. Robert Jacobs, and Nicholas J. Aquilano, Operations Management for

Competitive Advantage, 10th ed. (Burr Ridge, Ill.; McGraw-Hill/Irwin, 2004), p. 126.

11. P. B. Vaill, “Industrial Engineering and Socio-Technical Systems,” Journal of Industrial Engineering,

September 1967, p. 535.

12. Louis E. Davis, Job Satisfaction—A Socio-Technical View, Report 515-69 (Los Angeles: University

of California, 1969), p. 14.

13. Chase, Jacobs, and Aquilano, Operations Management, p. 128.

14. Douglas R. May, Greg R. Oldham, and Cheryl Rathert, “Employee Affective and Behavioral Reactions to the Spatial Density of Physical Work Environments,” Human Resource Management,

Spring 2005, pp. 21–33.

15. Workplace Flexibility in the 21st Century. (Alexandria, Va.: The Society for Human Resource

Management, 2009), p. 5.

16. “Flextime Benefi ts Make for Healthier Offi ces,” IOMA’s Report on Compensation and Benefi ts

for Law Offi ces 9, No. 9 (September 2009), pp. 1–5; and “Flextime Does More Than Just Satisfy

Employees,” HR Focus 86, No. 9 (September 2009), p. 12.

17. Brian Gill, “Flextime Benefi ts Employees and Employers,” American Printer, February 1998, p. 70;

Sarah Fister Gale, “Expert Wisdom in Launching Flex Programs,” Workforce, October 2001, p. 64.

18. 2009 Employee Benefi ts (Alexandria, Va.: The Society for Human Resource Management, 2009), p. 32.

19. “Telework Trendlines 2009” p. 5, www.worldatwork.org. Accessed January 13, 2010.

EXERCISE 4.3

Performing a Job

Analysis

Notes and Additional Readings

84 Part One Introduction and Background of Human Resources

20. 2009 Employee Benefi ts, op. cit.

21. Kathy Gurchiek, “Workers Pick Offi ce over Telecommuting,” HR Magazine, September 2006,

pp. 28–29.

22. 2009 Employee Benefi ts, op. cit.

23. Pete Bach, “Workers Look to Trim Gas Costs,” McClatchy-Tribune Business News, June 3, 2008.

24. 2009 Employee Benefi ts, op. cit.

25. Much of this section is drawn from “More Contingent Workers Are a Blessing and Sometimes

a Challenge for HR,” HR Focus, January 2006, pp. 51–54. “Contingent Workforce Brings More

Questions Than Answers,” HR Focus, July 2005, pp. 6–7, and “Where Are Contract Workers Filling

Talent Gaps?,” HR Focus, March 2009, pp. 10–11.

26. Irwin Speizer, “An On-Demand Workforce,” Workforce Management, October 19, 2009, pp. 45–49.

SAMPLE JOB ANALYSIS QUESTIONNAIRE*

Job Analysis Information Format

Your job title _______________ Code __________ Date __________

Class title _______________ Department _______________

Your name _______________ Facility _______________

Superior’s title _______________ Prepared by _______________

Superior’s name _______________ Hours worked _____ AM _____ to _____ AM _____ PM PM

1. What is the general purpose of your job?

2. What was your last job? If it was in another organization, please name it.

3. To what job would you normally expect to be promoted?

4. If you regularly supervise others, list them by name and job title.

5. If you supervise others, please check those activities that are part of your supervisory duties:

Hiring Coaching Promoting

Orienting Counseling Compensating

Training Budgeting Disciplining

Scheduling Directing Terminating

Developing Measuring performance Other _____

6. How would you describe the successful completion and results of your work?

7. Job duties—Please briefl y describe WHAT you do and, if possible, HOW you do it. Indicate those duties

you consider to be most important and/or most diffi cult.

(a) Daily duties:

(b) Periodic duties (Please indicate whether weekly, monthly, quarterly, etc.):

8. Education—Please check the blank that indicates the education requirements for the job, not your own

educational background:

No formal education required 4-year college degree

Less than high school diploma Education beyond undergraduate

High school diploma or equivalent degree and/or professional license

2-year college certifi cate or equivalent

List advanced degrees or specifi ed professional license or certifi cate required.

Please indicate the education you had when you were placed on this job.

9. Experience—Please check the amount needed to perform your job:

None More than 1 year to 3 years

Less than 1 month More than 3 years to 5 years

1 month to less than 6 months More than 5 years to 10 years

6 months to 1 year Over 10 years

Please indicate the experience you had when you were placed on this job.

*Source: Adapted from Richard I. Henderson, “Compensation Management in a Knowledge-Based World,”

On the Job

Chapter 4 Job Analysis and Job Design 85

10. Skills—Please list any skills required in the performance of your job (e.g., amount of accuracy, alertness,

precision in working with described tools, methods, systems). Please list skills you possessed when you

were placed on this job.

11. Equipment—Does your work require the use of any equipment? Yes _____ No _____

If yes, please list the equipment and check whether you use it rarely, occasionally, or frequently:

Equipment Rarely Occasionally Frequently

(1) __________

(2) __________

(3) __________

(4) __________

12. Physical demands—Please check all undesirable physical demands required on your job and whether

you are required to do so rarely, occasionally, or frequently:

Rarely Occasionally Frequently

Handling heavy material

Awkward or cramped

positions

Excessive working speeds

Excessive sensory

requirements (seeing, hearing,

touching, smelling, speaking)

Vibrating equipment

Others __________

13. Emotional demands—Please check all undesirable emotional demands placed on you by your job and

whether it is rarely, occasionally, or frequently:

Rarely Occasionally Frequently

Contact with general public

Customer contact

Close supervision

Deadlines under pressure

Irregular activity schedules

Working alone

Excessive traveling

Other

14. Workplace location—Check the type of location of your job and if you consider it to be unsatisfactory

or satisfactory.

Unsatisfactory Satisfactory

Outdoor

Indoor

Underground

Pit

Scaffold

15. Physical surroundings—Please check whether you consider the following physical conditions of your job

to be poor, good, or excellent.

Poor Good Excellent

Lighting

Ventilation

Sudden temperature change

Vibration

Comfort of furnishings

16. Environmental conditions—Please check the objectionable conditions under which you must perform

your job and check whether the condition exists rarely, occasionally, or frequently:

Rarely Occasionally Frequently

Dust

Dirt

Heat

Cold

Fumes

Odors

Noise

Wetness

Humidity

Other __________

86 Part One Introduction and Background of Human Resources

17. Health and safety—Please check all undesirable health and safety factors under which you must

perform your job and whether you are required to do so rarely, occasionally, or frequently:

Rarely Occasionally Frequently

Height of elevated workplace

Radiation

Mechanical hazards

Moving objects

Explosives

Electrical hazards

Fire

Other __________

______________________________ ______________________________

Signature Date

Supervisory Review Do the incumbent’s responses to the questionnaire accurately describe the work requirements and the work

performed in meeting the responsibilities of the job? Yes _____ No _____ If no, please explain and list any

signifi cant omissions or additions.

Part Two

Acquiring Human Resources 5. Human Resource Planning

6. Recruiting Employees

7. Selecting Employees

B a n

a n

a St

o ck

/P ic

tu re

Q u

e st

Chapter Five

Human Resource Planning

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne human resource planning (HRP).

2. Summarize the relationship between

HRP and organizational planning. 3. Explain strategy-linked HRP. 4. Identify the steps in the HRP process.

5. Describe the different methods used

for forecasting human resource needs.

Chapter Outline

How HRP Relates to Organizational

Planning

Strategy-Linked HRP

Time Frame of HRP

HRP: An Evolving Process

Steps in the HRP Process

Determining Organizational

Objectives

Determining the Skills and Expertise

Required (Demand)

Determining Additional (Net) Human

Resource Requirements

Developing Action Plans

Synthesizing the HRP Process

Succession Planning

Human Resource Information

Systems (HRIS)

HR and the Internet

HR Intranets and Portals

HR and Web 2.0

Software as a Service

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 5.1: Human Resource Planning—

What Is That?

Incident 5.2: New Boss

Exercise 5.1: Avoiding Layoffs?

Exercise 5.2: Locating HR Software

Notes and Additional Readings

6. Discuss the purpose of a skills

inventory.

7. Describe succession planning.

8. Defi ne a human resource information

system (HRIS).

9. Differentiate between the Internet

and an intranet.

10. Explain what Web 2.0 is.

11. Defi ne the concept “software as a

service.”

Human resource planning (HRP), also referred to as workforce planning or personnel planning, has been defi ned as the process of “getting the right number of qualifi ed people into

the right job at the right time.”1 Put another way, HRP is “the system of matching the supply of

people—internally (existing employees) and externally (those to be hired or searched for)—

with the openings the organization expects to have over a given time frame.”2 The Tennessee

Valley Authority (TVA) defi nes the HRP process as “the systematic assessment of future HR

needs and the determination of the actions required to meet those needs.”3 Yet another source

human resource planning (HRP) Process of determining the

human resource needs of an

organization and ensuring that

the organization has the right

number of qualifi ed people in

the right jobs at the right time.

90 Part Two Acquiring Human Resources

defi nes HRP as “the process of forecasting an organization’s future tasks and the e nvironment’s

demands on the organization and then setting HR action measures accordingly.”4 All of these

defi nitions suggest the fi rst challenge of HRP is to translate the organization’s plans and objec-

tives into a timed schedule of employee requirements. Once the employee requirements have

been determined, HRP must devise plans for securing the necessary employees. Basically, all

organizations engage in human resource planning either formally or informally. Some organi-

zations do a good job and others a poor job.

The long-term success of any organization ultimately depends on having the right people in

the right jobs at the right time. Organizational objectives and the strategies for achieving those

objectives are meaningful only when people with the appropriate talents, skills, and desire are

available to carry out those strategies.

Poor human resource planning can also cause substantial problems in the short term. Con-

sider the following examples:

• The CEO of a successful company retires unexpectedly because of recent health issues.

There is no obvious replacement.

• Despite an aggressive search, an important middle management position in a high-technology

organization has gone unfi lled for six months. Productivity in the section has plummeted.

• In another company, employees hired a few months ago have been placed on indefi nite

layoff because of an unforeseen lag in the workload in a specifi c production area.

• In still another company, thanks to the spectacular efforts of a talented marketing manager,

product demand has exceeded expectations. However, because the demand was unanticipated,

the company has not been able to hire enough qualifi ed production employees.

The need for HRP is due to the signifi cant lead time that normally exists between the recogni-

tion of the need to fi ll a job and securing a qualifi ed person to fi ll that need. Even in recession-

ary times it is not always possible to go out and fi nd an appropriate person overnight. Effective

HRP can also help reduce turnover by keeping employees apprised of their career opportuni-

ties within the company.

HOW HRP RELATES TO ORGANIZATIONAL PLANNING

HRP involves applying the basic planning process to the human resource needs of the organiza-

tion. To be effective, any human resource plan must be derived from the strategic and operational

plans of the organization. In essence, the success of HRP depends largely on how closely the hu-

man resource department can integrate effective people planning with the organization’s business

planning process.5 Unfortunately, HRP is often inadequately tied to overall corporate planning.

Strategic business planning seeks to identify various factors critical to the success of the or-

ganization. It also focuses on how the organization can become better positioned and equipped

to compete in its industry. To accomplish this, the planning process should provide

• A clear statement of the organization’s mission.

• A commitment from staff members to the mission.

• An explicit statement of assumptions.

• A plan of action in light of available or acquirable resources, including trained and talented

people.6

Human resource planning contributes signifi cantly to the strategic management process

by providing the means to accomplish the outcomes desired from the planning process. In

essence, the human resource demands and needs are derived from the strategic and operating

planning and then compared with human resource availability. Then a variety of programs

such as recruiting, training, and reallocation address the resulting gaps.

A common error occurs when human resource planners focus on the short-term replacement

needs and fail to coordinate their plans with the strategic and long-term plans of the organiza-

tion. Focusing on short-term replacement needs is a natural consequence of failing to integrate

human resource planning with strategic planning. A nonintegrated approach almost always leads

to surprises that force human resource planners to concentrate on short-term crises.

Chapter 5 Human Resource Planning 91

Strategy-Linked HRP All managers, especially line managers, should view human resource planning as one of their

most important job responsibilities. Unfortunately, this is not often the case. Far too many

managers view HRP as something to do only after everything else has been done. Further-

more, managers often think HRP should be handled solely by human resource personnel. But

HRP is not strictly a human resource function. The role of human resource personnel is to

assist operating managers in developing their individual plans and integrating those different

plans into an overall scheme. The individual managers must, however, provide the basic data

on which the plan is built. The process requires a joint effort by the individual managers and

human resource personnel. In general, human resource personnel provide the structure, impe-

tus, and assistance. However, individual managers must be actively involved.

One of the best ways to encourage genuine cooperation between human resource managers

and line managers is to use what is called strategy-linked HRP. Strategy-linked HRP is based on

a close working relationship between human resource staff and line managers.7 Human resource

managers serve as consultants to line managers concerning the people-management implications

of business objectives and strategies. Line managers, in turn, have a responsibility to respond to the

business implications of human resource objectives and strategies. Another important ingredient is

the commitment of top management, which should be evident to other managers and employees.

Table 5.1 summarizes several actions human resource managers can take to link human

resource planning to the organization’s strategic plans.

TIME FRAME OF HRP

Because HRP is so closely tied to the organizational planning process, the time frames hu-

man resource plans cover should correspond with those covered by the organizational plans.

Organizational plans are frequently classifi ed as short-range (zero to two years), intermediate

range (two to fi ve years), or long-range (beyond fi ve years). Ideally, an organization prepares

a plan for each of these horizons. Table 5.2 summarizes the major factors affecting long-,

intermediate-, and short-range human resource planning.

TABLE 5.1 Linking HRP to the

Business Strategy

Sources: G. Christopher Wood, “Planning

for People” (letters to the editor),

Harvard Business Review, November–

December 1985, p. 230; David R. Leigh,

“Business Planning Is People Planning,”

Personnel Journal, May 1984, pp. 44–54.

• Be familiar with the business strategy.

• Ensure that all traditional human resource programs are satisfying the needs of senior and functional

management.

• Identify the human resource implications of the organization’s business strategy.

• Identify those human resource issues that may affect business objectives, and notify the appropriate

functional managers.

• Convert business objectives into human resource objectives that can provide the foundation for a

strategic human resource plan.

• Review the strategic planning process to identify new opportunities to involve human resource personnel.

TABLE 5.2 Factors Affecting the Time Frame of HRP

Source: Adapted from J. Walker, “Forecasting Manpower Needs,” in Manpower Planning and Programming, ed. E. H. Burack and J. W. Walker (Boston: Allyn & Boston, 1972), p. 94.

Forecast

Factor

Short Range

(0–2 Years)

Intermediate

Range (2–5 Years)

Long Range

(Beyond 5 Years)

Demand Authorized employment including

growth, changes, and turnover.

Operating needs from budgets

and plans.

In some organizations, the same as

“intermediate”; in others, an increased

awareness of changes in environment and

technology—essentially judgmental.

Supply Employee census less expected

losses plus expected promotions

from subordinate groups.

Human resource vacancies

expected from individual

promotability data derived from

development plans.

Management expectations of changing

characteristics of employees and future

available human resources.

Net needs Numbers and kinds of employees

needed.

Numbers, kinds, dates, and

levels of needs.

Management expectations of future

conditions affecting immediate decisions.

92 Part Two Acquiring Human Resources

HRP: AN EVOLVING PROCESS

An organization’s human resource planning efforts should be viewed not as an all-

or-nothing process but as falling at some point along a continuum. At one end of this con-

tinuum are those organizations that do no human resource planning; at the other end are

those that completely integrate long-range human resource planning into their strategic

business plans.

D. Quinn Mills has identifi ed fi ve stages, or benchmarks, along this continuum.8 Stage 1 com-

panies have no long-term business plans, and they do little or no human resource planning.

Companies at stage 2 have a long-term business plan, but tend to be skeptical of HRP. At the

same time, such companies do realize to some degree that human resource planning is important.

Stage 3 companies do engage in some aspects of human resource planning, but for the most part

these efforts are not integrated into the long-range business plan. Stage 4 companies do a good

deal of human resource planning, and their top managers are enthusiastic about the process.

These companies have at least one human resource component integrated into the long-range

plan. Stage 5 companies treat human resource planning as an important and vital part of their

long-term business plan. Naturally, companies at stage 5 are highly enthusiastic about HRP.

STEPS IN THE HRP PROCESS

HRP consists of four basic steps:

1. Determining the impact of the organization’s objectives on specifi c organizational units.

2. Defi ning the skills, expertise, and total number of employees (demand for human resources)

required to achieve the organizational and departmental objectives.

3. Determining the additional (net) human resource requirements in light of the organization’s

current human resources.

4. Developing action plans to meet the anticipated human resource needs.9

Figure 5.1 illustrates the steps in HRP.

Determining Organizational Objectives As emphasized earlier, human resource plans must be based on organizational strategic plans.

In practice, this means the objectives of the human resource plan must be derived from organi-

zational objectives. Specifi c human resource requirements in terms of numbers and character-

istics of employees should be derived from the objectives of the entire organization.

Organizational objectives, which give the organization and its members direction and purpose, should be stated in terms of expected results. The objective-setting process begins

at the top of the organization with a statement of mission, which defi nes the organization’s

current and future business. Long-term objectives and strategies are formulated based on the

organization’s mission statement. These can then be used to establish short-term perform-

ance objectives. Short-term performance objectives generally have a time schedule and are

expressed quantitatively. Divisional and departmental objectives are then derived from the

organization’s short-term performance objectives. Establishing organizational, divisional, and

departmental objectives in this manner has been called the cascade approach to objective setting. Figure 5.2 illustrates this approach.

organizational objectives Statements of expected results

that are designed to give the

organization and its members

direction and purpose.

cascade approach to setting objectives Objective-setting process

designed to involve all

levels of management in the

organizational planning process.

Develop action plans to

meet the anticipated

human resource needs

Determine the impact

of organizational

objectives on specific

organizational units

Define the skills and

expertise required to

meet objectives

(demand for human

resources)

Determine additional

human resource

requirements in light of

current human

resources (net human

resource requirements)

FIGURE 5.1 Steps in the Human Resource Planning Process

Chapter 5 Human Resource Planning 93

The cascade approach is not a form of top-down planning, whereby objectives are passed

down to lower levels of the organization. The idea is to involve all levels of management in

the planning process. Such an approach leads to an upward and downward fl ow of informa-

tion during planning. This also ensures that the objectives are communicated and coordinated

through all levels of the organization.

When properly used, the cascade approach involves both operating managers and human

resource personnel in the overall planning process. During the early stages, human resource

personnel can infl uence objective setting by providing information about the organization’s hu-

man resources. For example, if human resource personnel have identifi ed particular strengths

and weaknesses in the organization’s staff, this information can signifi cantly infl uence the

overall direction of the organization.

Environmental Factors Affecting Human Resource Needs

Many factors in the organization’s external environment may have an impact on the or-

ganization’s objectives and the human resources needed to realize those objectives. Some

of these factors include government infl uences, general economic conditions, the competi-

tion, and changes in the workforce. Government infl uences include laws and regulations

imposed by local, state, and federal governments as well as the spending patterns of the

various governments. General economic conditions refer to the state of the overall economy

such as recession or economic boom. Interest rates and the level of unemployment are fac-

tors that are related to general economic conditions. Competitive concerns relate primarily

to the emergence or departure of direct competitors (those in the same business) as well

as the emergence and departure of businesses that compete for the same labor and other

resources. Changes in workforce refer not only to the workforce composition but also to its

FIGURE 5.2 Cascade Approach to Setting Objectives

Source: Redrawn from Anthony P. Raia, Managing by Objectives (Glenview, IL: Scott Foresman and Company, 1974), p. 30. Reprinted by permission.

Statement of

organization’s mission

Long-range objectives

and strategic plans

Short-range

performance objectives

Division or

department objectives

Subunit objectives

To setting objectives

Top management

Middle management

Supervision

94 Part Two Acquiring Human Resources

work habits. The impact of changes in technology can vary from insignifi cant to devastating

to extremely positive. For example, consider how cell phone technology has impacted the

demand for pay phone booths.

Determining the Skills and Expertise Required (Demand) After establishing organizational, divisional, and departmental objectives, operating managers

should determine the skills and expertise required to meet their respective objectives. The key

here is not to look at the skills and abilities of present employees but to determine the skills

and abilities required to meet the objectives. For example, suppose an objective of the produc-

tion department is to increase total production of a certain item by 10 percent. Once this objec-

tive has been established, the production manager must determine precisely how this translates

into human resource needs. A good starting point is to review current job descriptions. Once

this has been accomplished, managers are in a better position to determine the skills and ex-

pertise necessary to meet their objectives. The fi nal step in this phase is to translate the needed

skills and abilities into types and numbers of employees.

Methods of Forecasting Human Resource Needs

The organization’s future human resource needs can be forecasted using a variety of methods,

some simple and some complex. Regardless of the method used, forecasts represent approxi-

mations and should not be viewed as absolutes.

Methods for forecasting human resource needs can be either judgmentally or mathematically

based. Judgmental methods include managerial estimates, the Delphi technique, and scenario

analysis. Under the managerial estimates method, managers estimate future staffi ng needs based primarily on past experience. These estimates can be made by top-level managers and

passed down, by lower-level managers and passed up for further revision, or by some combina-

tion of upper- and lower-level managers. With the Delphi technique, each member of a panel of experts independently estimates future demand, specifying any underlying assumptions. An inter-

mediary then presents each expert’s forecast and assumptions to the others and allows the experts

to revise their positions if they desire. This process continues until some consensus emerges.

Scenario analysis involves using workforce environmental scanning data to develop alternative workforce scenarios.10 These scenarios are developed in brainstorming sessions

with line managers and human resource managers, who forecast what they think their work-

force will look like fi ve or more years into the future. Once these forecasts have been crystal-

ized, the managers then work backward to identify key change points. The biggest advantage

of scenario analysis is that it encourages open, out-of-the-box thinking.

Mathematically based methods for forecasting human resource needs include various

statistical and modeling methods. Statistical methods use historical data in some manner to

project future demand. Modeling methods usually provide a simplifi ed abstraction of the hu-

man resource demands throughout the organization. Changing the input data allows testing the

human resource ramifi cations of different demand scenarios. Table 5.3 summarizes four of the

most frequently used statistical and/or modeling methods.

Historically, judgmental forecasts have been used more frequently than mathematically

based forecasts. Judgmental methods are simpler and usually do not require sophisticated

analyses. However, with the increasing proliferation of user-friendly software and computers,

mathematically based methods will probably be used more frequently.

In addition to the previously described judgmentally and mathematically based forecasting

techniques, some organizations help forecast human resource needs by benchmarking what

other successful organizations are doing. Benchmarking involves thoroughly examining in- ternal practices and procedures and measuring them against the ways other successful organi-

zations operate.11 With regard to HRP, benchmarking involves learning what other successful

organizations in the industry are forecasting and how they are arriving at their forecasts. Your

forecasts and methods can then be compared to theirs. Consultants and professional organiza-

tions such as industry associations can be employed to help with the benchmarking process. A

major advantage of benchmarking is that it forces HR professionals to look at other ways of

doing things.

managerial estimates Judgmental method of

forecasting that calls on

managers to make estimates of

future staffi ng needs.

Delphi technique Judgmental method of

forecasting that uses a panel

of experts to make initially

independent estimates of future

demand. An intermediary then

presents each expert’s forecast

and assumptions to the other

members of the panel. Each

expert is then allowed to revise

his or her forecast as desired.

This process continues until

some consensus or composite

emerges.

scenario analysis Using workforce environmental

scanning data to develop

alternative workforce scenarios.

benchmarking Thoroughly examining internal

practices and procedures

and measuring them against

the ways other successful

organizations operate.

Chapter 5 Human Resource Planning 95

Determining Additional (Net) Human Resource Requirements Once a manager has determined the types and numbers of employees required, he or she

analyzes these estimates in light of the current and anticipated human resources of the orga-

nization. This process involves a thorough analysis of presently employed personnel and a

forecast of expected changes. Sometimes this process is referred to as gap analysis, i.e., deter-

mining the gap between the organization’s future human resource needs and its current human

resource assets.

Skills Inventory

A skills inventory consolidates information about the organization’s human resources. It provides basic information on all employees, including, in its simplest form, a list of the

names, certain characteristics, and skills of employees. Because the information from a skills

inventory is used as input into promotion and transfer decisions, it should contain informa-

tion about each employee’s portfolio of skills, not just those relevant to the employee’s cur-

rent job. In most situations, seven broad categories of information should be included in a

skills inventory:

1. Personal data: age, sex, marital status.

2. Skills: education, job experience, training.

3. Special qualifi cations: membership in professional groups, special achievements.

4. Salary and job history: present and past salary, dates of raises, various jobs held.

5. Company data: benefi t plan data, retirement information, seniority.

6. Capacity of individual: test scores on psychological and other tests, health information.

7. Special preferences of the individual: geographic location, type of job.12

The popularity of skills inventories has increased rapidly since the proliferation of computers.

Although traditionally most of the desired information was available from individual personnel

fi les, compiling it was time consuming before computers became readily available. Today’s in-

tranets even have the ability to conduct comprehensive skills inventories and then place employ-

ees into training to fi t the needs of the organization. Intranets are discussed later in this chapter.

The primary advantage of a skills inventory is that it furnishes a means to quickly and

accurately evaluate the skills available within the organization. In addition to helping determine

skills inventory Consolidated list of

biographical and other

information on all employees

in the organization.

Technique Description

1. Time-series analysis Past staffi ng levels (instead of workload indicators) are used to project

future human resource requirements. Past staffi ng levels are examined

to isolate seasonal and cyclical variations, long-term trends, and random

movements. Long-term trends are then extrapolated or projected using a

moving average, exponential smoothing, or regression technique.

2. Personnel ratios Past personnel data are examined to determine historical relationships

among the number of employees in various jobs or job categories.

Regression analysis or productivity ratios are then used to project either

total or key group human resource requirements, and personnel ratios are

used to allocate total requirements to various job categories or to estimate

requirements for nonkey groups.

3. Productivity ratios Historical data are used to examine past levels of a productivity index,

P Workload ________________

Number of people

Where constant, or systematic, relationships are found, human resource

requirements can be computed by dividing predicted workloads by P.

4. Regression

analysis

Past levels of various workload indicators, such as sales, production levels,

and value added, are examined for statistical relationships with staffi ng

levels. Where suffi ciently strong relationships are found, a regression (or

multiple regression) model is derived. Forecasted levels of the related

indicator(s) are entered into the resulting model and used to calculate the

associated level of human resource requirements.

TABLE 5.3 Statistical Modeling

Techniques Used to

Forecast Human

Resource Needs

Source: Kendrith M. Rowland and

Gerald R. Ferris, Personnel Management,

permission of Pearson Education, Inc.,

Upper Saddle River, NJ.

promotion and transfer decisions, this information is often necessary for making other deci-

sions, such as whether to bid on a new contract or introduce a new product. A skills inventory

also aids in planning future employee training and management development programs and in

recruiting and selecting new employees. Figure 5.3 presents a skills inventory form that has

been used by PPG Industries.

Management Inventory

Because the type of information that may be required about management personnel some-

times differs from that for nonmanagerial employees, some organizations maintain a separate

management inventory. In addition to biographical data, a management inventory often contains brief assessments of the manager’s past performance, strengths, weaknesses, and

potential for advancement. In essence, a management inventory is a specialized type of skills

inventory just for management.

Anticipating Changes in Personnel

In addition to appraising present human resources through a skills inventory, managers must

take future changes into account. Managers can accurately and easily estimate certain changes,

but cannot so easily forecast other changes. However, information is almost always available

to help make these forecasts.

Changes such as retirements can be forecasted with reasonable accuracy from information

in the skills inventory. Other changes, such as transfers and promotions, can be estimated by

taking into account such factors as the ages of individuals in specifi c jobs and the require-

ments of the organization. Individuals with potential for promotion can and should be identi-

fi ed. Other factors, such as deaths, resignations, and discharges, are much more diffi cult to

predict. However, past experience and historical records often can provide useful information

in these areas.

Planned training and development experiences should also be considered when evaluat-

ing anticipated changes. By combining the forecast for the human resources needed with the

information from the skills inventory and from anticipated changes, managers can make a

reasonable prediction of their net human resource requirements for a specifi ed time period.

HRM in Action 5.1 describes how China’s shortage of talent has presented challenges for HR

managers.

Developing Action Plans Once the net human resource requirements have been determined, managers must develop

action plans for achieving the desired results. The following section discusses action that can

be taken to add human resources.

management inventory Specialized, expanded

form of skills inventory for

an organization’s current

management team; in addition

to basic types of information,

it usually includes a brief

assessment of past performance

and potential for advancement.

HRM in Action 5.1

MAINTAINING TALENT IN CHINA Companies throughout China are having an increasingly

diffi cult time retaining qualifi ed employees. Because of

China’s one-child policy, not enough people are being born

to supply the necessary workers. The country’s outdated

educational system is not producing suffi cient graduates

with the needed skills, and the often horrendous working

conditions are resulting in employee burnout.

Those employees who do possess the desired skills are

in high demand and can be extremely selective about their

employer. These same employees are continually being

offered higher pay, better perks, and promotions to move

to another country. Throughout China, employees put in

long hours, are subjected to heavy workloads and are often

expected to use outdated manual processes. There is also a

general lack of professional development programs and other

opportunities for skill growth.

The above problems create special challenges for

HR managers in China. Christopher Lynch, professional

director at Manpower in Hong Kong, has summarized these

challenges, “HR was previously about operational issues such

as fi lling seats and making the payroll. Now it is a strategic

one—coaching and growing an organization, retaining

and nurturing talent, optimizing personnel and corporate

performance to contribute to growth.”

Source: Michael Taylor, “China’s Talent Retention Dilemma in the New Millennium,” China Staff, October 2008, pp. 17–19.

Chapter 5 Human Resource Planning 97

FIGURE 5.3 Skills Inventory Form Used by PPG Industries

PERSONAL HISTORY PROFILE

PRINTED FOR

DATE ASSIGNED JOB TITLE BUSINESS/CORPORATE DEPARTMENT ORGANIZATIONAL UNIT

PPG JOB HISTORY

DATE

CATEGORY DESCRIPTION FUNCTIONAL AREA

FLSA CATG ORIGINAL HIRE DATE LATEST HIRE DATE CONTINUOUS SERVICEMAILING CODE ID

YRS.

EXP. YRS. EXP. LAST YR.

LAST

YR.

WORK EXPERIENCE AND KNOWLEDGE ACTION

COMPANY AND LOCATION JOB TITLE FROM TO

PRE-PPG JOB HISTORY FUNCTIONAL PREFERENCES

ISSUING AUTHORITY POTENTIAL INTEREST:

GEOGRAPHIC PREFERENCE:

YESYR. RECD./EXP.

PROFESSIONAL LICENSES AND CERTIFICATES RELOCATION INTEREST

LEVEL

DEGREE IN PROGRESS EARNED REQUIRED

CREDITS

YEAR SCHOOL STATE SUBJECT

EDUCATION OTHER ACHIEVEMENTS, ACTIVITIES, TRAINING

10.

PROFICIENCY LEVEL

MEMBER STATUS YEAR

YEAR

LANGUAGES

PROFESSIONAL SOCIETIES AND ORGANIZATIONS

PPG TRAINING COURSES

10.

ANY AREA U.S. CANADA

LATIN AMERICA EUROPE ASIA PACIFIC

98 Part Two Acquiring Human Resources

Adding Human Resources

Many environmental factors may impact the decision to hire permanently or temporarily or

to outsource. Some of these factors include the permanency of the needs, the availability of

qualifi ed recruits, and the union contract (if applicable). If the net requirements indicate a

need for additional human resources, decisions must be made whether to make permanent

or temporary hires or to outsource. If the decision is to make permanent hires, plans must be

made to recruit, select, orient, and train the specifi c numbers and types of personnel needed

(Chapters 6, 7, and 8 deal with these topics).

Contingent Workers and Outsourcing Contingent workers (introduced in Chapter 4) and

outsourcing (introduced in Chapter 1) have the advantage of allowing the organization to

easily accommodate swings in demand for human resources. Contingent workers often do not

have the same benefi ts as permanent employees and hence the cost of employment can be less.

Other potential advantages of using contingenct workers and, specifi cally, temporary agencies,

is that the agencies often provide both testing and training for employees before they are hired.

A fi nal potential advantage of contingent workers is that, because of their varied experiences,

they can bring a new perspective to the organization.

If the decision is to outsource, then potential clients for outsourcing must be identifi ed and

evaluated. Outsourcing has become attractive in many situations because the work can often be

contracted outside at a cost savings. One reason for this savings is that the company providing

the service may not offer its employees benefi ts as attractive as those the parent company offers.

Another reason to outsource is to allow the parent company to focus on its core business.

Reducing Human Resources

If a reduction in human resources is necessary, plans must be made to realize the necessary ad-

justments. If time is not of the essence, natural attrition can be used to reduce labor personnel.

However, if the organization cannot afford the luxury of natural attrition, it can reduce human

resource costs either by cutting the total number of employees or by making other adjustments

that do not result in employees leaving the organization.

Downsizing As mentioned in Chapter 1, reducing the total number of employees is referred

to as downsizing. There are four basic ways to downsize: (1) layoffs, (2) terminations, (3) early

retirement inducements, and (4) voluntary resignation inducements. A layoff, as opposed to

a termination, assumes it is likely that the employee will be recalled at some later date. Most

early retirement and voluntary resignation plans provide some fi nancial inducement to retire

early or to resign.

Other Approaches for Reducing Human Resource Costs Approaches that do not result in

employees leaving the organization include (1) reclassifi cation, (2) transfer, (3) work shar-

ing, and (4) job sharing. Reclassifi cation involves demoting an employee, downgrading job

responsibilities, or a combination of the two. Usually reclassifi cation is accompanied by a

reduction in pay. A transfer involves moving the employee to another part of the organiza-

tion. Work sharing seeks to limit layoffs and terminations through the proportional reduction

of hours among employees (i.e., all employees in a department could be cut back to 35 hours

per week instead of 40). As discussed in Chapter 4, job sharing occurs when two or more

part-time individuals perform a job that would normally be held by one full-time person. Job

sharing can be used to downsize and still retain valuable employees.

Synthesizing the HRP Process Figure 5.4 depicts the relationship between organizational planning and human resource plan-

ning. As the fi gure shows, organizational objectives are infl uenced by many historical and

environmental factors. Environmental factors include variables such as government infl u-

ences, the economy, competition, labor availability, and technology. Once the organizational

objectives have been established, they are translated into divisional and departmental objec-

tives. Individual managers then determine the human resources necessary to meet their re-

spective objectives. Human resource personnel assimilate these different requirements and

determine the total human resources demand for the organization. Similarly, HR personnel

Downsizing, or reducing the total number of employees, results from a number of circumstances. Steve Cole/ Getty Images

Chapter 5 Human Resource Planning 99

FIGURE 5.4 Organizational and Human Resource Planning

Historical and

environmental factors

Promotions

Transfers

Retirements

Deaths

Discharges

Resignations

Positive

Negative

Government

influences

General

economy

Competition

Changes in

workforce

Technology

Other

Net human

resource

requirements

Anticipated

changes

Attrition, layoffs, terminations, early retirements, voluntary

resignations, reclassifications, transfers, work sharing, job sharing

Recruitment Selection Orientation Development

Skills

inventory

Organizational

objectives

Divisional and

departmental

objectives

Skills and

abilities

required

Types and

numbers of

total human

resources

required

(demand for

human

resources)

Information

from various

organizational units

100 Part Two Acquiring Human Resources

determine the additional (net) human resource requirements based on the information submitted

by the various organizational units in light of available resources and anticipated changes. If

the net requirements are positive, the organization implements recruitment, selection, training,

and development (see Chapters 6, 7, 8, and 9). If the requirements are negative, human resource

costs must be reduced through downsizing or through the use of approaches that do not result

in employees actually leaving the organization. Downsizing can be realized through attrition,

layoffs, terminations, early retirements, or voluntary resignations. Approaches that do not result

in employees leaving the organization include reclassifi cation, transfer, and work sharing. As

these changes take place, they should be refl ected in the skills inventory. Human resource plan-

ning is an ongoing process that must be continuously evaluated as conditions change.

SUCCESSION PLANNING

Succession planning identifi es a “talent pool” that can be developed in preparation for future responsibilities. Succession planning considers not only past performance but also the

future potential of individuals.13 Many organizations are engaged in a process closer to re-

placement planning than true succession planning. The goal of replacement planning is to

identify a “backup” to fi ll a job when it becomes vacant. The focus is on past performance

and demonstrating the skills necessary to perform the job in question. In addition to consider-

ing the future potential of individuals, succession planning anticipates changing organization

needs and prepares the talent pool to meet those future needs. The emphasis of succession

planning is on developing people rather than naming replacements. The idea is to build organ-

izational bench strength so that when a vacancy occurs, there is an internal pool of qualifi ed

candidates available. True succession planning is “future focused.” Under an optimal succes-

sion planning system, individuals are initially identifi ed as candidates for the talent pool after

being nominated by management. Then performance appraisal data are reviewed, potential

is assessed and developmental programs are formulated. Sophisticated succession planning

helps ensure that qualifi ed internal candidates are not overlooked.

One problem with many succession plans, especially informal plans and those for large

organizations, is the “crowned prince” syndrome.14 This occurs when management consid-

ers for advancement only those who have managed to become visible to senior management.

A second problem with succession planning in many organizations is that it is focused on

just the senior-most levels in the organizations. Organizations should identify critical posi-

tions throughout the organization and develop talent pools for each of these positions. At

the same time succession planning is not necessary for all positions; but rather the most

important positions, which may not always be the most obvious.

As organizations evolve from replacement planning to succession planning, there are four

important ingredients for success:

1. Defi ne what competencies (knowledge, skills, abilities, and personal characteristics) people

must possess to move the organization forward both now and in the foreseeable future.

2. Focus on critical positions, not just the very top.

3. Evaluate the current talent pools; distinguish between current performance and future

potential.

4. Identify individual development needs.

Taking a proactive approach to succession planning that includes the above four ingredi-

ents will help ensure an organization’s future success.

A legal notice published in October 27, 2009, by the Securities and Exchange Commis-

sion’s (SEC’s) Division of Corporate Finance for the fi rst time allows shareholders to request

more disclosure from companies regarding how their boards select CEOs. According to Ted

Dysart, managing partner with Heidrick & Stuggles, “This change will likely mean that suc-

cession planning will now draw the same attention from shareholders that audit and compen-

sation have been receiving.”15 There is little doubt that HR departments and managers will feel

the impact of this notice and that more emphasis will be placed on succession planning. HRM

in Action 5.2 discusses succession planning at McDonald’s.

succession planning Technique that identifi es

specifi c people to fi ll future

openings in key positions

throughout the organization.

101

HUMAN RESOURCE INFORMATION SYSTEMS (HRIS)

As discussed in Chapter 1, the use of information systems permeates much of the HR fi eld.

Because this is especially true in HRP, the use of information systems in HR is discussed in

this section. Increased human resource requirements, government regulations, and expanded

personal computer capabilities have all helped justify the need and feasibility of an informa-

tion system within the human resource department. Such an information system is referred

to as a human resource information system (HRIS). An HRIS is a database system that contains all relevant human resource information and provides facilities for maintaining and

accessing these data.16

A major advantage of an HRIS is its potential for producing more accurate and more timely

information for operating, controlling, and planning purposes than manual or payroll-based

systems can produce. The speed and accuracy of an HRIS simply cannot be matched by man-

ual systems. An HRIS also gets rid of many of the paper fi les human resource people and other

areas of the organization maintain.

Historically the major disadvantage of an HRIS was its fi nancial cost and the labor require-

ments for implementing the system. Fortunately, these problems have greatly diminished as

a result of the computer hardware and software currently available. Today numerous off-the-

shelf HRIS software packages and the necessary hardware are readily available at much lower

prices than just a few years ago. The currently available software packages also are much more

user-friendly and , thus, require less training and time to implement.

The following areas represent some specifi c potential applications for an HRIS:

1. Clerical applications. Automating certain routine clerical tasks avoids the use of additional

staff, overtime, and temporary help.

2. Applicant search expenditures. An HRIS can easily store a summary of applicant

qualifi cations and subsequently perform searches for candidates for certain positions. This

can help the company avoid the need for an employment agency.

3. Risk management. Today it is critical in many industries that people in certain jobs have

licenses, safety training, and even physical examinations. An HRIS can be used to monitor

these requirements and report any discrepancies by jobholders.

4. Training management. An HRIS can compare job training requirements with the actual

training experiences of individual jobholders. This system can then be used to determine

both individual and organizational training needs.

human resource information system (HRIS) A database system that

contains all relevant human

resource information and

provides facilities for

maintaining and accessing

these data.

CEO SUCCESSION AT MCDONALD’S The November 30, 2009 announcement that 55-year-old

McDonald’s Corporation president and COO Ralph Alvarez

would retire at the end of the year came as a surprise to most

people. Many people thought AIvarez was next in line to

become the CEO of McDonald’s. “After more than 30 years in

the restaurant industry, the past 15 with this great brand, I’ve

decided to retire,” said Alvarez. “Seven orthopedic surgeries

and years of chronic pain, culminating in two totaI knee

replacements in the past six months, have made me realize

it’s time to move on.”

McDonald’s has faced the sudden loss of top managers

before and has rarely missed a beat. McDonald’s moved

its current, CEO, Jim Skinner, to his position in 2004 after

Charlie Bell stepped down from the post following the

announcement that Bell had cancer. Bell, who died in

2005, had succeeded Jim Cantalupo earlier in 2004, after

Cantalupo had died of a heart attack.

“McDonald’s promotes from within, and that’s a sign that

they don’t have to go outside,” said Bruce Sherman of Chicago-

based Integral Advisors. “They have enough capable internal

people.” “Seamless management change is a by-product of

McDonald’s commitment to leadership development and

talent management,” Skinner said. “Together with our board

of directors, we have made succession planning a competitive

advantage for our company.”

Don Thompson, formerly president of McDonald’s USA,

was announced as the new president and COO on January 11,

2010.

Sources: Mark Brandau, “Alvarez Retirement Highlights Importance of Succession Plans,“ Nation’s Restaurant News, December 14, 2009, pp. 1–2, and “McDonald’s Corporation Elects Don Thompson as President and COO; Jan Fields and Jim Johannesen Named to Lead McDonald‘s USA,” PR Newswire, January 11, 2010.

HRM in Action 5.2

102 Part Two Acquiring Human Resources

5. Training experiences. An HRIS can provide organizationwide training development and

delivery, especially for jobs using computers.

6. Financial planning. By using an HRIS, human resource managers can stimulate the

fi nancial impact of salary and benefi t changes. It is then possible for the human resource

department to recommend changes in strategy that stay within an overall budget goal.

7. Turnover analysis. Turnover can be closely monitored with an HRIS. Turnover

characteristics can be identifi ed and analyzed for probable causes.

8. Succession planning. An HRIS can identify a logical progression path and the steps

required for advancement. Individual progress can then be monitored.

9. Flexible-benefi ts administration. An HRIS can be used to administer a fl exible-benefi ts

program. Without an HRIS, such programs can be expensive to implement and administer.

10. Compliance with government regulations. An HRIS can be used to keep up with current

EEO and related government-required regulations. An HRIS can also help keep companies

in compliance by more thoroughly scanning job applicants who meet specifi c requirements

and keeping management informed of the situation.

11. Attendance reporting and analysis. The documentation of sick days, vacation time,

personal time, and tardiness can be a signifi cant expense if done manually. An HRIS can

easily track this information.

12. Accident reporting and prevention. An HRIS can be used to record accident details and

subsequently provide analyses that can help prevent future accidents.

13. Strategic planning. Today’s client/server systems are transforming human resource people

from simple administrators to strategic planners who can infl uence CEO decisions.

14. Human resource planning. Human resource planning can be greatly assisted by an

information system that is capable of making projections based on the current workforce.17

A major indirect benefi t of an HRIS is that it helps enable HR managers become more stra-

tegic. This is accomplished by automating much of the transaction processing and providing

quality information to assist management when making strategic decisions. Thus, an HRIS

provides a medium that helps HR professionals perform their jobs more effectively and it also

supports strategic decision making.18 Also, many software companies offer HRIS packages

for purchase. The Web site for the International Association for Human Resource Information

Management (www.ihrim.org) lists numerous sources for HRIS packages. (Go to the home

page and search under “Buyers Guide.”)

HR and the Internet The Internet is an excellent source for fi nding many types of information related to human

resource management and for keeping up with new developments in the fi eld. Today a

growing number of HR managers are using the Internet to screen and recruit personnel,

conduct research, access electronic databases, send e-mail, conduct training, and network

with colleagues. The real value of the Internet to HR professionals is the information that it

makes available. Through the Internet, managers can access massive amounts of information.

Figure 5.5 provides a list of some HR-related Web sites.

HR Intranets and Portals An intranet is a private computer network that uses Internet products and technologies to

provide multimedia applications within organizations. An intranet connects people to people

and information and knowledge within the organization; it serves as an “information hub” for

the entire organization. A Web portal is similar to an intranet except that portals enable other

specifi c groups such as business partners, customers, or vendors to access an organization’s

intranet. The eHR systems discussed in Chapter 1 are an example of an intranet. Initially an

intranet, like an internal HRIS, was seen as a luxury that could be justifi ed only if it served

thousands of employees. This is no longer true as many software companies provide a mix of

intranet applications that can be purchased or leased at very reasonable rates. The Web site of

the previously mentioned International Association for Human Resource Information Man-

agement (www.ihrim.org) also lists several sources for intranet packages (go to the home page

and search under “Buyers Guide”). Figure 5.6 provides suggested HR-related general uses of

Chapter 5 Human Resource Planning 103

FIGURE 5.5 HR-Related Web Sites

Source: Adapted from “How to Enrich

and Expand Your Internet Searches,”

HR Focus, June 2006, pp. 7–8, and

“Progressive Business Publications

PBP; Progressive Business Publications’

New E-Newsletter Division Targets

Advertisers Marketing to Business

Executives,” Marketing Business Weekly,

July 14, 2008, p. 21.

• SHRM (www.shrm.org). The Society for Human Resource Management has a well-organized

database for easy searching.

• Bureau of National Affairs (www.bna.com). Contains news and other materials on human

resources and business topics.

• IHRIM (www.ihrim.org). IHRIM is a major organization addressing HR information systems and

technology. Other useful information such as the role technology now plays in a variety of HR

processes and practices is also available.

• Human Resources Planning Society (www.hrps.org). This group of mostly large-organization

senior HR professionals addresses issues related to the developing profession and business of HR.

• U.S. Department of Labor Bureau of Labor Statistics (www.bls.gov). The main site for federal

government information on HR topics including wages, benefi ts, employment, demographics, and safety.

• National Labor Relations Board (www.nlrb.gov/nlrb/home/default.asp). Presents federal law

related to organized labor.

• Center for Advanced HR Studies at Cornell University (www.ilr.cornell.edu/depts/cahrs/).

Research on various HR topics from a leading university.

• HR Internet Guide (www.hrguide.com). Links to many different HR-related Web sites, including

equal employment opportunity, staffi ng and selection, incentive plans, job analysis, and training and

development.

• HR Software (www.hrsoftware.net). Links to numerous vendors.

• HR Morning (www.hrmorning.com). Site covering general human resource management.

• HR Tech News (www.hrtechnews.com). Covers technology developments related to the human

resources fi eld.

• HR Benefi ts Alert (www.hrbenefi tsalert.com). Information for benefi ts professionals.

• HR Recruiting Alert (www.hrrecruitingalert.com). Features recruiting and staffi ng information

and news.

• HR Legal News (www.hrlegalnews.com). Information relating to workplace employment law.

• HR Blunders (www.hrblunders.com). Site covering HR blunders to avoid and the lighter side of HR.

FIGURE 5.6 Intranet and Portal Users

Source: Adapted from Samuel

Greengard, “Ways to Make a More

Powerful Portal,” Workforce, April 2002,

Crain Communications, Inc.

Basic

• Employee communication.

• Company directory.

• Company handbook, including policies and guidelines.

• Weather.

• News.

• Stock information.

• Connection for departments within the company.

• Discussion or chat rooms.

Intermediate

• Linkage to outside benefi ts providers.

• Employee-assistance programs.

• Web-based e-mail.

• E-learning.

• Online job postings.

• Calendar, address book, and project scheduling.

• Online travel bookings.

• Document management.

• Orientation.

• Hands-on demonstrations.

Advanced

• Benefi ts enrollment.

• Performance management.

• Salary and wage reviews.

• Succession planning.

• Online recruitment and hiring.

• Ability to submit electronic forms.

• Electronic paycheck information, including pay stubs and W-2s.

• Business intelligence.

• Audio and video conferencing.

• Interaction with customers.

104 Part Two Acquiring Human Resources

an intranet. There is little doubt that intranets have redefi ned the ways that HR information is

handled in many organizations.

HR and Web 2.0 Web 2.0 is the second generation of Internet use with a focus on user content control, online

collaboration, and sharing between users.19 Web 2.0 technologies use Web-based communi-

ties and hosted services such as social networking sites, blogs, and wikis. Social networking

sites such as Facebook and My Space allow users the opportunity to communicate with each

other in a real and personal manner. A blog, derived from the term Web log, is an online diary

or journal that usually involves a series of short entries written in chronological order. A blog

can be a personal journal or an interactive forum. A wiki is “a knowledge base developed over

time by users with access to create and edit text on the site.”20 Web 2.0 technologies foster

sharing and collaboration, which lend themselves to numerous HR applications.

Web 2.0 technologies can be used to perform background checks and to screen job ap-

plicants by looking them up on various social networking sites. Internal blogs and social net-

works can be used to keep different employees, teams and other subgroups in touch. These

same technologies can also be used in many aspects of training, both formal and informal. An

emerging use for HR of Web 2.0 is on the recruitment front by blogging about the organization

as a great place to work. HRM in Action 5.3 describes how Capital One has used Web 2.0 to

improve its internal communication and collaboration.

Software as a Service Software as a service (SaaS) or “on-demand software” is a relatively new approach to soft-

ware delivery that involves users accessing standard business applications over the Internet.

Traditionally, software companies sold their software on disks and CDs, which were then in-

stalled on the client’s local computers.21 The software also had to be constantly maintained and

periodically updated. With SaaS, software makers provide their products over the Internet on

a pay-as-you-go basis, usually for a monthly subscription fee. Major benefi ts of software as a

service are that no large capital expenditure is required to buy and install equipment and that

there are fewer hassles related to managing the systems. Instead of waiting months and spend-

ing hundreds of thousands of dollars, with software as a service, users can be up and running

within days or even hours of signing a contract. Because of these benefi ts, software as a service

has particular appeal to HR applications. For 2009 the market research fi rm IDC projected SaaS

growth to be 36 percent to 40 percent.22 IDC also forecast that nearly 45 percent of U.S. compa-

nies would spend at least one-fourth of their IT budget on SaaS by the next year. Gartner, Inc.,

a world leading information technology research and advisory company, forecast worldwide

SaaS sales to reach $7.5 billion for 2009, a healthy 17.7 percent increase from the previous

year.23 Gartner also predicts SaaS sales to almost double (14 billion) by 2013. HRM in Action

5.4 describes some HRIS software applicable to small and midsized organizations.

CAPITAL ONE USES WEB 2.0 TECHNOLOGIES Organizations have been teching-up customer Web sites

with Web 2.0 technologies for some time but it is rare when

an employer implements these same technologies within

the company. Capital One, the McLean, VA–based bank and

fi nancial services company, is proving to be the exception.

“We noticed that the workplace was not as collaborative as

it could be,” says Matt Schuyler, Capital One’s chief human

resource offi cer. “We wanted a way to encourage open and

honest dialogue.”

Capital One’s earlier Web site, like most corporate

intranets, allowed only select administrators to add or change

the content. Material had to be approved by top managers

and then be specially formatted and coded to be read by

the Web browser. By implementing Web 2.0 technologies,

Capital One’s intranet, Oneplace, allows virtually anyone

with access to the site to instantaneously contribute and

make changes. Thus Capital One’s HR team transformed

the company’s intranet from a static tool—mostly housing

HR materials like benefi t forms, training schedules, and the

employee handbook—to a live|y forum for employees to

post, share, and critique ideas.

Source: Rita Zeidner. “Employee Networking,” HR Magazine, November 2008, pp. 58–60.

HRM in Action 5.3

104

Chapter 5 Human Resource Planning 105

1. Defi ne human resource planning (HRP ).

HRP is the process of getting the right number of qualifi ed people into the right job at

the right time. Put another way, HRP is the system of matching the supply of people—

internally (existing employees) and externally (those to be hired or searched for)—with

the openings the organization expects to have over a given time.

2. Summarize the relationship between HRP and organizational planning.

To be effective, any human resource plan must be derived from the long-range and

operational plans of the organization. In essence, the success of HRP depends largely on

how closely human resource personnel can integrate effective people planning with the

organization’s business planning process.

3. Explain strategy-linked HRP.

Strategy-linked HRP is based on a close working relationship between human resource

staff and line managers. Human resource managers serve as consultants to line managers

concerning the people management implications of business objectives and strategies.

Line managers, in turn, have a responsibility to respond to the business implications of

human resource objectives and strategies. Top management must also be committed to the

HRP process.

4. Identify the steps in the HRP process.

HRP consists of four basic steps: (1) determining the impact of the organization’s

objectives on specifi c organizational units; (2) defi ning the skills, expertise, and total

number of employees required to achieve the organizational and departmental objectives;

(3) determining the additional human resource requirements; and (4) developing action

plans to meet the anticipated human resource needs.

5. Identify the different methods used for forecasting human resource needs.

Methods for forecasting human resource needs can be either judgmentally or mathematically

based. Judgmental methods include managerial estimates, the Delphi technique, and

scenario analysis. Mathematically based methods include various statistical and modeling

methods.

6. Discuss the purpose of a skills inventory.

A skills inventory consolidates information about the organization’s human resources. It

provides basic information on all employees, including, in its simplest form, a list of the

names, certain characteristics, and skills of employees.

Summary of Learning Objectives

A LOW-COST, FLEXIBLE HRIS www.best-software.com HR managers in small and midsized businesses are faced with

competing issues when it comes to HRIS software: controlling

costs due to limited budgets and providing a fully functional

system to cover all their HR needs. With the Abra Suite of

HRIS software from Sage Software (formerly Best Software)

of Reston, Virginia, they can choose a basic Abra HR module

and add modules for other HR functions such as payroll

processing, attendance tracking, attendance management,

training management, online recruiting, and recruiting

management. With a very affordable price for the base

HR program, and additional costs for add-on modules, HR

managers in smaller companies can meet budget constraints,

reporting requirements, and individual organizational needs

such as benefi ts administration and employee information

storage. The system can also run on networks to provide

better communication links throughout the organization.

Sage recently added Abra Workforce Connections, which

can be bundled into the existing Abra offerings. Abra

Workforce Connections has two main components: Abra ESS

(employee self-service) and Abra Benefi ts Enrollment. Abra

Workforce Connections offers a central online location for

employees at all levels to view and manage certain personal

and company information, as well as process payroll

requests. Abra Workforce Connections is priced at $1,300 for

a 75-employee ESS or Benefi ts module.

Sources: “Cream of the Crop,” Human Resource Executive, October 16, 2005, and www.sagespecialized.com, accessed January 17, 2007.

HRM in Action 5.4

105

106 Part Two Acquiring Human Resources

7. Describe succession planning.

Succession planning identifi es a “talent pool” that can be developed in preparation

for future responsibilities and considers not only past performance but also the future

potential of individuals.

8. Defi ne a human resource information system (HRIS).

Information systems developed and used exclusively for human resource applications are

referred to as human resource information systems (HRIS).

9. Differentiate between the Internet and an intranet.

An intranet is a private computer network that uses Internet products and technologies to

provide multimedia applications within organizations. The Internet is a global collection

of independently operating, but interconnected, computers.

10. Explain what Web 2.0 is.

Web 2.0 is the second generation of internet use with a focus on user content control,

online collaboration, and sharing between users.

11. Defi ne the concept of “software as a service.”

Software as a service, also called on-demand software, is a relatively new approach to

software delivery that involves users accessing standard business applications over the

Internet.

1. What is human resource planning (HRP)?

2. How does human resource planning relate to organizational planning?

3. What are the four basic steps in the human resource planning process?

4. Explain the cascade approach to setting objectives.

5. Identify several tools that might be used as aids in the human resource planning process.

6. What is the role of human resource personnel in the human resource planning process?

7. What is an HRIS?

8. Recount several areas or functions for which an HRIS might be used.

9. What is the difference between the Internet and an intranet?

10. Give some examples of Web 2.0 technologies.

11. What are the potential advantages of software as a service (SaaS)?

Review Questions

Discussion Questions

1. What role do you think HRP can play in helping organizations avoid employee layoffs?

2. Do you think most human resource planning is undertaken on the basis of organizational

objectives or on an “as necessary” basis?

3. How is it possible to accomplish good organizational planning, and hence good human

resource planning, in light of the many changing environmental factors over which the

organization has no control?

4. Why do you think that some human resource managers might be reluctant to use

information technology such as an HRIS? Do you think that the trend toward the use of

Web 2.0 technologies and SaaS can have an effect on this problem?

Key Terms benchmarking, 94 cascade approach to setting

objectives, 92

Delphi technique, 94

downsizing, 98

human resource information

system (HRIS), 101

human resource planning

(HRP), 89

intranet, 102

job sharing, 98

management inventory, 96

managerial estimates, 94

organizational objectives, 92

portal, 102

reclassifi cation, 98

scenario analysis, 94

skills inventory, 95

Software as a Service

(SaaS), 104

succession planning, 100

Web 2.0, 104

work sharing, 98

Chapter 5 Human Resource Planning 107

Incident 5.1

Human Resource Planning—What Is That?

You are a human resource consultant. You have been called by the newly appointed president

of a large paper manufacturing fi rm:

President: I have been in this job for about one month now, and all I seem to do is interview

people and listen to personnel problems.

You: Why have you been interviewing people? Don’t you have a human resource

department?

President: Yes, we do. However, the human resource department doesn’t hire top

management people. As soon as I took over, I found that two of my vice

presidents were retiring and we had no one to replace them.

You: Have you hired anyone?

President: Yes, I have, and that’s part of the problem. I hired a guy from the outside. As

soon as the announcement was made, one of my department heads came in and

resigned. She said she had wanted that job as vice president for eight years. She

was angry because we had hired someone from the outside. How was I supposed

to know she wanted the job?

You: What have you done about the other vice president job?

President: Nothing, because I’m afraid someone else will quit because they weren’t

considered for the job. But that’s only half my problem. I just found out that

among our youngest professional employees—engineers and accountants—there

has been an 80 percent turnover rate during the past three years. These are the

people we promote around here. As you know, that’s how I started out in this

company. I was a mechanical engineer.

You: Has anyone asked them why they are leaving?

President: Yes, and they all give basically the same answer: They say they don’t feel that

they have a future here. Maybe I should call them all together and explain how

I progressed in this company.

You: Have you ever considered implementing a human resource planning system?

President: Human resource planning? What’s that?

Questions

1. How would you answer the president’s question?

2. What would be required to establish a human resource planning system in this company?

Incident 5.2

New Boss

The grants management program of the Environmental Protection Agency (EPA) water

division was formed several years ago. The program’s main functions are to review grant

applications, engineering design reports, and change orders and to perform operation and

maintenance inspection of wastewater treatment facilities.

Paul Wagner, chief of the section, supervised four engineers, one technician, and one sec-

retary. Three of the engineers were relatively new to the agency. The senior engineer, Waymon

Burrell, had approximately three years’ experience in the grants management program.

Because only Waymon Burrell had experience in grants management, Wagner assigned him

the areas with the most complicated projects within the state. The other three engineers were

given regions with less complex projects; they were assigned to work closely with Burrell and

to learn all they could about the program.

108 Part Two Acquiring Human Resources

At the beginning of the year, Wagner decided the new engineers had enough experience

to undertake more diffi cult tasks; therefore, the division’s territory could be allocated on a

geographical basis. The territory was divided according to river basins, with each engineer

assigned two or three areas.

This division according to geography worked fi ne as the section proceeded to meet all

its objectives. However, three months ago, Wagner was offered a job with a consulting

engineering company and decided to leave the EPA. He gave two months’ notice to top

management.

Time passed, but top management did not even advertise for a new section chief. People

in the section speculated as to who might be chosen to fi ll the vacancy; most of them hoped it

would be Waymon Burrell, since he knew the most about the workings of the section.

On the Monday of Wagner’s last week, top executives met with him and the section members

to announce they had decided to appoint a temporary section chief until a new one could be

hired. The division chief announced that the temporary section chief would be Sam Kutzman,

a senior engineer from another EPA division. This came as quite a surprise to Burrell and the

others in the grants management program.

Sam Kutzman had no experience in the program. His background was in technical

assistance. His previous job had required that he do research in certain treatment processes

so that he could provide more technical performance information to other divisions within

the EPA.

Questions

1. Do you think Sam Kutzman was a good choice for temporary section chief ?

2. How well has human resource planning worked in this situation?

Your instructor will assign you an HR topic or function. Your assignment is to go to the Web site

of the International Association for Human Resource Information Management (www.ihrim.org)

and click on the tab “Products and Services.” Review the lists of possibilities and identify three

to fi ve pieces of software you think might be helpful to an organization when dealing with your

HR topic. You will not be able to view the software itself but rather a brief description of what is

available from different software providers.

1. C. F. Russ, Jr., “Manpower Planning Systems: Part I,” Personnel Journal, January 1982, p. 41.

2. Ibid.

3. David E. Ripley, “How to Determine Future Work-Force Needs,” Personnel Journal, January 1995,

p. 83.

4. David Liang, “Deciphering the Common Misconceptions about Human Resource Planning,” China

Staff, July/August 2009, pp. 28–31.

5. James W. Walker, “Human Resource Planning, 1990’s Style,” Human Resource Planning,

December 1990, pp. 229–30; Stanley R. Case, “Ciba Creates an HR Strategy for the Next Century,”

Workforce, October 1995, pp. 109–12; and “Addressing 2003’s Top Issues for HR,” HR Focus,

January 2003, pp. 1–3.

6. Ernest C. Miller, “Strategic Planning Pays Off,” Personnel Journal, April 1989, p. 127; Patricia M.

Buhler, “Workforce Development: Every Manager’s Challenge,” SuperVision, October 2001, pp. 13–15.

7. Much of this section is drawn from John A. Hooper, Ralph E. Catalanello, and Patrick L. Murray,

“Showing Up the Weakest Link,” Personnel Administrator, April 1987, pp. 49–55; Linda Davidson,

“Who’s Investing in HR?” Workforce, December 1999, pp. 66–71.

Notes and Additional Readings

EXERCISE 5.1

Avoiding Layoffs?

Go to the library, Internet, or a recent publication and fi nd a situation where an organization

has recently experienced layoffs. Research the situation and determine if you think the company

could have done a better job with its human resource planning and avoided or minimized the

layoffs. In other words, from a human resource planning perspective, could the organization

have done a better job and specifi cally what could have been done differently?

EXERCISE 5.2

Locating HR

Software

Chapter 5 Human Resource Planning 109

8. D. Quinn Mills, “Planning with People in Mind,” Harvard Business Review, July–August 1985,

pp. 97–105.

9. Adapted from D. L. Chicci, “Four Steps to an Organization/Human Resource Plan,” Personnel

Journal, June 1979, pp. 290–92; see also Buhler, “Workforce Development.”

10. Dan Ward, “Workforce Demand Forecasting Techniques,” Human Resource Planning 19, No. 1

(1996), pp. 54–55.

11. Samuel Greengard, “Discover Best Practices through Benchmarking,” Personnel Journal,

November 1995, pp. 62–65; Chris Mahoney, “Benchmarking HR Budgets,” Workforce, October 2000,

pp. 100–104.

12. Thomas H. Patten, Manpower Planning and the Development of Human Resources (New York: John

Wiley & Sons, 1971), p. 243.

13. Much of this section is drawn from “Succession Planning: Four Imperatives for Success,” Workforce

Management, September 8, 2008, p. 58; and “Ten Key Steps to Effective Succession Planning,”

Workforce Management, September 8, 2008, p. 511.

14. James E. McElwain, “Succession Plans Designed to Manage Change,” HR Magazine, February

1991, pp. 67–71; “Executive Succession: A Critical Governing Board Responsibility,” Trends On-

Line, October 2001.

15. “SEC Targets CEO Succession Plans—New Risks for Boards, Says Heidrick and Stuggles,” PR

Newswire, October 30, 2009.

16. Gerson Safran, “Human Resource Information System,” Canadian Manager, September 1994,

p. 13.

17. Adapted from William I. Travis, “Personnel Computing: How to Justify a Human Resources

Information System,” Personnel Journal, January 1994, p. 11.

18. Zahid Hussain, James Wallace, and Nelarine E. Cornelius, “The Use and Impact of Human Resource

Information Systems on Human Resource Management Professionals,” Information & Management,

January 2007, pp. 74–89.

19. Much of this section is drawn from “Web 2.0 Defi nes Next Generation,” Knight Ridder Business

News, April 18, 2007, p. 1; and “What You Should Know about Using Web 2.0,” HR Focus, April

2008, pp. 10–11.

20. Bill Roberts, “How to Marshal Wikis,” HR Magazine, December 2008, pp. 54–57.

21. This section is drawn from Darren Dahl, “Service, Not Servers,” Inc., May 2006, pp. 41–43; and

Leslie Gross Klaff, “An Ever-Changing Landscape,” Workforce Management, December 11, 2006,

pp. 4–8.

22. Patrick Thibodeau, “SaaS Still on the Rise, Despite Down Economy,” Computerworld, February 9,

2009, pp. 12–13.

23. “Gartner Downgrade SaaS Forecast,” Informationweek-Online, November 9, 2009.

111

Chapter Six

Recruiting Employees

Chapter Outline

Job Analysis, Human Resource Planning,

and Recruitment

Personnel Requisition Form

Sources of Qualifi ed Personnel

Internal Sources

External Sources

Effectiveness of Recruitment Methods

Realistic Job Previews

Who Does the Recruiting, and How?

Organizational Inducements in

Recruitment

Equal Employment Opportunity and

Recruitment

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 6.1: Inside or Outside Recruiting?

Incident 6.2: A Malpractice Suit against a

Hospital

Exercise 6.1: Writing a Résumé

Notes and Additional Readings

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne recruitment.

2. Discuss job analysis, human resource

planning, and recruitment.

3. Explain the purpose of a personnel

requisition form.

4. Describe the advantages and

disadvantages of using internal

methods of recruitment.

Recruitment involves seeking and attracting a pool of people from which qualifi ed can- didates for job vacancies can be chosen. Most organizations have a recruitment (or, as it is

sometimes called, employment) function managed by the human resource department. In an

era when the focus of most organizations has been on effi ciently and effectively running the

organization, recruiting the right person for the job is a top priority. HRM in Action 6.1 illus-

trates a creative recruiting program.

The magnitude of an organization’s recruiting effort and the methods to be used in that

recruiting effort are determined from the human resource planning process and the require-

ments of the specifi c jobs to be fi lled. As Chapter 5 explained, if the forecasted human resource

recruitment Process of seeking and

attracting a pool of people from

which qualifi ed candidates for

job vacancies can be chosen.

5. Discuss job posting and bidding.

6. Describe the advantages and

disadvantages of using external

methods of recruitment.

7. Defi ne realistic job previews.

8. Explain organizational inducements.

9. Outline some specifi c EEOC

recommendations for job advertising.

112

requirements exceed the net human resource requirements, the organization usually actively

recruits new employees. Successful recruiting is diffi cult if the jobs to be fi lled are vaguely

defi ned. Regardless of whether the job to be fi lled has been in existence or is newly created, its

requirements must be defi ned as precisely as possible for recruiting to be effective.

Organizations do have options other than recruiting new employees to accomplish

the work. Some of these options include using temporary workers, offering overtime to

existing employees, subcontracting the work to another organization (this approach is often

used on construction projects or projects that have a fi xed time period for completion),

and leasing employees. One fi nal option is outsourcing the work to companies outside the

United States.

JOB ANALYSIS, HUMAN RESOURCE PLANNING, AND RECRUITMENT

Figure 6.1 illustrates the relationships among job analysis, human resource planning,

recruitment, and the selection process. Job analysis gives the nature and requirements of

specifi c jobs. Human resource planning determines the specifi c number of jobs to be fi lled.

Recruitment concerns providing a pool of people qualifi ed to fi ll these vacancies. Questions

that the recruitment process addresses include: What are the sources of qualifi ed personnel?

How are these qualifi ed personnel to be recruited? Who is to be involved in the recruiting

process? What inducements does the organization have to attract qualifi ed personnel? The

selection process, discussed in detail in the next chapter, concerns choosing from the pool

of qualifi ed candidates the individual or group of individuals most likely to succeed in a

given job.

PERSONNEL REQUISITION FORM

Most organizations use a personnel requisition form to offi cially request that the human re- source manager take action to fi ll a particular position. The personnel requisition form describes

the reason for the need to hire a new person and the requirements of the job. Figure 6.2 shows

an example of a personnel requisition form. It is a good idea to attach a job description to the

personnel requisition form.

personnel requisition form Describes the reason for the

need to hire a new person and

the requirements of the job.

E-RECRUITMENT Companies, while cutting traditional employee recruitment

budgets in recent years, have begun to increase the amount of

money and time they spend using e-recruitment techniques.

This new trend has been effective in cutting costs and time

spent in many cases, but as this is a new form of weeding

through candidates for employment there have been some

areas where improvement is needed in e-recruitment.

Depending on the open position a company may be

fi lling, e-recruitment may be ineffective. For example, an

employer may want to meet a potential sales employee in

a traditional interview setting as sales is a position where

personality is a huge factor in effectiveness. Yet, in the

initial review an online personality assessment may allow

the recruiter to weed out many potential candidates. A

traditional interview process would be cost ineffective and a

time drain due to the number of candidates.

A second area of weakness is cheating the system. There

is a fear that potential candidates will have others fi ll out

online applications. A way to correct that is for employers to

include information that the online portion is only an initial

step and further tests in person will be required. While

many young potential employees are willing to go through

lengthy tests, many senior-level candidates may be unwilling

to spend the time for an e-recruitment process. One way

to combat this is for employers to promise feedback to

potential candidates on answers to their tests whether the

candidate receives an offer from the company or not. This

way, candidates at least can learn how to better present

themselves in the e-recruitment process.

For companies, e-recruitment is a great way to be more

cost-effective, and as prices for the technology continue

to fall, e-recruitment will become more prevalent. As

for potential candidates who may look at e-recruitment

unfavorably, as the process becomes more prevalent and

the problems associated with the process become fewer, the

view of e-recruitment may turn more favorable as candidates

recognize the ease and convenience of the process.

Source: Adapted from Nick Martindale, “The Pros and Cons of Online Assessment,” Personnel Today, October 20, 2009, p. 12.

HRM in Action 6.1

Chapter 6 Recruiting Employees 113

SOURCES OF QUALIFIED PERSONNEL

An organization may fi ll a particular job either with someone already employed by the organiza-

tion or with someone from outside. Each of these sources has advantages and disadvantages.

Internal Sources If an organization has been effective in recruiting and selecting employees in the past, one of

the best sources of talent is its own employees. This has several advantages. First the organiza-

tion should have a good idea of the strengths and weaknesses of its employees. If the organiza-

tion maintains a skills inventory, it can use this as a starting point for recruiting from within.

In addition, performance evaluations of employees are available. Present and prior managers

of the employee being considered can be interviewed to obtain their evaluations of the employ-

ee’s potential for promotion. In general, more accurate data are available concerning current

employees, thus reducing the chance of making a wrong decision.

Not only does the organization know more about its employees, but the employees know

more about the organization and how it operates. Therefore, the likelihood of the employee

having inaccurate expectations and/or becoming dissatisfi ed with the organization is reduced

when recruiting is done from within.

Another advantage is that recruitment from within can have a signifi cant, positive effect on

employee motivation and morale when it creates promotion opportunities or prevents layoffs.

When employees know they will be considered for openings, they have an incentive for good

performance. On the other hand, if outsiders are usually given the fi rst opportunity to fi ll job

openings, the effect can be the opposite.

A fi nal advantage relates to the fact that most organizations have a sizable investment in

their workforce. Full use of the abilities of the organization’s employees improves the organi-

zation’s return on its investment.

However, recruiting from within also has disadvantages. One danger associated with pro-

motion from within is that infi ghting for promotions can become overly intense and have

a negative effect on the morale and performance of people who are not promoted. Another

danger involves the inbreeding of ideas. When recruiting comes only from internal sources,

precautions must be taken to ensure that new ideas and innovations are not stifl ed by such at-

titudes as “We’ve never done it before” or “We do all right without it.”

Two major issues are involved if an organization promotes from within. First, the organi-

zation needs a strong employee and management development program to ensure that its

people can handle larger responsibilities. The second issue concerns the desirability of using

seniority as the basis for promotions. Unions generally prefer promotions based on seniority

FIGURE 6.1 Relationships among Job

Analysis, Human Resource

Planning, Recruitment, and

Selection Nature and requirements

of specific jobs Number of specific

jobs to be filled

Pool of qualified

applicants

Sources?

How are qualified candidates

to be recruited?

Recruiters?

Inducements?

Selection

Job analysis

Job description

Recruitment

Human resource planning

114 Part Two Acquiring Human Resources

for unionized jobs. Many organizations, on the other hand, prefer promotions based on prior

performance and potential to do the new job.

Job Posting and Bidding

Job posting and bidding is an internal method of recruitment in which notices of available jobs are posted in central locations throughout the organization and employees are given a

specifi ed length of time to apply for the available jobs. Other methods used in publicizing jobs

include memos to supervisors and listings in employee publications. Normally the job notice

specifi es the job title, rate of pay, and necessary qualifi cations. The usual procedure is for all

applications to be sent to the human resource department for an initial review. The next step

job posting and bidding A method of informing

employees of job vacancies

by posting a notice in central

locations and giving a specifi ed

period to apply for the job.

PREPARE IN DUPLICATE, SEND ORIGINAL TO PERSONNEL

PERSONNEL REQUISITION

DATE

FROM NAME DEPARTMENT

To Requisitioner: The Civil Rights Act of 1963 prohibits discrimination in employment because of race, color, creed, religion, sex or national origin. Federal law also prohibits other types of

discrimination such as age. The laws of most States also prohibit some or all of the above types of discrimination as well as some additional types such as discrimination based upon ancestry, marital

status or physical or mental handicap or disability. Any expression of limitations in these areas expressed in this requisition should be warranted by a bona fide occupational qualification or legally

permissible reason.

DATE NEEDED

NUMBER OF EMPLOYEES

JOB TITLE JOB

CLASSIFICATION NUMBER

HIRING SALARY RANGE

JOB SALARY RANGE

PERMANENT

PART TIME

TEMPORARY

FULL TIME

If temporary, for how long?

If part time, what hours or days?

WHICH SHIFT?

REPLACEMENT: YES__ NO__ If yes, person(s) replaced ADDITION: YES__ NO__ If yes, state reasons

I. DESCRIPTION OF NEED

II. REASON FOR NEED

III. REQUIREMENTS

EDUCATION: GRADE SCHOOL_______ HIGH SCHOOL_______ COLLEGE_______ COMMERCIAL_______ OTHER_____________________________________

EXPERIENCE: Please indicate, clearly, what is absolutely required as a prerequisite.

REQUIRED

DESIRABLE

ANY OTHER REQUIREMENTS:

DATE APPROVED BY

DO NOT WRITE BELOW THIS LINE

DATE FILLED By WHOM

FIGURE 6.2 Personnel Requisition Form

Reprinted from Human Resources:

Documenting the Personnel Function by

1987, with permission from Elsevier.

Chapter 6 Recruiting Employees 115

is an interview by the prospective manager. Then a decision is made based on qualifi cations,

performance, length of service, and other pertinent criteria.

A successful job posting and bidding program requires the development of specifi c imple-

mentation policies. Some suggestions include the following:

• Both promotions and transfers should be posted.

• Openings should be posted for a specifi ed time period before external recruitment begins.

• Eligibility rules for the job posting system need to be developed and communicated. For

example, one eligibility rule might be that no employee can apply for a posted position

unless the employee has been in his or her present position for six months.

• Specifi c standards for selection should be included in the notice.

• Job bidders should be required to list their qualifi cations and reasons for requesting a

transfer or promotion.

• Unsuccessful bidders should be notifi ed by the human resource department and advised as

to why they were not accepted.

Naturally, the actual specifi cations for a job posting and bidding program must be tailored to

the particular organization’s needs.

In unionized organizations, job posting and bidding procedures are usually spelled out in

the collective bargaining agreement. Because they are concerned about the subjective judg-

ments of managers, unions normally insist that seniority be one of the primary determinants

used in selecting people to fi ll available jobs.

External Sources Organizations have at their disposal a wide range of external sources for recruiting personnel.

External recruiting is needed in organizations that are growing rapidly or have a large demand

for technical, skilled, or managerial employees.

One inherent advantage of recruiting from outside is that the pool of talent is much larger

than that available from internal sources. Another advantage is that employees hired from out-

side can bring new insights and perspectives to the organization. In addition, it is often cheaper

and easier to hire technical, skilled, or managerial people from the outside rather than to train

and develop them internally. This is especially true when the organization has an immediate

demand for this type of talent.

One disadvantage of external recruitment is that attracting, contacting, and evaluating po-

tential employees is more diffi cult. A second potential disadvantage is that employees hired

from the outside need a longer adjustment or orientation period. This can cause problems be-

cause even jobs that do not appear to be unique to the organization require familiarity with the

people, procedures, policies, and special characteristics of the organization in which they are

performed. A fi nal problem is that recruiting from outside may cause morale problems among

people within the organization who feel qualifi ed to do the jobs.

Advertising

One of the more widely used methods of recruitment is job advertising. Help-wanted ads are commonly placed in daily newspapers and in trade and professional publications. Other,

less frequently used media for advertising include radio, television, and billboards.

Human resource managers should ensure that their ads accurately describe the job opening

and the requirements or qualifi cations needed to secure the position. However, it is generally

true that people respond more frequently to advertisements from companies with a positive

corporate image than to those companies with a lower corporate image.

The widespread use of advertising is probably more a matter of convenience than of proven

effectiveness. If advertising is to be used as a primary source of recruitment, planning and evalu-

ating the advertising program should be a primary concern of human resource personnel.

Employment Agencies

Both public and private employment agencies can be helpful in recruiting new employees.

State employment agencies exist in most U.S. cities with populations of 10,000 or more.

Although each state administers its respective agencies, the agencies must comply with the

job advertising The placement of help-

wanted advertisements in

daily newspapers, in trade and

professional publications, or on

radio and television.

Web site: Careers.Org www.careers.org

Web site: ComputerJobs.com, Inc. www.computerjobs.com

Web site: America’s Job Bank www.ajb.org

116 Part Two Acquiring Human Resources

policies and guidelines of the Employment and Training Administration of the U.S. Depart-

ment of Labor to receive federal funds. The Social Security Act requires all eligible individu-

als to register with the state employment agency before they can receive unemployment com-

pensation. Thus, state employment agencies generally have an up-to-date list of unemployed

persons. State employment agencies provide free service for individuals seeking employment

and for business organizations seeking employees.

Two types of private employment agencies exist. The executive search fi rm (or headhunter) seeks candidates for high-level positions. (The term headhunter apparently comes from the

concept of hiring a replacement head of an organization, such as chief executive offi cer or chief

operating offi cer.) The second type of employment agency recruits for lower-level positions.

Customers of this type of employment agency may be job applicants seeking employment or

business fi rms seeking employees. The fees of private employment agencies are paid by the

individual or the employing organization. If the fees are paid by the employing organization,

the private employment agency will likely advertise the job as a “fee paid” position.

Temporary Help Agencies and Employee Leasing Companies

One of the fastest-growing areas of recruitment is temporary help hired through employ- ment agencies. The agency pays the salary and benefi ts of the temporary help; the organization

pays the employment agency an agreed-upon fi gure for the services of the temporary help.

The use of temporary help is not dependent on economic conditions. When an organization is

expanding, temporary employees are used to augment the current staff. When an organization

is downsizing, temporary employees create a fl exible staff that can be laid off easily and re-

called when necessary. One obvious disadvantage of using temporary employees is their lack

of commitment to the organization.

Unlike temporary agencies, which normally place people in short-term jobs at various com-

panies, employee leasing companies and professional employer organizations (PEOs) provide permanent staff at customer companies, issue the workers’ paychecks, take care of per-

sonnel matters, ensure compliance with workplace regulations, and provide various employee

benefi ts. 1 In addition, they supply highly skilled technical workers such as engineers and infor-

mation technology specialists for long-term projects under contract between a company and a

technical services fi rm.

Employee Referrals and Walk-Ins/Unsolicited Applications

Many organizations involve their employees in the recruiting process. These recruiting sys-

tems may be informal and operate by word-of-mouth, or they may be structured with defi -

nite guidelines to be followed. Incentives and bonuses are sometimes given to employees

who refer subsequently hired people. One drawback to the use of employee referrals is that

cliques may develop within the organization because employees tend to refer only friends or

relatives.

Walk-ins and unsolicited applications are also a source of qualifi ed recruits. Corporate

image has a signifi cant impact on the number and quality of people who apply to an organi-

zation in this manner. Compensation policies, working conditions, relationships with labor,

and participation in community activities are some of the many factors that can positively or

negatively infl uence an organization’s image.

Campus Recruiting

Recruiting on college and university campuses is a common practice of both private and pub-

lic organizations. Campus recruiting activities are usually coordinated by the university or college placement center. Generally, organizations send one or more recruiters to the campus

for initial interviews. The most promising recruits are then invited to visit the offi ce or plant

before a fi nal employment decision is made.

If the human resource department uses campus recruiting, it should take steps to ensure

that recruiters are knowledgeable concerning the organization and the jobs to be fi lled and that

they understand and use effective interviewing skills. Recruitment interviewing is discussed

later in this chapter. College recruiters generally review an applicant’s résumé before conduct-

ing the interview.

Web site: Jobfactory.com www.jobfactory.com

headhunter A type of private employment

agency that seeks candidates

for high-level, or executive,

positions.

temporary help People working for

employment agencies who

are subcontracted out to

businesses at an hourly rate

for a period of time

specifi ed by the businesses.

employee leasing companies Provide permanent staffs at

customer companies.

campus recruiting Recruitment activities of

employers on college and

university campuses.

Campus recruiting is one way employers can scout future employees. BananaStock/JupiterImages

117

Another method of tapping the products of colleges, universities, technical/vocational

schools, and high schools is through cooperative work programs. Through these programs,

students may work part-time and go to school part-time, or they may go to school and work

at different times of the year. These programs attract people because they offer an opportunity

for both a formal education and work experience. As an added incentive to fi nish their formal

education and stay with the organization, employees are often promoted when their formal

education is completed.

Internet Recruiting

The use of the Internet to recruit potential employees continues to grow rapidly and has

become a major method of recruitment that most large fi rms utilize. College graduates and

professionals are just as likely to send an electronic résumé as the traditional paper-based doc-

ument. Examples of recruiting on the Internet include the following: IBM’s CyberBlue Web

site (www.cyberblue.ibm.com) offers searchable job postings, job fair information for college

students, and benefi ts information. Other companies use Internet sources such as Job Options

(www.joboptions.com), Career Builder (www.careerbuilder.com), Vault (www.vault.com),

and Monster.com (www.monster.com) to list job postings on the Web. Using the Internet for

recruiting may lead to having some unsuitable job candidates and some poor-quality job ap-

plications. However, the speed and time saved in recruitment seem to offset these potential

problems. HRM in Action 6.2 describes job fairs for veterans.

EFFECTIVENESS OF RECRUITMENT METHODS

Organizational recruitment programs are designed to bring a pool of talent to the organiza-

tion. From this pool, the organization hopes to select the person or persons most qualifi ed for

the job. An obvious and very important question human resource departments face is which

method of recruitment supplies the best talent pool.

Many studies have explored this issue. One study concluded that employee referrals were

the most effective recruitment source when compared to newspaper advertisements, pri-

vate employment agencies, and walk-in applicants.2 This study found that turnover rates for

employees hired from employee referrals were lower than for employees hired through the

other methods.

Another study examined the relationship among employee performance, absenteeism,

work attitudes, and methods of recruitment.3 This study showed that individuals recruited

through a college placement offi ce and, to a lesser extent, those recruited through newspaper

advertisements were lower in performance (i.e., quality and dependability) than individuals

who made contact with the company on their own initiative or through a professional journal

or convention advertisement. This study concluded that campus recruiting and newspaper ad-

vertising were poorer sources of employees than were journal/convention advertisements and

self-initiated contacts.

UNEMPLOYMENT FOR VETERANS Unemployment for veterans has been running a full

percentage point higher during the recession than the

country’s current jobless rate of 10.2 percent for the general

population. The problem exists even more prominently;

185,000 veterans of the wars in Iraq and Afghanistan have

gone from the front lines to the unemployment lines.

The problem has become a concern in Washington.

President Barack Obama created the Council on Veterans

Employment to encourage federal agencies to recruit and

train veterans.

Job fairs for veterans have been running across the

country ever since. Reviews from veterans of these job fairs

have been mixed. Some say it has been a valuable tool in

gaining steady and improved employment, while some

complain that the level of job recruiting is not high.

Source: Adapted from Jeff Harrington, “Job Fair in Tampa for Veterans Draws 350,” McClatchy-Tribune Business News, December 4, 2009.

HRM in Action 6.2

118

Generally, it seems safe to say that research has not identifi ed a single best source of

recruitment. Thus, each organization should take steps to identify its most effective recruit-

ment sources. For example, a human resource department could monitor the effectiveness of

recent hires in terms of turnover, absenteeism, and job performance. It might then contrast the

different recruitment sources with respect to employee effectiveness and identify which of the

specifi c recruitment sources produces the best employees.4

Table 6.1 summarizes the advantages and disadvantages of the internal and external meth-

ods of recruitment. HRM in Action 6.3 describes how companies monitor their recruitment.

REALISTIC JOB PREVIEWS

One method proposed for increasing the effectiveness of all recruiting methods is the use of

realistic job previews. Realistic job previews (RJPs) provide complete job information, both positive and negative, to the job applicant.

Traditionally, organizations have attempted to sell the organization and the job to the

prospective employee by making both look good. Normally this is done to obtain a favo-

rable selection ratio, that is, a large number of applicants in relation to the number of job

openings. Then, of course, the company can select the cream of the crop. Unfortunately,

these attempts sometimes set the initial job expectations of the new employees too high and

can produce dissatisfaction and high turnover among employees recruited in this manner.

Figure 6.3 contrasts some of the outcomes that can develop from traditional and realistic job

previews.

realistic job previews A method of providing

complete job information, both

positive and negative, to the

job applicant.

TABLE 6.1 Advantages and

Disadvantages of Internal

and External Recruiting

Source Advantages Disadvantages

Internal

External

• Company has a better knowledge

of strengths and weaknesses of

job candidate.

• Job candidate has a better

knowledge of company.

• Morale and motivation of

employees are enhanced.

• The return on investment that

an organization has in its present

workforce is increased.

• The pool of talent is much larger.

• New insights and perspectives can

be brought to the organization.

• Frequently it is cheaper and easier to

hire technical, skilled, or managerial

employees from outside.

• People might be promoted to

the point where they cannot

successfully perform the job.

• Infi ghting for promotions can

negatively affect morale.

• Inbreeding can stifl e new ideas

and innovation.

• Attracting, contacting, and

evaluating potential employees

is more diffi cult.

• Adjustment or orientation time

is longer.

• Morale problems can develop

among those employees

within the organization who

feel qualifi ed to do the job.

EQUALITY MONITORING FOR EMPLOYERS Most companies now monitor equality in their recruitment

practices for personnel, according to research conducted and

published by XpertHR. The survey covered 104 employers,

which represented a workforce of 232,000 employees. The

survey was primarily to determine how employers avoid

discrimination and promote diversity in their recruitment

efforts.

The fi ndings were in general positive. Eight in 10

companies monitored equality in recruitment and workforce;

98.1 percent operated an equal opportunities and diversity

policy in practice; and 61 percent agreed that diversity

policies had in fact allowed the company to tap into a wider

talent pool.

Source: Adapted from Nadia Williams, “Equality Monitoring Now the Norm for Employers,” Personnel Today, November 10, 2009, p. 23.

HRM in Action 6.3

Chapter 6 Recruiting Employees 119

Studies on the effectiveness of RJP indicate that it enables job candidates to self-select out

of jobs that do not meet their expectations. On the other hand, if individuals are offered and

accept a job, RJP can cause them to be more committed to it. Generally, it can be said that job

applicants recruited using RJP who accepted the job have more job satisfaction.

WHO DOES THE RECRUITING, AND HOW?

In most large and middle-size organizations, the human resource department is responsible

for recruiting. These organizations normally have an employment offi ce within the human re-

source department. The employment offi ce has recruiters, interviewers, and clerical personnel

who handle the recruitment activities both at the organization’s offi ces and elsewhere.

The role of personnel in the employment offi ce is crucial. Walk-ins/write-ins and respond-

ents to advertising develop an impression of the organization through their contacts with the

employment offi ce. If the applicant is treated indifferently or rudely, he or she may develop a

lasting negative impression. On the other hand, if the applicant is pleasantly greeted, provided

with pertinent information about job openings, and treated with dignity and respect, she or he

may develop a lasting positive impression. Having employees trained in effective communica-

tion and interpersonal skills is essential in the employment offi ce.

When recruiting is done away from the organization’s offi ces, the role of the recruiter is

equally critical. Job applicants’ impressions about the organization are signifi cantly infl uenced

by the knowledge and expertise of the recruiter.

In small organizations, the recruitment function, in addition to many other responsibilities,

is normally handled by one person, frequently the offi ce manager. Also, it is not unusual for

line managers in small organizations to recruit and interview job applicants.

Traditional procedures Realistic procedures

Set initial job expectations too high

Job is typically viewed as attractive

High rate of job offer acceptance

Work experience disconfirms

expectations

Dissatisfaction and realization that

job not matched to needs

Lower job survival, dissatisfaction,

frequent thoughts of quitting

Set job expectations realistically

Job may or may not be attractive,

depending on individual’s needs

Some accept, some reject job offer

Work experience confirms

expectations

Satisfaction, needs matched to job

Higher job survival, satisfaction,

infrequent thoughts of quitting

FIGURE 6.3 Typical Consequences of

Job Preview Procedures

120 Part Two Acquiring Human Resources

ORGANIZATIONAL INDUCEMENTS IN RECRUITMENT

The objective of recruitment is to attract a number of qualifi ed personnel for each particular

job opening. Organizational inducements are all the positive features and benefi ts the organization offers to attract job applicants. Three of the more important organizational in-

ducements are organizational compensation systems, career opportunities, and organizational

reputation.

Starting salaries, frequency of pay raises, incentives, and the nature of the organization’s

fringe benefi ts can all infl uence the number of people attracted through the recruitment proc-

ess. For example, organizations that pay low starting salaries have a much more diffi cult time

fi nding qualifi ed applicants than do organizations that pay higher starting salaries.

Organizations that have a reputation for providing employees with career opportunities are

also more likely to attract a larger pool of qualifi ed candidates through their recruiting activi-

ties. Employee and management development opportunities enable present employees to grow

personally and professionally; they also attract good people to the organization. Assisting

present employees in career planning develops feelings that the company cares. It also acts as

an inducement to potential employees.

Finally, the organization’s overall reputation, or image, serves as an inducement to potential

employees. Factors that affect an organization’s reputation include its general treatment of

employees, the nature and quality of its products and services, and its participation in worth-

while social endeavors. Unfortunately, some organizations accept a poor image as “part of our

industry and business.” Regardless of the type of business or industry, organizations should

strive for a positive image.

EQUAL EMPLOYMENT OPPORTUNITY AND RECRUITMENT

The entire subject of recruitment interviewing is made even more complex by equal

employment opportunity legislation and court decisions relating to this legislation. For

example, if an interviewer asks for certain information such as race, sex, age, marital status,

and number of children during the interview, the company risks the chance of an employment

discrimination suit. Prior to employment, interviewers should not ask for information that is

potentially prejudicial unless the company is prepared to prove (in court, if necessary) that the

requested information is job related.

Equal opportunity legislation has signifi cantly infl uenced recruitment activities. All

recruitment procedures for each job category should be analyzed and reviewed to identify and

eliminate discriminatory barriers. For example, the Equal Employment Opportunity Commis-

sion (EEOC) encourages organizations to avoid recruiting primarily by employee referral and

walk-ins because these practices tend to perpetuate the present composition of an organization’s

workforce. If minorities and females are not well represented at all levels of the organization,

courts have ruled that reliance on such recruitment procedures is a discriminatory practice.

HRM in Action 6.4 describes how EEOC worked with the Palm Management Corporation to

ensure gender diversity.

The EEOC also suggests that the content of help-wanted ads should not indicate any race,

sex, or age preference for the job unless age or sex is a bona fi de occupational qualifi cation

(BFOQ). Organizations are also encouraged to advertise in media directed toward minori-

ties and women. Advertising should indicate that the organization is an equal opportunity

employer and does not discriminate.

Campus recruiting visits should be scheduled at colleges and universities with large

minority and female enrollment. The EEOC also recommends that employers develop

and maintain contacts with minority, female, and community organizations as sources of

recruits.

Employers are encouraged to contact nontraditional recruitment sources, such as organi-

zations that place physically and mentally handicapped persons. It is likely that hiring of both

females and minority groups will continue to receive attention, and increased emphasis will

be placed on hiring those groups.

organizational inducements Positive features and benefi ts

offered by an organization to

attract job applicants.

121

More than likely, recruiters will also have to pay more attention to the spouse, male or

female, of the person being recruited. It may become necessary to assist in fi nding jobs for

spouses of recruits. In hiring women, especially for managerial and professional jobs, it may

be necessary to consider hiring the husband as well.

1. Defi ne recruitment.

Recruitment involves seeking and attracting a pool of people from which qualifi ed candidates

for job vacancies can be chosen.

2. Discuss job analysis, human resource planning, and recruitment.

Job analysis gives the nature and requirements of specifi c jobs. Human resource planning

determines the specifi c number of jobs to be fi lled. Recruitment provides a pool of qualifi ed

people to fi ll the vacancies.

3. Explain the purpose of a personnel requisition form.

A personnel requisition form describes the reason for the need to hire a new person and the

requirements of the job.

4. Describe the advantages and disadvantages of using internal methods of recruitment.

The advantages are that the company has a better knowledge of the strengths and weaknesses

of the job candidates; the job candidates have a better knowledge of the company; employee

motivation and morale are enhanced; and the return on investment that an organization

has in its workforce is increased. The disadvantages are that people can be promoted to

the point where they cannot successfully perform the job; infi ghting for promotions can

negatively affect morale; and inbreeding can stifl e new ideas and innovation.

5. Discuss job posting and bidding.

Job posting and bidding are an internal method of recruitment in which notices of available

jobs are posted in central locations throughout the organization and employees are given a

specifi ed length of time to apply for the available jobs.

Summary of Learning Objectives

EEOC AND PALM MANAGEMENT CORPORATION The U.S. Equal Employment Opportunity Commission (EEOC)

and Palm Management Corporation, which manages The

Palm Restaurants, today announced the resolution of an EEOC

Commissioner’s Charge, ending a nationwide investigation

focusing on past recruitment and hiring practices. The

prelitigation agreement was voluntarily entered into by the

Palm and obtained through the EEOC’s conciliation process.

The terms of the agreement include the Palm’s already

extensive diversity program with mandatory EEO training

for managers and employees, and the establishment of a

class fund in the amount of $500,000.

The EEOC’s investigation was based on allegations that

the Palm violated Title VII of the Civil Rights Act of 1964

by failing to recruit and hire women into service worker

positions. However, beginning in 2000, the Palm had

implemented changes in its employment practices, which

included providing mandatory training to supervisors

concerning the avoidance of discrimination in hiring and

more effective applicant tracking and record-keeping

systems.

Olophius Perry, director of EEOC’s Los Angeles District

Offi ce, which led the investigation, said, “This is a prime

example of how employers should work cooperatively with

the EEOC as a means of effectively resolving discrimination

charges to the satisfaction of all involved parties. The Palm

has shown it is committed to equal employment opportunity

for women. Once made aware of inconsistencies that existed

in its recruitment and hiring effort, the Palm proactively

created a sophisticated, centralized tracking system that

should serve as a ‘best practices’ model for other businesses.”

Palm president and chief operating offi cer Fred Thimm

said, “I am pleased that we were able to work collaboratively

with the EEOC to resolve the allegations. We have achieved

an outcome which has enhanced our methods of recruitment

to ensure a more diverse pool of applicants, and as a result,

a more diverse workforce. As a business that experienced

rapid growth, we learned that our traditional method of

recruiting only through employee referrals was not the

best way in terms of ensuring gender diversity. It should go

without saying that the Palm does not tolerate discrimination

in its workplace, and will continue rigorous enforcement of

its existing EEOC policies.”

Source: Adapted from “EEOC and the Palm Resolve Inquiry into Recruitment and Hiring Practices,” Women in Management Review (2004), p. 129.

HRM in Action 6.4

122 Part Two Acquiring Human Resources

campus recruiting, 116

employee leasing

companies, 116

headhunter, 116

job advertising, 115

job posting and

bidding, 114

organizational

inducements, 120

personnel requisition

form, 112

realistic job previews, 118

recruitment, 111

temporary help, 116

Key Terms

6. Describe the advantages and disadvantages of using external methods of recruitment.

The advantages are that the pool of talent is much larger; new insights and perspectives

can be brought to the organization; and it is frequently cheaper and easier to hire technical,

skilled, or managerial employees from outside. The disadvantages are that attracting,

contacting, and evaluating potential employees are more diffi cult; adjustment or orientation

time is longer; and morale problems can develop among those employees within the

organization who feel qualifi ed to do the job.

7. Defi ne realistic job previews.

Realistic job previews provide complete job information, both positive and negative, to the

job applicant.

8. Explain organizational inducements.

Organizational inducements are all the positive features and benefi ts offered by an

organization that serve to attract job applicants.

9. Outline some specifi c EEOC recommendations for job advertising.

EEOC recommends that organizations avoid recruiting primarily by employee referral

and walk-ins. Advertising should indicate that the organization is an equal opportunity

employer. Campus recruiting visits should be scheduled at colleges or universities with

large female and minority groups.

1. What is recruitment?

2. Describe the relationships among job analysis, personnel planning, recruitment, and

selection.

3. What is a personnel requisition form?

4. Describe several advantages of recruiting from internal sources and several advantages of

recruiting from external sources.

5. Name and describe at least fi ve methods of recruiting.

6. What are realistic job previews?

7. Defi ne and give examples of organizational inducements.

8. Outline some specifi c EEOC recommendations for job advertising.

1. Discuss the following statement: “An individual who owns a business should be able to

recruit and hire whomever he or she pleases.”

2. Employees often have negative views on the policy of hiring outsiders rather than promoting

from within. Naturally, employees believe they should always be given preference for

promotion before outsiders are hired. Do you think this is in the best interest of the

organization?

3. As a potential recruit who will probably be looking for a job upon completion of school,

what general approach and method or methods of recruiting do you think would be most

effective in attracting you?

Review Questions

Discussion Questions

Chapter 6 Recruiting Employees 123

Incident 6.1

Inside or Outside Recruiting?

Powermat, Inc., has encountered diffi culty over the last few years in fi lling its middle manage-

ment positions. The company, which manufactures and sells complex machinery, is organized

into six semiautonomous manufacturing departments. Top management believes it is neces-

sary for the managers of these departments to make many complex and technical decisions.

Therefore, the company originally recruited strictly from within. However, it soon found that

employees elevated to middle management often lacked the skills necessary to discharge their

new duties.

A decision was then made to recruit from outside, particularly from colleges with good in-

dustrial management programs. Through the services of a professional recruiter, the company

developed a pool of well-qualifi ed industrial management graduates. Several were hired and

placed in lower management positions as preparation for the middle management jobs. Within

two years, all these people had left the company.

Management reverted to its former policy of promoting from within and experienced basi-

cally the same results as before. Faced with the imminent retirement of employees in several

key middle management positions, the company decided to call in a consultant for solutions.

Questions

1. Is recruiting the problem in this company?

2. If you were the consultant, what would you recommend?

Incident 6.2

A Malpractice Suit against a Hospital

Hospital jumping is a term hospital personnel use to describe the movement of incompetent

and potentially negligent employees from hospital to hospital. One factor contributing to

hospital jumping is the reluctance of hospitals to release information to other hospitals that

are checking references.

Ridgeview Hospital was sued for negligence in its screening of employees. The case

involved the alleged incorrect administration to an infant of a medication that nearly caused

the child’s death. The party bringing suit contended that the nurse who administered the drug

was negligent, as was the hospital because it had failed to make a thorough investigation of

the nurse’s work history and background. It was learned that the nurse had been hired by

Ridgeview before it had received a letter of reference from her previous employer verifying

her employment history. In support of the plaintiff ’s case, uncontested information was pre-

sented about a similar incident of negligence in patient care by the nurse in her previous

employment.

Ridgeview Hospital’s personnel director, John Reeves, took the position that reference

checks were a waste of time because area hospital personnel directors would not provide what

they thought might be defamatory information about former employees. He further stated that

in checking reference sources, these same personnel directors would request information they

themselves would not give.

Reeves’s lawyer concluded that the hospital would have to choose between two poten-

tially damaging alternatives in adopting a personnel screening policy. It could continue not to

verify references, thereby risking malpractice suits such as the one discussed. Alternatively, it

could implement a policy of giving out all information on past employees and risk defamation

suits. The lawyers recommended the second alternative because they thought the potential

cost would be signifi cantly less if the hospital were convicted of libel or slander than if it were

judged guilty of negligence.

124 Part Two Acquiring Human Resources

Questions

1. Which of the two alternatives would you recommend to the hospital?

2. What questions could be asked in a recruitment interview to help eliminate the

problem?

Use a résumé writer from the Internet to write your own résumé. Bring the résumé to class and

have another student or your professor evaluate it.

1. See Jane King, “The Web Habit Is HR’s Manna from Heaven,” Personnel Today, January 27, 2004,

p. 2.

2. Michelle Neely Martinez, “The Headhunter Within,” HR Magazine, August 2001, pp. 48–55; Carroll

Lachnit, “Employee Referrals Save Time, Save Money, Deliver Quality,” Workforce, June 2001,

pp. 67–72.

3. Tina King, “Onondaga Leasing Works with People,” Business Journal, November 3, 2000, p. 30;

John M. Polson, “The PEO Phenomenon: Co-Employment at Work,” Employee Relations Law

Journal, Spring 2002, pp. 7–25.

4. James A. Breaugh and Mary Starke, “Research on Employee Recruitment: So Many Studies, So

Many Remaining Questions,” Journal of Management 26, 2000, pp. 405–34.

EXERCISE 6.1

Writing a Résumé

Notes and Additional Readings

125

Chapter Seven

Selecting Employees

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Outline the steps in the selection

process.

2. Describe aptitude, psychomotor, job

knowledge, profi ciency, interest, and

personality tests.

3. Explain a polygraph test.

4. Describe structured and unstructured

interviews.

5. Defi ne validity.

6. Explain predictive validity.

7. Explain concurrent validity.

8. Describe content validity.

9. Discuss construct validity.

10. Defi ne reliability.

11. Defi ne adverse (or disparate) impact.

Chapter Outline

The Selection Process

Employment Application Form

Preliminary Interview

Formal Testing

Second or Follow-Up Interview

Reference Checking

Physical Examination

Making the Final Selection Decision

Validation of Selection Procedures

Criterion-Related Validity

Content and Construct Validity

Reliability

Uniform Guidelines on Employee

Selection Procedures

Adverse (or Disparate) Impact

Where Adverse Impact Exists:

The Basic Options

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 7.1: Promotions at OMG

Incident 7.2: The Pole Climbers

Exercise 7.1: Developing a Frequency

Distribution

Notes and Additional Readings

On the Job: Sample Online Application

for Employment

The objective of the selection process is to choose the individual who can successfully perform the job from the pool of qualifi ed candidates. Job analyses, human resource planning,

and recruitment are necessary prerequisites to the selection process. A breakdown in any of

these processes can make even the best selection system ineffective.

THE SELECTION PROCESS

Processing an applicant for a job normally entails a series of steps. Figure 7.1 illustrates the

steps in a typical selection process. The size of the organization, the types of jobs to be fi lled,

the number of people to be hired, and outside pressures from the EEOC or union all infl uence

the exact nature of an organization’s selection process. Most organizations use a multiple

selection The process of choosing from

among available applicants the

individuals who are most likely

to successfully perform a job.

126 Part Two Acquiring Human Resources

cutoff technique in selection. With this technique, an applicant must be judged satisfactory

through a series of screening devices, such as application forms, interviews, and tests. The

applicant is eliminated from consideration for the job if any of these devices is unsatisfactory.

All of these screening devices must be validated if they produce adverse or disparate impact.

Employment Application Form Completing an employment application form is normally the fi rst step in most selection proce-

dures. The application provides basic employment information for use in later steps of the

selection process and can be used to screen out unqualifi ed applicants. For example, if the job

opening requires the ability to use a word processor and the applicant indicates an inability to

use a word processor, there is no need to process the application further.

EEOC Requirements

The EEOC and the courts have found that many application and interview inquiries dispropor-

tionately reject minorities and females and frequently are not job related. Many questions have

therefore been explicitly prohibited. Some of the major questions that should be eliminated

from preemployment inquiries (both employment application forms and interviews) because

of their potential to be discriminatory include the following:

1. Race, color, national origin, and religion. Inquiries about race, color, national origin, or

religion are not illegal per se, but asking or recording this information in employment

records can invite careful scrutiny if discrimination charges are fi led against the employer.

FIGURE 7.1 Steps in the Selection

Process

Final decision

Completion and screening

of the application form

Preliminary interview

Employment testing

Diagnostic interview

Reference checking

Required only for individual who is offered the

position. Job offer is contingent on individual

passing the physical examination.

Physical examination:

Chapter 7 Selecting Employees 127

2. Arrest and conviction records. Courts have ruled that an individual’s arrest record is an

unlawful basis for refusal to hire unless the employer can show that such a policy is job related.

3. Credit rating. Courts have also ruled that an applicant’s poor credit rating is an unlawful

basis for refusal to hire unless a business necessity for such a policy can be established.

Inquiries about charge accounts and home or car ownership may be unlawful unless

required because of business necessity.

The On the Job example at the end of Chapter 3 provides a comprehensive listing of permis-

sible questions and questions to be avoided, not only in preemployment interviews but also on

application forms.

Processing

Normally a member of the human resource department reviews the information on the

application form to determine the applicant’s qualifi cations in relation to the requirements of

currently available jobs. Another screening procedure is the use of weighted application forms. These forms assign different weights to different questions. Weights are developed by determining which item responses were given more frequently by applicants who proved to

be higher performers but less frequently by applicants who proved to be poorer performers.

Weighted application forms are subject to the validity requirements discussed earlier in this

chapter.

Accuracy of Information

The accuracy of information given on application forms is open to debate. Placing full reliance

on information provided on the application form may not be prudent unless some means of

verifi cation is used. Some of the information on the application form can be verifi ed through

reference checking, which is described later in this chapter.

In an attempt to ensure that accurate information is given, many employers require the

applicant to sign a statement similar to the following:

I hereby certify that the answers given by me to the foregoing questions and statements made

are true and correct, without reservations of any kind whatsoever, and that no attempt has

been made by me to conceal pertinent information. Falsifi cation of any information on this

application can lead to immediate discharge at the time of disclosure.

Whether this statement actually increases the accuracy of information provided is not known.

However, employers view falsifi cation of an application form as a serious offense that, if

detected, normally leads to discharge.

Applicant Flow Record

At the time of completing the application form, the applicant is frequently asked to complete

an applicant fl ow record. An applicant fl ow record is a form used by a company to obtain information from a job applicant that could be used to illegally discriminate. The applicant vol-

untarily completes this record. The On the Job example at the end of this chapter shows a sample

combination application form and applicant fl ow record. Data and information from the appli-

cant fl ow record can be used to provide statistical reports to the EEOC or OFCCP or in defense

against charges of discrimination concerning the employer’s recruitment and selection activities.

Preliminary Interview The preliminary interview is used to determine whether the applicant’s skills, abilities,

and job preferences match any of the available jobs in the organization, to explain to the

applicant the available jobs and their requirements, and to answer any questions the applicant

has about the available jobs or the employer. A preliminary interview is usually conducted

after the applicant has completed the application form. It is generally a brief, exploratory

interview that is normally conducted by a specialist from the human resource department.

The interview screens out unqualifi ed or uninterested applicants. Interview questions must

be job related and are subject to demonstrations of validity. The Preemployment Inquiry

Guide at the end of Chapter 3 provides a summary of permissible inquiries and inquiries to

weighted application forms Application forms that assign

different weights or values to

different questions.

applicant fl ow record A form completed voluntarily

by a job applicant and used

by an employer to obtain

information that could be used

to illegally discriminate.

128

be avoided during the preliminary interview. HRM in Action 7.1 describes an example of an

unusual request for information made by a city.

Formal Testing In Albemarle v. Moody, the Supreme Court ruled that any procedure used to make selection

decisions is to be construed as a test. If a test is to be used in the selection process and if

the selection process has adverse impact on legally protected groups, the EEOC requires the

employer to establish validity and reliability using the procedures outlined in the “Uniform

Guidelines on Employee Selection Procedures,” which are described later in this chapter.

Many types of commercial tests are available to organizations for use in the selection

process. Many of these tests have undergone validation and reliability studies. One useful

source for review of these tests is the Mental Measurements Yearbook.1 This handbook summa-

rizes a wide variety of commercial tests and also provides an evaluation of the tests by several

experts.

The following sections examine fi ve categories of tests: aptitude, psychomotor, job

knowledge and profi ciency, interests, and personality. In addition, the use of polygraphs,

graphology, and drug and AIDS testing is discussed.

Aptitude Tests

Aptitude tests measure a person’s capacity or potential ability to learn and perform a job. Some of the more frequently used tests measure verbal ability, numerical ability, perceptual

speed, spatial ability, and reasoning ability. Verbal-aptitude tests measure a person’s ability to

use words in thinking, planning, and communicating. Numerical tests measure ability to add,

subtract, multiply, and divide. Perception speed tests measure ability to recognize similarities

and differences. Spatial tests measure ability to visualize objects in space and determine their

relationships. Reasoning tests measure ability to analyze oral or written facts and make correct

judgments concerning these facts on the basis of logical implications.

One of the oldest and, prior to the passage of equal opportunity legislation, most frequently

used aptitude tests was the general intelligence test. The EEOC views this type of test

with disfavor because such tests often contain questions that are not related to successful

performance on the job. Thus, employers have largely abandoned the use of intelligence tests

in employee selection.

Psychomotor Tests

Psychomotor tests measure a person’s strength, dexterity, and coordination. Finger dexterity, manual dexterity, wrist-fi nger speed, and speed of arm movement are some of the

psychomotor abilities that can be tested. Abilities such as these might be tested for hiring

people to fi ll assembly-line jobs.

Job Knowledge and Profi ciency Tests

Job knowledge tests measure the job-related knowledge possessed by a job applicant. These tests can be either written or oral. The applicant must answer questions that differentiate

aptitude tests Means of measuring a person’s

capacity or latent ability to

learn and perform a job.

psychomotor tests Tests that measure a person’s

strength, dexterity, and

coordination.

job knowledge tests Tests used to measure the

job-related knowledge of

an applicant.

JOB APPLICANTS AND SOCIAL NETWORKS A candidate for a job may not only have to include his or

her résumé. Candidates may also be asked to turn over their

information for any social or business networking Web sites

such as Facebook.

In Bozeman, Montana, to be considered for a city job

one must include all information regarding involvement

in social networking sites. The ACLU, for one, believes this

practice violates applicants’ privacy. The city of Bozeman is

considering changing the policy due to the media coverage

it received after announcing the policy.

A more troubling aspect in the Bozeman city request is

for the applicant’s passwords to such sites. Applicants giving

out such information could have their information stolen or

misused.

Source: Adapted from Anonymous, “Apply Here, and Give Us Your Passwords,” Information Management Journal, September/October 2009, p. 12.

HRM in Action 7.1

Chapter 7 Selecting Employees 129

experienced and skilled workers from less experienced and less skilled workers. Profi ciency tests measure how well the applicant can do a sample of the work to be performed. A word processing test given to applicants for a secretarial job is an example of a profi ciency test.

Interest Tests

Interest tests are designed to determine how a person’s interests compare with the inter- ests of successful people in a specifi c job. These tests indicate the occupations or areas of

work in which the person is most interested. The basic assumption in the use of interest tests

is that people are more likely to be successful in jobs they like. The primary problem with

using interest tests for selection purposes is that responses to the questions are not always

sincere.

Personality Tests

Personality tests attempt to measure personality characteristics. These tests are generally characterized by questionable validity and low reliability and presently have limited use for se-

lection purposes. Two of the better-known personality tests are the Rorschach inkblot test and

the Thematic Apperception Test (TAT). In the Rorschach test, the applicant is shown a series of

cards that contain inkblots of varying sizes and shapes. The applicant is asked to tell what the

inkblots look like to him or her. With the TAT, the applicant is shown pictures of real-life situ-

ations for interpretation. With both of these methods, the individual is encouraged to report

whatever immediately comes to mind. Interpretation of these responses requires subjective

judgment and the services of a qualifi ed psychologist. Furthermore, responses to personality

tests can also be easily fabricated. For these reasons, personality tests presently have limited

application in selection decisions.

The Myers-Briggs Type Indicator (MBTI) is one of the most widely used instruments. It is

not a test in the sense that there are no right or wrong answers. The MBTI allows individuals

to understand their personality or psychological style.

Polygraph Tests

The polygraph, popularly known as the lie detector, is a device that records physical changes in the body as the test subject answers a series of questions. The polygraph records fl uctuations

in blood pressure, respiration, and perspiration on a moving roll of graph paper. The polygraph

operator makes a judgment as to whether the subject’s response was truthful or deceptive by

studying the physiological measurements recorded on paper.

The use of a polygraph rests on a series of cause-and-effect assumptions: Stress causes

certain physiological changes in the body; fear and guilt cause stress; lying causes fear

and guilt. The theory behind the use of a polygraph test assumes a direct relationship be-

tween the subject’s responses to the questions and the physiological responses recorded on

the polygraph. However, the polygraph machine itself does not detect lies; it detects only

physiological changes. The operator must interpret the data recorded by the machine. Thus,

the operator, not the machine, is the real lie detector.

The Employee Polygraph Protection Act of 1988, with a few exceptions, prohibits

employers from conducting polygraph examinations on all job applicants and most employ-

ees. It also prevents the use of voice stress analyzers and similar devices that attempt to

measure honesty. Paper-and-pencil tests and chemical testing, such as for drugs or AIDS, are

not prohibited.

The major exemptions to the law are as follows: (1) All local, state, and federal employees

are exempt from coverage, although state laws may be passed to restrict the use of polygraphs;

(2) industries with national defense or security contracts are permitted to use polygraphs;

(3) businesses with nuclear power–related contracts with the Department of Energy may use

polygraphs; and (4) businesses and consultants with access to highly classifi ed information

may use polygraphs.

Private businesses are also allowed to use polygraphs under certain conditions: when hiring

private security personnel, when hiring persons with access to drugs, and during investigations

of economic injury or loss by the employer.2

profi ciency tests Tests used to measure how

well a job applicant can do

a sample of the work to be

performed in the job.

interest tests Tests designed to determine

how a person’s interests

compare with the interests

of successful people in a

specifi c job.

personality tests Tests that attempt to

measure personality traits.

polygraph Device that records physical

changes in a person’s body as

he or she answers questions

(also known as a lie detector).

130

TESTING DRUG USE AT WORK Lately, it seems some employers are using drug tests to

eliminate employees without notice. This is a risky practice for

employers.

Companies must have a clear policy in place. Companies

especially use drug testing where a person’s job can affect

safety on the company’s grounds. If a company were to

test more commonly, say younger employees, they face the

potential of running into age discrimination laws. Also, a

substantial increase in the number of drug tests a company

gives to its employees could be construed as an attempt to

eliminate employees for other reasons, such as cutting costs

or redundancies. This could not only affect employee morale

but also be cause for lawsuits.

Source: Adapted from Tracey Lacey-Smith, “Testing Times over Drug Use at Work,” Personnel Today, June 16, 2009, p. 7.

HRM in Action 7.2

Graphology

Graphology (handwriting analysis) involves using an analyst to examine the lines, loops, hooks, strokes, curves, and fl ourishes in a person’s handwriting to assess the person’s personal-

ity, performance, emotional problems, and honesty. As with the polygraph, the use of graphol-

ogy is dependent on the training and expertise of the person (called graphologist) doing the

analysis.

Graphology has had limited acceptance by organizations in the United States. However,

acceptance of graphology is increasing, since the passage of the Employee Polygraph

Protection Act does not prohibit its use.3

Drug and AIDS Testing

Drug testing is being increasingly used by organizations. The most common practice is to test

current employees when their job performance suggests substance abuse and all new potential

employees. Most companies will not hire a potential employee who tests positive for drug abuse.

Urine sampling is one of the most common forms of drug testing. In addition, a more

currently used technique involves measuring drug molecules from a person’s hair to identify

drug usage levels. Some experts believe hair testing is more accurate than urine sampling.

Most experts agree that testing for drug abuse alone among current employees is a less than

satisfactory solution to the problem. Testing can create an adversarial relationship in which the

employee tries to escape the employer’s detection. Education and employee assistance provide

a much more positive relationship. This approach has led to the establishment of employee

assistance programs, which are described in more detail in Chapter 16.

People with AIDS and people who test positive for HIV antibodies are protected in their

jobs by the Vocational Rehabilitation Act and the Americans with Disabilities Act. However,

voluntary workplace testing is not only permitted but is encouraged by some major health

organizations. Furthermore, these laws permit HIV-antibody testing in certain defi ned circum-

stances. HIV testing is much more common among health-care fi rms because of a high poten-

tial for employee exposure to HIV-infected patients.

In some instances, AIDS in the workplace has caused fear among employers and coworkers,

who often seek to be separated from those infected by the virus. If an HIV testing program

is not to be considered as a violation of an employee’s basic rights, the employer should be

able to show that the interests to be served by testing outweigh privacy expectations. HRM in

Action 7.2 describes the use of drug testing at work.

Genetic Testing

More recently, fi rms have considered the prospect of genetic testing for potential employees.

These sophisticated medical tests use gene coding to identify individuals with gene structures

that may make them susceptible to illness. Both employers and employees are concerned about

the legitimate uses of genetic information and what happens to any information obtained

through genetic testing. Although there is a consensus that restricting health-care benefi ts

is not the goal of genetic testing, all parties are concerned about who will have access to

the information. Another concern of employers is what liability they may have for not using

genetic testing if a valid test and a reason for testing exist.4

graphology (handwriting analysis) Use of a trained analyst

to examine a person’s

handwriting to assess

the person’s personality,

emotional problems, and

honesty.

Many employers practice drug testing on potential employees. © liquidlibrary/ PictureQuest

Chapter 7 Selecting Employees 131

Second or Follow-Up Interview Most organizations use the second or follow-up interview as an important step in the selection

process. Its purpose is to supplement information obtained in other steps in the selection

process to determine the suitability of an applicant for a specifi c opening. All questions asked

during an interview must be job-related. Equal employment opportunity legislation has placed

limitations on the types of questions that can be asked during an interview (see the On the Job

example at the end of Chapter 3).

Types of Interviews

Organizations use several types of interviews. The structured interview is conducted using a predetermined outline that is based on a thorough job analysis. Through the use of this

outline, the interviewer maintains control of the interview so that all pertinent information

on the applicant is covered systematically. Advantages of the structured interview are that it

provides the same type of information on all interviewees and allows systematic coverage of

all questions deemed necessary by the organization.

Interviewers also conduct unstructured interviews, which do not have a predetermined checklist of questions. They use open-ended questions such as “Tell me about your previous

job.” Interviews of this type pose numerous problems, such as lack of systematic coverage of

information, and are very susceptible to the personal biases of the interviewer. However, they

do provide a more relaxed atmosphere.

Organizations use three other types of interviewing techniques to a limited extent. The stress interview is designed to place the interviewee under pressure. In the stress interview, the inter- viewer assumes a hostile and antagonistic attitude toward the interviewee. The purpose of this

type of interview is to detect the highly emotional person. In board or panel interviews, two or more interviewers conduct a single interview with the applicant. Group interviews, in which several job applicants are questioned together in a group discussion, are also sometimes used.

Panel interviews and group interviews can involve either a structured or an unstructured format.

Problems in Conducting Interviews

Although interviews have widespread use in selection procedures, they involve a host of

problems. The fi rst and certainly one of the most signifi cant problems is that interviews are

subject to the same legal requirements of validity and reliability as other steps in the selection

process. However, the validity and reliability of most interviews are questionable. One primary

reason seems to be that it is easy for interviewers to become either favorably or unfavorably

impressed with the job applicant based on their initial impressions. The interviewer often draws conclusions about the applicant within the fi rst 10 minutes of the interview. If this occurs,

he or she either overlooks or ignores any additional relevant information about the applicant.

Another problem is the halo effect that occurs when the interviewer allows a single prominent characteristic to dominate judgment of all other traits. For instance, it is often easy to

overlook other characteristics when a person has a pleasant personality. However, merely having

a pleasant personality does not necessarily ensure that the person will be a good employee.

Overgeneralizing is another common problem. An interviewee may not behave exactly

the same way on the job as during the interview. For example, the interviewer must remember

that the interviewee is under pressure during the interview and that some people just naturally

become very nervous during an interview.

Personal preferences, prejudices, and biases can also cause problems in conducting

employment interviews. Interviewers with biases or prejudices tend to look for behaviors that

conform to their biases. Appearance, social status, dress, race, and gender have negatively

infl uenced many employment interviews.

Conducting Effective Interviews

Problems associated with interviews can be partially overcome through careful planning. The

following suggestions can increase the effectiveness of the interviewing process.

First, careful attention must be given to selecting and training interviewers. They should

be outgoing and emotionally well-adjusted people. Interviewing skills can be learned, and the

people responsible for conducting interviews should be thoroughly trained in these skills.

structured interview An interview conducted

according to a predetermined

outline.

unstructured interview An interview conducted

without a predetermined

checklist of questions.

stress interview Interview method that puts the

applicant under pressure to

determine whether he or she is

highly emotional.

board or panel interviews Interview method in which

two or more people conduct an

interview with one applicant.

group interview Interview method in which

several applicants are

questioned together.

initial impressions Interviewer draws conclusions

about a job applicant within

the fi rst 10 minutes of the

interview.

halo effect Occurs when managers allow a

single prominent characteristic

of the employee to infl uence

their judgment on several items

of a performance appraisal.

132 Part Two Acquiring Human Resources

Second, the plan for the interview should include an outline specifying the information to

be obtained and the questions to be asked. The plan should also include room arrangements.

Privacy and some degree of comfort are important. If a private room is not available, the

interview should be conducted in a place where other applicants are not within hearing distance.

Third, the interviewer should attempt to put the applicant at ease. The interviewer should not

argue with the applicant or put the applicant on the spot. A brief conversation about a general

topic of interest or offering the applicant a cup of coffee can help ease the tension. The applicant

should be encouraged to talk. However, the interviewer must maintain control and remember that

the primary goal of the interview is to gain information that will aid in the selection decision.

Fourth, the facts obtained in the interview should be recorded immediately. Generally,

notes can and should be taken during the interview.

Finally, the effectiveness of the interviewing process should be evaluated. One way to

evaluate effectiveness is to compare the performance ratings of individuals who are hired

against assessments made during the interview. This cross-check can serve to evaluate the

effectiveness of individual interviewers as well as that of the overall interviewing program.

Reference Checking Reference checking can take place either before or after the second interview. Many organizations

realize the importance of reference checking and provide space on the application form for

listing references. Most prospective employers contact individuals from one or more of the

three following categories: personal, school, or past employment references. For the most part,

personal references have limited value because generally no applicant will list someone who will

not give a positive recommendation. Contacting individuals who have taught the applicant in

school, college, or university may be of limited value for similar reasons. Previous employers are

clearly the most often used source and are in a position to supply the most objective information.

Reference checking is most frequently conducted by telephoning previous employers. How-

ever, many organizations will not answer questions about a previous employee unless the ques-

tions are put in writing. The amount and type of information a previous employer is willing to

divulge varies from organization to organization. The least that normally can be accomplished

is to verify the information given on the application form. However, most employers are hesitant

to answer questions about previous employees because of the threat of defamation lawsuits.

Government legislation has signifi cantly infl uenced the process of reference checking. The

Privacy Act of 1974 prevents government agencies from making their employment records

available to other organizations without the consent of the individual involved. The Fair Credit

and Reporting Act (FCRA) of 1971 requires private organizations to give job applicants

access to information obtained from a reporting service. It is also mandatory that an applicant

be made aware that a check is being made on him or her. Because of these laws, most employ-

ment application forms now contain statements, which must be signed by the applicant, au-

thorizing the employer to check references and conduct investigations.5

Physical Examination The physical examination is normally required only for the individual who is offered the

job, and the job offer is often contingent on the individual passing the physical examination.

The exam is given to determine not only whether the applicant is physically capable of per-

forming the job but also his or her eligibility for group life, health, and disability insurance.

Because of the expense, physical examinations are normally one of the last steps in the selec-

tion process. The expense of physical examinations has also caused many organizations to

have applicants complete a health questionnaire when they fi ll out their application form. If

no serious medical problems are indicated on the medical questionnaire, the applicant usu-

ally is not required to have a physical examination. HRM in Action 7.3 describes the use of

background checking.

The Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990 have also

caused many employers to reexamine the physical requirements for many jobs. These acts

do not prohibit employers from giving medical exams. However, they do encourage employers

to make medical inquiries directly related to the applicant’s ability to perform job-related

functions and require employers to make reasonable accommodations to help handicapped

133

INCREASED BACKGROUND CHECKS OF POTENTIAL EMPLOYEES As the economy rebounds, employers are stepping up

background checks on potential candidates for positions.

Companies have long checked employment history and

education, but now the scrutiny has increased, sometimes

even into a candidate’s personal history.

False claims have long been reasons for employee

dismissal or candidate rejection from a company. One

agency specializing in candidate information verifi cation

recalls a case of a candidate rejection from a company due

to the agency uncovering knowledge of the candidate’s past

involving an extramarital affair.

Employers have increased scrutiny due to the data they

are receiving from agencies specializing in a candidate’s back-

ground check. Fake résumés, dubious university records, and

false claims of employment history are shown to be on the rise.

Also, criminal history checks are now more comprehensive.

Source: Adapted from Anonymous, “Companies Step Up Background Checks of Prospective Employees,” McClatchy-Tribune Business News, November 26, 2009.

HRM in Action 7.3

people perform the job. Furthermore, the Americans with Disabilities Act requires that a

physical exam cannot be conducted until after a job offer has been extended to a job candidate.

Making the Final Selection Decision The fi nal step in the selection process is choosing one individual for the job. The assumption

made at this point is that there will be more than one qualifi ed person. If this is true, a value

judgment based on all the information gathered in the previous steps must be made to select

the most qualifi ed individual. If the previous steps have been performed properly, the chances

of making a successful judgment improve dramatically.

The responsibility for making the fi nal selection decision is assigned to different lev-

els of management in different organizations. In many organizations, the human resource

department handles the completion of application forms; conducts preliminary interviews,

testing, and reference checking; and arranges for physical exams. The diagnostic interview and

fi nal selection decision are usually left to the manager of the department with the job opening.

Such a system relieves the manager of the time-consuming responsibilities of screening out

unqualifi ed and uninterested applicants.

In other organizations, the human resource department handles all of the steps up to the

fi nal decision. Under this system, the human resource department gives the manager with a

job opening a list of three to fi ve qualifi ed applicants. The manager then chooses the individual

he or she believes will be the best employee based on all the information the human resource

department provides. Many organizations leave the fi nal choice to the manager with the job

opening, subject to the approval of those at higher levels of management.

In some organizations, the human resource department handles all the steps in the selection

process, including the fi nal decision. In small organizations, the owner often makes the

fi nal choice.

An alternative approach is to involve peers in the fi nal selection decision. Peer involvement

has been used primarily in the selection of upper-level managers and professional employees.

Peer involvement naturally facilitates the acceptance of the new employee by the work group.

In the selection of managers and supervisors, assessment centers are also sometimes used.

An assessment center utilizes a formal procedure involving interviews, tests, and individual

and group exercises aimed at evaluating an individual’s potential as a manager/supervisor and

determining his or her developmental needs. Chapter 9 describes assessment centers at length.

VALIDATION OF SELECTION PROCEDURES

The selection decision requires the decision maker to know what distinguishes successful

performance from unsuccessful performance in the available job and to forecast a person’s

future performance in that job. Therefore, job analysis is essential in the development of a

successful employee selection system. As discussed in Chapter 4, both job descriptions and

job specifi cations are developed through job analysis. A job description facilitates determining

134 Part Two Acquiring Human Resources

how successful performance of the job is to be measured. These measures are called criteria of job success. Possible criteria of job success include performance appraisals, production data (such as quantity of work produced), and personnel data (such as rates of absenteeism

and tardiness).

A job specifi cation facilitates identifying the factors that can be used to predict

successful performance of the job. These factors are called criterion predictors. Pos- sible criterion predictors include education, previous work experience, scores on tests,

data from application forms, previous performance appraisals, and results of employment

interviews.

Validity and reliability are extremely important concepts not only in the selection of new

employees but also in promotion decisions or any other area where selection decisions are

made. For example, suppose a company administers a test to all its employees in a certain

unit or department. Further suppose that the employees selected for attendance in a training

program are the ones who scored highest on the test. In order to use the test scores for selecting

employees for attendance in a training program, the company must be able to show that the test

is valid and reliable. Two landmark court cases that involved selection procedures were Griggs

v. Duke Power Company and Albemarle Paper v. Moody, both of which were discussed in detail

in Chapter 2.

Validity refers to how accurately a criterion predictor predicts the criterion of job success. Reliability refers to the extent to which a criterion predictor produces consistent results if repeated measurements are made. It is important to note that a criterion predictor such

as a test score can be reliable without being valid. However, it cannot be valid if it is not

reliable. Reliability is necessary but not suffi cient to show the validity of a criterion predictor.

Consequently, the reliability of a criterion predictor plays an important role in determining its

validity. Reliability will be discussed in more detail later in this chapter.

Some criteria such as results of performance appraisals can be used as either a crite-

rion predictor or a criterion of job success. For example, if past performance appraisals

are used to forecast how successfully an employee will perform a different job, then the

results of the performance appraisal system are criterion predictors. If, on the other hand,

test scores are the criterion predictor, then performance appraisal results are the criterion

of job success.

Figure 7.2 shows the relationship between job analysis, reliability, and validity. Three meth-

ods can be used to demonstrate the validity of a criterion predictor. These are criterion-related

validity, content validity, and construct validity.

Criterion-Related Validity Criterion-related validity is established by collecting data and using correlation analysis (a sta-

tistical method used to measure the relationship between two sets of data) to determine the

relationship between a predictor and the criteria of job success. The degree of validity for a

particular predictor is indicated by the magnitude of the coeffi cient of correlation (r), which

can range from ⫹1 to ⫺1. Both ⫹1 and ⫺1 represent perfect correlation. Zero represents total

lack of correlation or validity. A positive sign (⫹) on the coeffi cient of correlation means the

two sets of data are moving in the same direction, whereas a negative (⫺) sign means the two

sets of data are moving in opposite directions.

A criterion predictor never correlates perfectly with a criterion of job success. Thus, a

signifi cant issue in validity is the degree of correlation required between the criterion predictor

and the criterion of job success in order to establish validity. The “Uniform Guidelines on

Employee Selection Procedure” (more commonly referred to as “Uniform Guidelines”),

which are described later in this chapter, take the position that no minimum correlation

coeffi cient is applicable to all employment situations. Correlation coeffi cients rarely exceed

0.50; a correlation of 0.40 is ordinarily considered very good, and a correlation of 0.3 or

higher is acceptable. Generally, it is safe to say that criterion predictors having a correlation

coeffi cient of under 0.30 would not be accepted as valid.

Two primary methods for establishing criterion-related validity are predictive validity and

concurrent validity.

criteria of job success Ways of specifying how

successful performance of

the job is to be measured.

criterion predictors Factors such as education,

previous work experience, and

scores on tests that are used to

predict successful performance

of a job.

validity Refers to how accurately a

predictor actually predicts the

criteria of job success.

reliability Refers to the extent to which

a criterion predictor produces

consistent results if repeated

measurements are made.

Chapter 7 Selecting Employees 135

Predictive Validity

Predictive validity is established by identifying a predictor such as a test, administering the test to the entire pool of job applicants, and then hiring people to fi ll the available jobs without

regard to their test scores. At a later date, the test scores are correlated with the criteria of job

success to see whether those people with high test scores performed substantially better than

those with low test scores.

For example, suppose the company wants to determine the validity of a test for predicting

future performance of production workers. In this example, test scores would be the predictor.

Further suppose the company maintains records on the quantity of output of individual workers

and that quantity of output is to be used as the criterion of job success. In a predictive-validation

study, the test would be administered to the entire pool of job applicants, but people would be

hired without regard to their test scores. The new employees would be given the same basic

orientation and training. Some time later (e.g., one year), the test scores would be correlated

to quantity of output. If an acceptable correlation exists, the test is shown to be valid and can

be used for selection of future employees. Figure 7.3 summarizes the steps in performing a

predictive-validation study.

Predictive validation is used infrequently because it is costly and slow. To use this method,

a large number of new employees must be hired at the same time without regard to their test

scores. Potentially, an organization may hire both good and bad employees. Furthermore, for

criteria to be predictive, all new employees must have equivalent orientation and training.

predictive validity Validity established by

identifying a predictor,

administering it to applicants,

hiring without regard to scores,

and later correlating scores

with job performance.

FIGURE 7.2 Relationship between Job

Analysis and Validity

Validity refers to how well criterion predictors

actually predict the criteria of job success

Job analysis

Job descriptionJob specification

Facilitates the development

of criterion predictors

Examples include:

Education

Previous work experience

Scores on company-

administered tests

Data from application forms

Performance appraisals

Results from employment

interviews

Facilitates the development

of criteria of job success

Examples include:

Performance appraisals

Production data

Personnel data (rate of

tardiness, absenteeism, and

turnover)

Reliability refers to the extent to which a

criterion predictor produces consistent results

if repeated measurements are made.

136 Part Two Acquiring Human Resources

FIGURE 7.3 Predictive Validation Process

Job applicants

Test

administered

to all job

applicants

Job applicants

are hired

without regard

to test scores

New employees

receive basic

orientation and

training

New employees

perform the job

Test scores are a

criterion predictor

Correlation

analysis

Degree of

correlation

r ≥ 0.3

Time delay

Production records or

performance evaluations

of new employees are

used as the criterion of

job success

136 Part Two Acquiring Human Resources

Concurrent Validity

Concurrent validity is determined by identifying a predictor such as a test, administering the test to present employees, and correlating the test scores with the present employees’

performance on the job. If an acceptable correlation exists, the test can be used for selection of

future employees. Figure 7.4 summarizes the concurrent-validation process.

One disadvantage of concurrent validation is that in situations in which either racial

or sexual discrimination has been practiced in the past, minorities and women will not be

adequately represented. Another potential drawback is that among present employees in a

particular job, the poorer performers are more likely to have been discharged or quit and the

concurrent validity Validity established by

identifying a predictor,

administering it to current

employees, and correlating

the test data with the current

employee’s job performance.

FIGURE 7.4 Concurrent Validation Process

Present

employees

Test is administered to

all present employees

holding a particular job

Test scores are a

criterion predictor

Correlation

analysis

Degree of

correlation

r ≥ 0.3

Job performance of

present employees

Production records or

evaluations of present

employees are used as the

criterion of job success

Chapter 7 Selecting Employees 137

best performers have frequently been promoted. Obviously, a correlation coeffi cient obtained

under these conditions can be misleading.

Criterion-related validation procedures (either predictive or concurrent) are preferred by the

Equal Employment Opportunity Commission (EEOC) in validation studies. However, because

of the cost and diffi culties associated with criterion-related validation, content and construct

validity are frequently used. These validation methods are also accepted by the EEOC.

Content and Construct Validity Content validity refers to whether the content of a selection procedure or selection instrument such as a test is representative of important aspects of performance on the job. Content validity

is especially useful in those situations where the number of employees is not large enough

to justify the use of empirical validation methods. To use content validity, an employer must

determine the exact performance requirements of a specifi c job and develop a selection

procedure or selection instrument around an actual sample of the work that is to be performed.

Construct validity refers to the extent to which a selection procedure or instrument measures the degree to which job candidates have identifi able characteristics that have been

determined to be important for successful job performance. Examples of job-related constructs

might include verbal ability, space visualization, and perceptual speed. For example, if a job

requires blueprint reading, a test of space visualization might be construct valid for use in

employment decisions.

Both content and construct validity are dependent on judgments. However, they may be the

only available options in many validation situations.

RELIABILITY

Another important consideration for a selection system is reliability. Reliability refers to the

reproducibility of results with a criterion predictor. For example, a test is reliable to the extent

that the same person working under the same conditions produces approximately the same test

results at different time periods. A test is not reliable if a person fails it on one day but makes

an excellent grade when taking it again a week later (assuming, of course, that no learning has

taken place in the meantime).

Three methods can be used to demonstrate the reliability of a criterion predictor. Suppose

that scores on a test are to be used as the criterion predictor. One method of demonstrating

the reliability of the test is called test-retest. This involves administering the test to a group of employees and later, usually in about two to four weeks, giving the same group the same

test. Correlation analysis is used to determine the degree of correlation between the two

sets of scores. The higher the correlation coeffi cient, the greater is the reliability of the test.

Obviously, the results of the correlation can be infl uenced by whether members of the group

studied during the time between tests.

A second method used to determine reliability is called parallel (or alternative) forms. Under this method two separate but similar forms of a test would be constructed. The same group of employees would be tested at two different times using the alternative forms of

the test. Again, correlation analysis is used to determine the degree of correlation between the

two sets of scores. The higher the correlation coeffi cient, the greater is the reliability of the test.

The third method used to determine reliability is called split-halves. This is the simplest and easiest method of determining reliability. Under this method a test is administered to a

group of employees. The results of the test are randomly split into two equal groups. The

scores of the two equal groups are correlated. Again the higher the degree of correlation, the

greater is the reliability.

UNIFORM GUIDELINES ON EMPLOYEE SELECTION PROCEDURES

The EEOC, the Offi ce of Personnel Management, the Department of Justice, and the Depart-

ment of Labor have adopted and published a document entitled “Uniform Guidelines on

Employee Selection Procedures,” more commonly referred to as “Uniform Guidelines.” 6 The

content validity The extent to which the content

of a selection procedure or

instrument is representative

of important aspects of job

performance.

construct validity The extent to which a selection

criterion measures the degree

to which job candidates have

identifi able characteristics

determined to be important for

successful job performance.

test-retest One method of showing a test’s

reliability; involves testing

a group and giving the same

group the same test at a later

time.

parallel (or alternative) forms A method of showing a test’s

reliability; involves giving two

separate but similar forms of

the test.

split halves A method of showing a test’s

reliability; involves dividing

the test into halves.

Chapter 7 Selecting Employees 137

138 Part Two Acquiring Human Resources

Uniform Guidelines are designed to provide the framework for determining the proper use of

tests and other selection procedures in any employment decision. Employment decisions include

but are not limited to hiring, promotion, demotion, membership (e.g., in a labor organization),

referral, retention, licensing and certifi cation, selection for training, and transfers.

The Uniform Guidelines on Employee Selection Procedures also contain technical

standards and documentation requirements for the validation of selection procedures.

The guidelines broadly defi ne selection procedures to include not only hiring but also

promotion decisions, selection for training programs, and virtually every selection deci-

sion an organization makes. The guidelines are intended to be consistent with generally ac-

cepted professional standards for evaluating selection procedures. The Uniform Guidelines

permit criteria-related, content, and construct validity studies. In conducting a validity study,

employers are also encouraged to consider available alternatives with less adverse impact for

achieving business purposes.

All validation studies must be thoroughly documented, and the Uniform Guidelines specify

in detail the types of records that must be kept in any study. Since job analysis is an essential

part of a validation study, specifi c guidelines are also provided for conducting job analyses.

Adverse (or Disparate) Impact The fundamental principle underlying the Uniform Guidelines is that employment policies

and practices that have an adverse impact on employment opportunities for any race, sex, religion, or national origin group are illegal unless justifi ed by a demonstration of job

relatedness. A selection procedure that has no adverse impact is generally considered to be

legal. If adverse impact exists, however, it must be justifi ed on the basis of job relatedness.

Normally this means validation that demonstrates the relationship between the selection pro-

cedure and performance on the job.

The Uniform Guidelines adopt a rule of thumb as a practical means of determining

adverse impact. This rule is known as the 4/5ths or 80 percent rule. This rule is not a legal defi nition of discrimination but a practical device for determining serious discrepancies in hir-

ing, promoting, or other employment decisions. For example, suppose an employer is doing

business in an area where the labor force is 25 percent African Americans. Further, suppose

that the employer has 1,000 employees and 100 (10 percent) of the employees are African

Americans. Adverse impact exists because 4/5ths of 25 percent equals 20 percent and a selec-

tion rate for African Americans below 20 percent indicates adverse impact. African Americans

make up only 10 percent of the employer’s workforce. (See Figure 7.5.)

adverse impact Condition that occurs when the

selection rate for minorities

or women is less than

80 percent of the selection

rate for the majority group in

hiring, promotions, transfers,

demotions, or any selection

decision.

4/5ths or 80 percent rule A limit used to determine

whether or not there are

serious discrepancies in

hiring decisions and other

employment practices affecting

women or minorities.

FIGURE 7.5 Determining Adverse

Impact in an Employer’s

Workforce

P e rc

e n t

25 percent

African Americans

in relevant labor

market

Adverse impact

calculation:

four-fifths of 25 percent

= 20 percent. African

American employment

rate below 20 percent

indicates adverse impact

10 percent African

26% Adverse

impact exists

Americans in

employer’s workforce

Chapter 7 Selecting Employees 139

Figure 7.6 illustrates how adverse impact can be assessed in an employer’s hiring decisions.

Suppose 25 men have applied for a job opening and 15 of the men were hired. Suppose

only 20 women applied and 5 were hired. Adverse impact exists because 4/5ths of 60 percent

equals 48 percent, and a selection rate for women below 48 percent indicates adverse impact.

Where Adverse Impact Exists: The Basic Options After it has been established that adverse impact exists, what steps do the Uniform Guidelines

require? First, the employer has the option to modify or eliminate the procedure that produces

the adverse impact. If the employer does not do so, it must justify the use of the procedure

on the grounds of job relatedness. This normally means showing a clear relation between

performance on the selection procedure and performance on the job. In the language of

industrial psychology, the employer must validate the selection procedure.

1. Outline the steps in the selection process.

The steps in the selection process are the application form, the preliminary interview,

formal testing, the follow-up interview, reference checking, the physical examination, and

making the fi nal selection decision.

2. Describe aptitude, psychomotor, job knowledge, profi ciency, interest, and personality

tests.

Aptitude tests measure a person’s capacity or potential ability to learn and perform a job.

Psychomotor tests measure a person’s strength, dexterity, and coordination. Job knowledge

tests measure the job-related knowledge possessed by a job applicant. Profi ciency tests meas-

ure how well the applicant can do a sample of the work required in the position. Interest tests

are designed to determine how a person’s interests compare with the interests of successful

people in a specifi c job. Personality tests attempt to measure personality characteristics.

3. Explain a polygraph test.

The polygraph records physical changes in the body as the test subject answers a series of

questions. The operator makes a judgment on whether the subject’s response was truthful

or deceptive by studying the physiological measurements recorded as the questions were

answered.

Summary of Learning Objectives

FIGURE 7.6 Determining Adverse

Impact in an Employer’s

Hiring Decisions

P e rc

e n t

Selection rate for

men 15/25 = 60

percent

Adverse impact

calculation:

four-fifths of 60 percent

= 48 percent. Female

employment rate

below 48 percent

indicates adverse impact

Selection rate

for women:

25 percent

23% Adverse

impact exists

140 Part Two Acquiring Human Resources

4. Describe structured and unstructured interviews.

The structured interview is conducted using a predetermined outline. Unstructured

interviews are conducted without a predetermined checklist of questions.

5. Defi ne validity.

Validity refers to how well a criterion predictor actually predicts the criteria of job success.

6. Explain predictive validity.

Predictive validity is established by identifying a criterion predictor such as a test,

administering the test to the entire pool of job applicants, and hiring people to fi ll the

available jobs without regard to their test scores. At a later date, the test scores are

correlated with the criteria of job success to see whether those people with high test

scores performed substantially better than those with low test scores.

7. Explain concurrent validity.

Concurrent validity is established by identifying a predictor such as a test, administering

the test to present employees, and correlating the test scores with the present employee’s

performances on the job.

8. Describe content validity.

Content validity refers to whether the content of a selection procedure or selection

instrument, such as a test, is representative of important aspects of performance on the

job.

9. Discuss construct validity.

Construct validity refers to the extent to which a selection procedure or instrument mea-

sures the degree to which job candidates have identifi able characteristics that have been

determined to be important for successful job performance. Job-related constructs might

include verbal ability, space visualization, and perceptual speed.

10. Defi ne reliability.

Reliability refers to the extent to which a criterion predictor produces consistent results if

repeated measurements are made.

11. Defi ne adverse (or disparate) impact.

Adverse impact is a condition that occurs when the selection rate for minorities or women

is less than 80 percent of the selection rate for the majority group in hiring, promotions,

transfers, demotions, or other employment decisions.

4/5ths or 80 percent

rule, 138

adverse impact, 138

applicant fl ow record, 127

aptitude tests, 128

board or panel

interviews, 131

concurrent validity, 136

construct validity, 137

content validity, 137

criteria of job success, 134

criterion predictors, 134

graphology (handwriting

analysis), 130

group interview, 131

halo effect, 131

initial impressions, 131

interest tests, 129

job knowledge tests, 128

parallel (or alternative

forms), 137

personality tests, 129

polygraph, 129

predictive validity, 135

profi ciency tests, 129

psychomotor tests, 128

reliability, 134

selection, 125

split halves, 137

stress interview, 131

structured interview, 131

test-retest, 137

unstructured interview, 131

validity, 134

weighted application

forms, 127

Key Terms

1. Outline the steps in the selection process.

2. Describe some preemployment inquiries that should be eliminated or carefully reviewed

to ensure their job relatedness.

3. What is a weighted application form?

Review Questions

Chapter 7 Selecting Employees 141

4. How is an applicant fl ow record used?

5. Outline and briefl y describe fi ve categories of tests.

6. What is a polygraph test?

7. What is graphology?

8. What is reference checking?

9. Briefl y describe some of the procedures organizations use in making the fi nal decision.

10. Defi ne the following terms:

a. Criteria of job success.

b. Criterion predictor.

c. Validity.

d. Reliability.

11. Describe the following methods of validation:

a. Predictive.

b. Concurrent.

c. Content.

d. Construct.

12. What is adverse (or disparate) impact?

13. Describe the 4/5ths rule.

1. “Tests often do not refl ect an individual’s true ability.” What are your views on this

statement?

2. “Organizations should be able to hire employees without government interference.” Do you

agree or disagree? What do you think would happen if organizations could do this?

3. “Reference checking is a waste of time.” Do you agree or disagree? Why?

4. How do you feel about establishing minimum entrance scores on national tests of

acceptance to a college or university?

Incident 7.1

Promotions at OMG

Old Money Group (OMG) is a mutual fund management company based in Seattle. It operates

four separate funds, each with a different goal: one each for income growth and income inter-

est production, one for a combination or balance of growth and production, and one for deal-

ing in short-term securities (a money market fund). OMG was formed in early 1995 as a

fi nancial management fi rm. By the end of 2000, OMG had almost $47 million under its man-

agement. Over this time period, the company had slightly outperformed the Standard & Poor’s

500 average and done slightly better than the stock market as a whole.

The Keogh Act permits self-employed individuals to set up retirement plans. All

contributions to and earnings from the plans are tax-exempt until the individual withdraws the

money on retirement.

OMG recognized the great potential of using Keogh plans to help market shares in its mutual

funds. It launched an aggressive marketing program aimed at persuading those with Keogh

plans to buy into the fund. This was very successful. As a result, OMG found it necessary to

establish a separate department to handle only Keogh plans. This new department was placed

in the corporate account division under division vice president Ralph Simpson. The Keogh

department grew rapidly and by the end of 2003 was managing approximately 3,000 separate

Keogh plans. The department was responsible for all correspondence, personal contact, and

problem solving involved with these accounts.

Discussion Questions

142 Part Two Acquiring Human Resources

John Baker, who had graduated from college the previous fall with a degree in history,

joined OMG in February 2004. In his interview, John had impressed the human resource

department as having managerial potential. The human resource department wanted to

place him in an area where he could move into such a position, but at that time none was

available.

A job that could be used as a stepping-stone to more responsible positions opened up in

the Keogh department. In April, John became assistant to the administrator of the department.

He was told that if he handled this position well, he would be considered for a job as plan

administrator when an opening occurred. This was communicated to John both by the human

resource department and by the head of the Keogh department.

Over the next six months, it became apparent that John was not working out well. He

seemed to show little interest in his work and did only what he had to do to get by; at times,

his work was unsatisfactory. He appeared to be unhappy and not suited to the job. John let it

be known that he had been looking for another position.

In October, Roy Johnson, head of the Keogh department, gave John his six-month review.

Knowing that John was looking for another job, Roy decided to take the easy way out. Instead

of giving John a bad review and facing the possibility of having to fi re him, he gave John a

satisfactory performance review. He hoped John would fi nd another job so the problem would

go away.

In early December, one of the plan administrators said she would be leaving OMG in late

December. Roy faced the task of selecting someone to fi ll her position. Of those who had

expressed an interest in the job, Fran Jenkins appeared the best suited for it. Fran was secretary

to the head of the corporate division. She had become familiar with the plan administrators’

work because she had helped them during their peak periods for the past three years. The

only problem was Fran’s lack of a college degree, which was stipulated as a requirement

in the job description. Although she was currently taking night courses, she had completed

only two and one-half years of college. After Roy discussed the problem with the head of

the human resource department, this requirement was waived. Roy then announced that Fran

would assume the position of plan administrator in December.

Two weeks later, John Baker informed the head of the human resource department that he

had talked to his lawyer. He felt he had been discriminated against and believed he should have

gotten the position of plan administrator.

Questions

1. Do you think John has a legitimate point?

2. What went wrong in this selection process?

Incident 7.2

The Pole Climbers

Ringing Bell Telephone Company has implemented an affi rmative action plan in compliance

with the Equal Employment Opportunity Commission. Under the current plan, to eliminate

discrimination based on sex, women must be placed in jobs traditionally held by men.

Therefore, the human resource department has emphasized recruiting and hiring women for

such positions. Women who apply for craft positions are encouraged to try for outdoor craft

jobs, such as those titled installer-repairer and line worker.

All employees hired as outside technicians must fi rst pass basic installation school, which

includes a week of training for pole climbing. During this week, employees are taught to climb

30-foot telephone poles. At the end of the week, they must demonstrate the strength and skills

necessary to climb the pole and perform exercises while on it, such as lifting heavy tools and

using a pulley to lift a bucket. Only those who pass this fi rst week of training are allowed to

advance to the segment dealing with installation.

Chapter 7 Selecting Employees 143

Records have been maintained on the rates of success or failure for employees who attend

the training school. For men, the failure rate has remained fairly constant at 30 percent.

However, it has averaged 70 percent for women.

The human resource department has become concerned because hiring and training

employees who must resign at the end of one week is a tremendous expense. In addition, the

goal of placing women in outdoor craft positions is not being reached.

As a fi rst step in solving the problem, the human resource department has started interview-

ing the women who have failed the fi rst week of training. Each employee is asked her reasons

for seeking the position and encouraged to discuss probable causes for failure. Interviews over

the last two months disclosed that employees were motivated to accept the job because of their

wishes to work outdoors, work without close supervision, obtain challenging work, meet the

public, have variety in their jobs, and obtain a type of job unusual for women. Reasons for

failure were physical inability to climb the pole, fear of height while on it, an accident dur-

ing training such as a fall from the pole, and change of mind about the job after learning that

strenuous work was involved.

In many instances, the women who mentioned physical reasons also stated they were not

physically ready to undertake the training; many had no idea it would be so diffi cult. Even

though they still wanted the job, they could not pass the physical strength test at the end of one

week.

Some stated that they felt “infl uenced” by their interviewer from the human resource depart-

ment to take the job; others said they had accepted it because it was the only job available with

the company at the time.

Questions

1. What factors would you keep in mind in designing an effective selection process for the

position of outdoor craft technician?

2. What would you recommend to help Ringing Bell reduce the failure rate among women

trainees?

You will be given one minute to copy the letter T on a blank sheet of paper as many times as

possible. The exercise is timed, and exactly one minute is permitted. A frequency distribution

will then be developed by your instructor (or the class) to show how well the class performed.

A frequency distribution is a tabular summary showing the frequency of observations in each of

several nonoverlapping classes. An example of a frequency distribution would be:

I # of People

0–10 3

10–40 6

40–60 7

60–80 5

1. What is the shape of the distribution?

2. Why is the distribution shaped in this manner?

3. Could this frequency distribution be used as a selection device for certain jobs? If so, what

types of jobs?

4. How would you demonstrate the validity of this procedure?

1. Barbara S. Plank, James C. Impara, and Robert A. Spies, eds. The Fifteenth Mental Measurements

Yearbook (Lincoln, Neb.: The Buros Institute of Mental Measurement, University of Nebraska Press,

2003).

2. See Richard D. White, Jr., “Ask Me No Questions, Tell Me No Lies: Examining the Uses and Misuses

of the Polygraph,” Public Personnel Management, Winter 2001, pp. 483–93.

EXERCISE 7.1

Developing

a Frequency

Distribution

Notes and Additional Readings

144 Part Two Acquiring Human Resources

3. Steven L. Thomas and Steve Vaught, “The Write Stuff: What the Evidence Says about Using

Handwriting Analysis in Hiring,” S. A. M. Advanced Management Journal, Autumn 2001,

pp. 31–35.

4. Gillian Flynn, “To (Genetic) Test or Not,” Workforce, December 2000, pp. 108–109.

5. See Edward C. Andler, Dara Herbst, and David Sears, The Complete Reference Checking Handbook,

Amazon.com, 2000.

6. For more information, enter “Uniform Guidelines on Employee Selection Procedures” through

Google.

SAMPLE ONLINE APPLICATION FOR EMPLOYMENT

This On the Job example illustrates the types of information normally asked on an application

for employment and an applicant fl ow record. The application form in Exhibit A7.1 provides

basic employment information to determine the applicant’s qualifi cations in relation to the

requirements of the available jobs and to screen out unqualifi ed applicants. As can be seen, the

applicant can also volunteer information that might be viewed as discriminatory. These data

can then be used to provide statistical reports to the EEOC regarding recruitment and selection

of women and minorities.

On the Job

EXHIBIT A7.1

Source: Courtesy of The McGraw-Hill

Companies Corporate New Media

Department.

Chapter 7 Selecting Employees 145

EXHIBIT A7.1 (Continued)

Part Three

Training and Developing Employees 8. Orientation and Employee Training

9. Management and Organizational Development

10. Career Development

11. Performance Management Systems

P h o to

d is

c /G

e tt

y Im

a g e s

149

Chapter Eight

Orientation and Employee Training

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne orientation.

2. Describe an orientation kit.

3. Defi ne training. 4. Describe needs assessment. Chapter Outline

Orientation

Shared Responsibility

Organizational Orientation

Departmental and Job Orientation

Orientation Kit

Orientation Length and Timing

Follow-Up and Evaluation

Training Employees

Needs Assessment

Establishing Training Objectives

Methods of Training

On-the-Job Training and Job Rotation

Apprenticeship Training

Classroom Training

Virtual Classroom

Evaluating Training

Reaction

Learning

Behavior

Results

Principles of Learning

Motivation to Achieve Personal Goals

Knowledge of Results

Reinforcement

Flow of the Training Program

Practice and Repetition

Spacing of Sessions

Whole or Part Training

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 8.1: Starting a New Job

Incident 8.2: Implementing On-the-Job

Training

Exercise 8.1: McDonald’s Training Program

Exercise 8.2: Virtual Classroom

Notes and Additional Readings

After the selection process is completed, new employees must be oriented to their job and the

organization. Furthermore, all employees periodically need to update their current skills or

learn new skills. Orienting new employees and training all employees are major responsibili-

ties of the human resource function.

For orientation and training to be effective, all of the previously discussed human resource

functions must be effectively accomplished. Figure 8.1 shows the relationships among human

Web site: HR Online www.hr2000.com

5. Outline three categories of

training objectives.

6. Describe job rotation.

7. Explain apprenticeship training.

8. Defi ne virtual classroom.

9. Outline the seven principles of learning.

10. List the four areas of training

evaluation.

150 Part Three Training and Developing Employees

resource functions. Job analysis is the process of determining, through observation and study,

the pertinent information relating to the nature of a specifi c job. Job analysis, as the detailed

discussion in Chapter 4 showed, identifi es the knowledge, skills, and abilities required to suc-

cessfully perform the job. It is, therefore, necessary before other human resource functions can

be performed. Job analysis leads to a job description and a job specifi cation. A job description

concentrates on describing the job as it is currently being done. It explains the name of the job,

what is to be done, where it is to be done, and how it is to be done. On the other hand, a job

specifi cation concentrates on the characteristics required to successfully perform the job. Human

resource planning is concerned with getting the right number of qualifi ed people into the right

job at the right time. Human resource plans must support organizational plans. For example, if

an organization is laying off employees it is unlikely that human resources would be recruiting

new employees. Similarly, orientation and training can only be successful if they are based on

organizational needs.

FIGURE 8.1 Relationships among

Human Resource

Functions Necessary

for Effective Performance

Job analysis

Job description Job specification

Human resource

planning

Recruitment

Selection

New employees

Orientation

Current employees

Training

Chapter 8 Orientation and Employee Training 151

ORIENTATION

Orientation is the introduction of new employees to the organization, their work units, and their jobs. Employees receive orientation from their coworkers and from the organization. The

orientation from coworkers is usually unplanned and unoffi cial, and it often provides the new

employee with misleading and inaccurate information. This is one of the reasons the offi cial

orientation provided by the organization is so important. An effective orientation program has

an immediate and lasting impact on the new employee and can make the difference between

his or her success or failure.

Job applicants get some orientation to the organization even before they are hired. The or-

ganization has a reputation for the type of employer it is and the types of products or services

it provides. During the selection process, the new employee usually also learns other general

aspects of the organization and what the duties, working conditions, and pay will be.

After hiring the employee, the organization begins a formal orientation program. Regardless

of the type of organization, orientation should usually be conducted at two distinct levels:

1. Organizational orientation—presents topics of relevance and interest to all employees.

2. Departmental and job orientation—describes topics that are unique to the new employee’s

specifi c department and job.

Shared Responsibility Since there are two distinct levels of orientation, the human resource department and the

new employee’s immediate manager normally share responsibility for orientation. The human

resource department is responsible for initiating and coordinating both levels of orientation,

training line managers in procedures for conducting the departmental and job orientation,

conducting the general company orientation, and following up the initial orientation with the

new employee. The new employee’s manager is usually responsible for conducting the depart-

mental and job orientation. Some organizations have instituted a “buddy system” in which one

of the new employee’s coworkers conducts the job orientation. If a buddy system is to work

successfully, the employee chosen for this role must be carefully selected and properly trained

for such orientation responsibilities.

Organizational Orientation The topics presented in the organizational orientation should be based on the needs of both the organization and the employee. Generally, the organization is interested in making a

profi t, providing good service to customers and clients, satisfying employee needs and well-

being, and being socially responsible. New employees, on the other hand, are generally more

interested in pay, benefi ts, and specifi c terms and conditions of employment. A good balance

between the company’s and the new employee’s needs is essential if the orientation program is

to have positive results. Figure 8.2 provides a listing of suggested topics that might be covered

in an organization’s orientation program.

Departmental and Job Orientation The content of departmental and job orientation depends on the specifi c needs of the department and the skills and experience of the new employee. Experienced employees are

likely to need less job orientation. However, even experienced employees usually need some

basic orientation. Both experienced and inexperienced employees should receive a thorough

orientation concerning departmental matters. Figure 8.3 presents a checklist for the develop-

ment of departmental and job orientation programs.

Orientation Kit Each new employee should receive an orientation kit, or packet of information, to sup- plement the verbal orientation program. This kit, which is normally prepared by the human

resource department, can provide a wide variety of materials. Care should be taken in the

orientation The introduction of new

employees to the organization,

work unit, and job.

organizational orientation General orientation that

presents topics of relevance

and interest to all employees.

departmental and job orientation Specifi c orientation that

describes topics unique to

the new employee’s specifi c

department and job.

orientation kit A supplemental packet of

written information for new

employees.

152 Part Three Training and Developing Employees

FIGURE 8.2 Possible Topics for Organizational Orientation Programs

Source: W. D. St. John, “The Complete Employee Orientation Program,” Personnel Journal, May 1980, pp. 376–77. Adapted from Personnel Journal, Costa Mesa, California.

1. Company overview

• Welcome speech

• Founding, growth, trends, goals, priorities, and problems

• Traditions, customs, norms, and standards

• Current functions of the organization

• Products/services and customers served

• Steps in getting products/services to customers

• Scope and diversity of activities

• Organization, structure, and relationship of company

and its branches

• Managerial staff information

• Community relations, expectations, and activities

2. Policies and procedures review

3. Compensation

• Pay rates and ranges

• Overtime

• Holiday pay

• Shift differential

• How pay is received

• Deductions: required and optional

• Option to buy damaged products and costs thereof

• Discounts

• Advances on pay

• Credit union loan information

• Reimbursement for job expenses

4. Benefi ts

• Insurance

• Medical/dental

• Life insurance

• Disability

• Workers’ compensation

• Holidays and vacations

• Leave: personal illness, family illness, bereavement, maternity,

military, jury duty, emergency, extended absence

• Retirement plans and options

• On-the-job training opportunities

• Counseling services

• Cafeteria

• Recreation and social activities

• Other company services to employees

5. Safety and accident prevention

• Completion of emergency data card (if not done as

part of employment process)

• Health and fi rst-aid clinics

• Exercise and recreation centers

• Safety precautions

• Reporting of hazards

• Fire prevention

• Accident procedures and reporting

• OSHA requirements (review of key sections)

• Physical exam requirements

• Use of alcohol, tobacco, and drugs on the job

• Tax shelter options

6. Employees and union relations

• Terms and conditions of employment review

• Assignment, reassignment, and promotion

• Probationary period and expected on-the-job

conduct

• Reporting of sickness and tardiness

• Employee rights and responsibilities

• Manager and supervisor rights

• Relations with supervisors and shop stewards

• Employee organizations and options

• Union contract provisions and/or company policy

• Supervision and evaluation of performance

• Discipline and reprimands

• Grievance procedures

• Termination of employment (resignation, layoff,

discharge, retirement)

• Content of personnel record

• Communications: channels of communication (upward

and downward), suggestion system, posting materials

on bulletin board, sharing new ideas

• Sanitation and cleanliness

• Wearing of safety equipment, badges, and

uniforms

• Bringing things to and removing things from company

grounds

• On-site political activity

• Gambling

• Handling of rumors

7. Physical facilities

• Tour of facilities

• Food services and cafeteria

• Restricted areas for eating

• Employee entrances

• Restricted areas (e.g., from cars)

• Parking

• First aid

• Rest rooms

• Supplies and equipment

8. Economic factors

• Costs of damage to select items with required sales

to balance

• Profi t margins

• Labor costs

• Equipment costs

• Costs of absenteeism, tardiness, and accidents

design not only to ensure that it offers essential information, but also that it does not give too

much information. Some materials that might be included in an orientation kit include these:

Company organization chart.

Map of the company’s facilities.

Copy of policy and procedures handbook.

Chapter 8 Orientation and Employee Training 153

FIGURE 8.3 Possible Topics for Departmental and Job Orientation Programs

1. Department functions

• Goals and current priorities

• Organization and structure

• Operational activities

• Relationship with other departments

• Relationships of jobs within the department

2. Job duties and responsibilities

• Detailed explanation of job based on current job description

and expected results

• Explanation of why the job is important and how the specifi c

job relates to others in the department and company

• Discussion of common problems and how to avoid and

overcome them

• Performance standards and basis of performance evaluation

• Work hours and times

• Overtime requirements

• Extra duty assignments (e.g., changing duties to cover for an

absent worker)

• Required records and reports

• Checkout of equipment to be used

• Explanation of where and how to get tools and to have

equipment maintained and repaired

• Types of assistance available, when and how to ask for help

• Relations with state and federal inspectors

3. Policies and procedures

• Rules unique to the job and/or department

• Handling emergencies

• Safety precautions and accident prevention

• Reporting of hazards and accidents

• Cleanliness standards and sanitation (e.g., cleanup)

• Security, theft problems, and costs

• Relations with outside people

• Eating, smoking, and chewing gum, etc., in department area

• Removal of things from department

• Damage control (e.g., smoking restrictions)

• Time clock and time sheets

• Breaks

• Lunch duration and time

• Making and receiving personal telephone calls

• Requisitioning supplies and equipment

• Monitoring and evaluating of employee performance

• Job bidding and requesting reassignment

• Going to cars during work hours

4. Department tour

• Rest rooms and showers

• Fire-alarm box and fi re extinguisher stations

• Time clocks

• Lockers

• Approved entrances and exits

• Water fountains and eye-wash systems

• Supervisors’ quarters

• Supply room and maintenance department

• Sanitation and security offi ces

• Smoking area

• Locations of services to employees related to department

• First-aid kit

5. Introduction to department employees

List of holidays and fringe benefi ts.

Copies of performance appraisal forms, dates, and procedures.

Copies of other required forms (e.g., expense reimbursement form).

Emergency and accident prevention procedures.

Sample copy of company newsletter or magazine.

Telephone numbers and locations of key company personnel (e.g., security personnel).

Copies of insurance plans.

Many organizations require employees to sign a form indicating they have received and

read the orientation kit. This is commonly required in unionized organizations to protect the

company if a grievance arises and the employee alleges he or she was not aware of certain

company policies and procedures. On the other hand, it is equally important that a form be

signed in nonunionized organizations, particularly in light of an increase in wrongful dis-

charge litigation. Whether signing a document actually encourages new employees to read the

orientation kit is questionable.

Orientation Length and Timing It is virtually impossible for a new employee to absorb all the information in the company

orientation program in one long session. Brief sessions, not to exceed two hours, spread over

several days, increase the likelihood that the new employee will understand and retain the

information presented. Too many organizations conduct a perfunctory orientation program

lasting for a half day or full day. Programs of this nature can result in a negative attitude on

the part of new employees.

154 Part Three Training and Developing Employees

Unfortunately, many departmental and job orientation programs produce the same results.

Frequently, upon arriving in a department, new employees are given a departmental proce-

dures manual and told to read the material and ask any questions they may have. Another fre-

quently used departmental and job orientation method is to give new employees menial tasks

to perform. Both of these methods are likely to produce poor results.

Departmental orientations should also be brief and spread over several days. Job orienta-

tions should be well planned and conducted using appropriate techniques.

Follow-Up and Evaluation Formal and systematic follow-up to the initial orientation is essential. The new employee

should not be told to drop by if any problems occur. The manager should regularly check

on how well the new employee is doing and answer any questions that may have arisen after

the initial orientation. The human resource department should conduct a scheduled follow-up

after the employee has been on the job for a month.

The human resource department should also conduct an annual evaluation of the total ori-

entation program. The purpose of this evaluation is to determine whether the current orien-

tation program is meeting the company’s and new employees’ needs and ascertain ways to

improve the present program.

Feedback from new employees is one method of evaluating the effectiveness of an organi-

zation’s orientation program. Feedback can be obtained using the following methods:

Unsigned questionnaires completed by all new employees.

In-depth interviews of randomly selected new employees.

Group discussion sessions with new employees who have settled comfortably into their jobs.

Feedback of this type enables an organization to adapt its orientation program to the specifi c

suggestions of actual participants.

Finally, organizations should realize that new employees will receive an orientation that

has an impact on their performance—either from coworkers or from the company. It is cer-

tainly in the best interest of the company to have a well-planned, well-executed orientation

program.

TRAINING EMPLOYEES

Training is a learning process that involves the acquisition of knowledge, skills, and abilities (KSA) necessary to successfully perform a job. Several reasons exist for an organization to

conduct training for its employees. Outlined below are some of the reasons:

1. Economic, social, technological, and government changes can make the skills learned

today obsolete in the future.

2. Planned organizational changes (such as the introduction of new equipment) can make it

necessary for employees to update their skills or acquire new ones.

3. Performance problems within an organization such as low productivity or large scrap

problems can be reduced by training.

4. Regulatory, contractual, professional, or certifi cation issues can require an employer to

provide training for its employees.

Normally, a new employee’s manager has primary responsibility for her or his job training.

Sometimes this training is delegated to a senior employee in the department. Regardless, the

quality of this initial training can have a signifi cant infl uence on the new employee’s produc-

tivity and attitude toward his or her job. HRM in Action 8.1 describes orientation of students

at Wake Forest University.

The steps to a successful training program include the following:

1. Perform job analysis.

2. Perform needs assessment.

training Learning process that

involves the acquisition of

skills, concepts, rules, or

attitudes to enhance employee

performance.

155

ADAPTING TO UNIVERSITY LIFE FOR STUDENTS At some universities around the country, administrators are

going the extra mile to make the adjustment for incoming

freshmen as painless as possible.

Staff members at Wake Forest University and Winston-

Salem State have increased the level of orientation they

provide for incoming students. The increased orientation

includes such information as how to best enroll for their

classes or going as far as how to chant at university football

games.

The schools have smaller freshman classes, but the

schools argue this is not due to the economic downturn.

Both institutions claim to purposefully have kept their

freshman classes smaller this year. The increased orientation

is due to administrators feeling overwhelmed last year by

student questions regarding housing, classes, and so on.

Administrators hope the increased orientation will lead to

less confusion and a more productive and orderly start of the

year for new students.

Source: Adapted from Lisa O’Donnell, “Starting College Life: Local Colleges Try to Make It Easier for Freshmen to Adapt to Campus Culture, Rules, and Traditions,” McClatchy-Tribune Business News, August 21, 2009.

HRM in Action 8.1

3. Establish training objectives.

4. Conduct training program.

5. Evaluate training outcomes.

Each of these steps is discussed in more detail in the following sections. Job analysis identifi es

the KSA of a job. Training programs should be designed that improve the participant’s KSA.

HRM in Action 8.2 describes the e-learning environment at Cathay Pacifi c Airways.

Needs Assessment Training must be directed toward accomplishment of some organizational objective, such as

more effi cient production methods, improved quality of products or services, or reduced op-

erating costs. This means an organization should commit its resources only to those training

activities that can best help in achieving its objectives. Needs assessment is a systematic analysis of the specifi c training activities the organization requires to achieve its objectives.

In general, fi ve methods can be used to gather needs assessment information: interviews,

surveys/questionnaires, observations, focus groups, and document examination.1

Interviews with employees can be conducted by specialists in the human resource depart-

ment or by outside experts. Basic questions that should usually be asked are as follows:

1. What problems is the employee having in his or her job?

2. What additional skills and/or knowledge does the employee need to better perform the job?

3. What training does the employee believe is needed?

Of course, in conducting interviews, every organization would have several additional

questions about specifi c issues. In addition, if interviews are to provide useful information,

employees must believe their input will be valued and not be used against them.

Surveys and/or questionnaires are also frequently used in needs assessment. Normally this

involves developing a list of skills required to perform particular jobs effectively and asking

employees to check those skills in which they believe they need training. Figure 8.4 shows

some typical areas that a needs assessment questionnaire might cover. Employee attitude

surveys can also be used to uncover training needs. Usually most organizations bring in an

outside party or organization to conduct and analyze employee attitude surveys. Customer

surveys can also indicate problem areas that may not be obvious to employees of the organiza-

tion. Responses to a customer survey may indicate areas of training for the organization as a

whole or particular functional units.

To be effective, observations for determining training needs must be conducted by indi-

viduals trained in observing employee behavior and translating observed behavior into spe-

cifi c training needs. Specialists in the human resource department who have been trained in

performing job analyses should be particularly adept at observing to identify training needs.

needs assessment A systematic analysis of the

specifi c training activities

the organization requires to

achieve its objectives.

156

Focus groups are composed of employees from various departments and various levels within

the organization. A specialist in the human resource department or an outside expert can conduct

the focus group sessions. Focus group topics should address issues such as the following:

1. What skills/knowledge will our employees need for our organization to stay competitive

over the next fi ve years?

2. What problems does our organization have that can be solved through training?

Document examination involves examining organizational records on the absenteeism, turn-

over, and accident rates to determine if problems exist and whether any identifi ed problems

can be addressed through training. Another useful source to examine is performance appraisal

information gathered through the organization’s performance appraisal system. Performance

problems common to many employees are likely areas to address through training. Regardless

of the method employed, a systematic and accurate needs assessment should be undertaken

before any training is conducted.

Establishing Training Objectives After training needs have been determined, objectives must be established for meeting those

needs. Unfortunately, many organizational training programs have no objectives. “Training

for training’s sake” appears to be the maxim. This philosophy makes it virtually impossible to

evaluate the strengths and weaknesses of a training program.

Web site: North American Training and Development Resource Center www.trainet.com

FIGURE 8.4 Needs Assessment

Questionnaire with

Selected Questions

Instru ctions: Please read the list of training areas carefully before answering. Circle Yes if you believe you

need training in that skill, either for use in your current job or for getting ready for promotion to a better

position. Circle the question mark if uncertain. Circle No if you feel no need for training in that area.

1. How to more effectively manage my time Yes ? No

2. How to handle stress on the job Yes ? No

3. How to improve my written communication skills Yes ? No

4. How to improve my oral communication skills Yes ? No

5. How to improve my listening skills Yes ? No

6. How to improve my personal productivity Yes ? No

e-LEARNING ENVIRONMENT AT CATHAY PACIFIC AIRWAYS For Cathay Pacifi c Airways, the move to e-learning is part

of a larger cultural shift away from passive participation

toward employee initiative. A key element in this strategy

is the development of an e-learning environment that the

airline calls “Learner’s World.” Graham Higgins, manager

of Cathay Pacifi c’s learning and development team,

coordinates all company training programs. He chose

NetDimensions’ Enterprise Knowledge Platform (EKP) as

the airline’s learning management system, which is the

backbone of Learner’s World. EKP is designed to manage

the entire learning process—from enrolling students and

tracking their progress, to delivering tests and reporting

costs. The airline reduced its previous six-week cabin crew

orientation program to fi ve weeks, resulting in signifi cant

savings in direct and indirect costs. In the near future,

NetDimensions, with direct input from Cathay Pacifi c,

will unveil a new Web-based exam environment that

features high-level security, publishing, and assessment

capabilities.

“We had already learned from the introduction of our

corporate intranet that we needed to offer things that would

interest people. For example, we created an online travel

desk where staff can enter their comments on hotels they

have stayed in. This proved very popular because so many

of our staff travel frequently. We also introduced online

registration for some very popular lunchtime auditorium

sessions. So, for example, if you wanted to attend the session

on managing your personal fi nances, you could sign up for it

via Learner’s World.”

In addition, some surprising areas of training have been

entirely converted to e-learning. When a new reclining seat

was introduced in business class, airline offi cials decided

not to summon 300 maintenance technicians back to the

classroom for training. Instead the technicians, scattered

around Cathay Pacifi c’s 49 fl ight destinations, were

introduced to the new seat via an online self-teaching

module.

Source: Adapted from Anonymous, “Airline Soars with New e-Learning Environment,” T⫹D, December 2006, pp. 82–86.

HRM in Action 8.2

CISCO TRAINING FACILITIES Every year, Cisco trains 600,000 students worldwide in

information and communication networking skills through

its Networking Academy. The program trains students

through a combination of Web-based and instructor-led

sessions as well as lab environment experience to teach

students how to design, build, and maintain computer

networks. The academy now operates in 165 countries and

more than 2 million students have graduated from the

program.

The Networking Academy’s goal is not recruitment for

Cisco. Markus Schwertel, academy manager for Cisco’s

Central and Eastern European region, says, “Students can

apply for positions with Cisco and many are hired, but the

objective is broader. We are not fi lling the pipeline for the

IT sector, but many of our students fi nd jobs in the sector

even before they graduate.”

The academy is a not-for-profi t enterprise with an eye

toward helping to grow the communities where Cisco does

business. The academy hopes to help strengthen the small

and midsize business sectors in these communities.

Source: Adapted from Fay Hansen, “Cisco’s Global Training Machine,” Workforce Management, November 17, 2008, p. 30.

HRM in Action 8.3

Effective training objectives should state what will result for the organization, department,

or individual when the training is completed. The outcomes should be described in writing.

Training objectives can be categorized as follows:

1. Instructional objectives.

• What principles, facts, and concepts are to be learned in the training program?

• Who is to be taught?

• When are they to be taught?

2. Organizational and departmental objectives.

• What impact will the training have on organizational and departmental outcomes such

as absenteeism, turnover, reduced costs, and improved productivity?

3. Individual performance and growth objectives.

• What impact will the training have on the behavioral and attitudinal outcomes of the

individual trainee?

• What impact will the training have on the personal growth of the individual trainee?

When clearly defi ned objectives are lacking, it is impossible to evaluate a program effi -

ciently. Furthermore, there is no basis for selecting appropriate materials, content, or instruc-

tional methods.2

METHODS OF TRAINING

Several methods can be used to satisfy an organization’s training needs and accomplish its

objectives. Some of the more commonly used methods include on-the-job training, job rota-

tion, apprenticeship training, and classroom training. HRM in Action 8.3 describes Cisco’s

Training Facilities.

On-the-Job Training and Job Rotation On-the-job training (OJT) is normally given by a senior employee or a manager. The em- ployee is shown how to perform the job and allowed to do it under the trainer’s supervision.

One form of on-the-job training is job rotation, sometimes called cross training. In job rotation, an individual learns several different jobs within a work unit or department and

performs each job for a specifi ed time period. One main advantage of job rotation is that it

makes fl exibility possible in the department. For example, when one member of a work unit is

absent, another can perform that job.

The advantages of on-the-job training are that no special facilities are required and the new

employee does productive work during the learning process. On-the-job training has been

found to be more effective than classroom training that may seldom be used when the person

on-the-job training (OJT) Training that shows the

employee how to perform

the job and allows him or her

to do it under the trainer’s

supervision.

job rotation (cross training) Training that requires an

individual to learn several

different jobs in a work unit or

department and perform each

job for a specifi ed time period.

157

158 Part Three Training and Developing Employees

returns to the job. Its major disadvantage is that the pressures of the workplace can cause in-

struction of the employee to be haphazard or neglected.

In training an employee on the job, the trainer can use several steps to ensure that the train-

ing is effective. Table 8.1 summarizes the steps in the training process. Each step is explained

more fully next.

Preparation of the Trainee for Learning the Job An employee almost always desires to

learn a new job. Showing an interest in the person, explaining the importance of the job, and

explaining why it must be done correctly enhance the employee’s desire to learn. Determining

the employee’s previous work experience in similar jobs enables the trainer to use that experi-

ence in explaining the present job or to eliminate unnecessary explanations.

Breakdown of Work into Components and Identifi cation of Key Points This breakdown

consists of determining the segments that make up the total job. In each segment, something

is accomplished to advance the work toward completion. Such a breakdown can be viewed as

a detailed road map that guides the employee through the entire work cycle in a rational, easy-

to-understand manner, without injury to the person or damage to the equipment.

A key point is any directive or information that helps the employee perform a work com-

ponent correctly, easily, and safely. Key points are the “tricks of the trade” and are given to

the employee to help reduce learning time. Observing and mastering the key points help the

employee acquire needed skills and perform the work more effectively.

Presentation of the Operations and Knowledge Simply telling an employee how to per-

form the job is usually not suffi cient. An employee must not only be told but also shown

how to do the job. Each component of the job must be demonstrated. While each is being

demonstrated, the key points for the component should be explained. Employees should be

encouraged to ask questions about each component.

Performance Tryout An employee should perform the job under the guidance of the trainer.

Generally, an employee should be required to explain what he or she is going to do at each

component of the job. If the explanation is correct, the employee is then allowed to perform

A. Determining the training objectives and preparing the training area:

1. Decide what the trainee must be taught to do the job effi ciently, safely, economically,

and intelligently.

2. Provide the right tools, equipment, supplies, and material.

3. Have the workplace properly arranged just as the trainee will be expected to keep it.

B. Presenting the instruction:

Step 1. Preparation of the trainee for learning the job:

a. Put the trainee at ease.

b. Find out what the trainee already knows about the job.

c. Get the trainee interested in and desirous of learning the job.

Step 2. Breakdown of work into components and identifi cation of key points:

a. Determine the segments that make up the total job.

b. Determine the key points, or “tricks of the trade.”

Step 3. Presentation of the operations and knowledge:

a. Tell, show, illustrate, and question to put over the new knowledge and operations.

b. Instruct slowly, clearly, completely, and patiently, one point at a time.

c. Check, question, and repeat.

d. Make sure the trainee understands.

Step 4. Performance tryout:

a. Test the trainee by having him or her perform the job.

b. Ask questions beginning with why, how, when, or where.

c. Observe performance, correct errors, and repeat instructions if necessary.

d. Continue until the trainee is competent in the job.

Step 5. Follow-up:

a. Put the trainee on his or her own.

b. Check frequently to be sure the trainee follows instructions.

c. Taper off extra supervision and close follow-up until the trainee is qualifi ed to work with

normal supervision.

TABLE 8.1 Steps Leading to Effective

On-the-Job Training

Chapter 8 Orientation and Employee Training 159

the component. If the explanation is incorrect, the mistake should be corrected before the

employee is allowed to actually perform the component. Praise and encouragement are es-

sential in this phase.

Follow-Up When the trainer is reasonably sure an employee can do the job without monitor-

ing, the employee should be encouraged to work at his or her own pace while developing skills

in performing the job and should be left alone. The trainer should return periodically to answer

any questions and see that all is going well. Employees should not be turned loose and forgot-

ten. They will have questions and will make better progress if the trainer is around to answer

questions and help with problems.

Apprenticeship Training Apprenticeship training provides beginning workers with comprehensive training in the practical and theoretical aspects of work required in a highly skilled occupation. Appren-

ticeship programs combine on-the-job and classroom training to prepare workers for more

than 800 skilled occupations such as bricklayer, machinist worker, computer operator, and

laboratory technician. About two-thirds of apprenticeable occupations are in the construction

and manufacturing trades, but apprentices also work in such diverse fi elds as electronics,

the service industries, public administration, and medical and health care. The length of an

apprenticeship varies by occupation and is determined by standards adopted by the industry.

Table 8.2 gives the length of some occupational apprenticeship periods.

A skilled and experienced employee conducts on-the-job training during the apprenticeship

period. The purpose of this training is to learn the practical skills of the job. Apprentices learn

the theoretical side of their jobs in classes they attend. Some of the subjects that might be cov-

ered in the classroom training include mathematics, blueprint reading, and technical courses

required for specifi c occupations.

Wages paid apprentices usually begin at half those paid fully trained employees. However,

the wages are generally advanced rapidly at six-month intervals.

The U.S. Department of Labor’s Offi ce of Apprenticeship Training, Employer and Labor

Services (OATELS) is responsible for providing services to existing apprenticeship programs

and technical assistance to organizations that wish to establish programs. The bureau has

established the following minimum standards for apprenticeship programs:

1. Full and fair opportunity to apply for an apprenticeship.

2. A schedule of work processes in which an apprentice is to receive training and experience

on the job.

3. Organized instruction designed to provide apprentices with knowledge in technical subjects

related to their trade (e.g., a minimum of 144 hours per year is normally considered

necessary).

4. A progressively increasing schedule of wages.

5. Proper supervision of on-the-job training, with adequate facilities to train apprentices.

6. Periodic evaluation of the apprentice’s progress, both in job performances and related

instruction, with appropriate records maintained.

7. No discrimination in any phase of selection, employment, or training.

apprenticeship training Giving instruction, both on and

off the job, in the practical and

theoretical aspects of the work

required in a highly skilled

occupation.

Web site: U.S. Department of Labor Employment and Training Administration www.doleta.gov/atels_bat/

TABLE 8.2 Length of Selected

Apprenticeship Courses

Source: OATELS, U.S. Department

of Labor.

Occupation Length of Course (years)

Airplane mechanic 3–4

Automotive mechanic 3–4

Barber 2

Brewer 2–3

Butcher 2–3

Carpenter 4

Musician instrument mechanic 3–4

Photographer 3

Radio electrician 4–5

X-ray technician 4

160 Part Three Training and Developing Employees

Classroom Training Classroom training is conducted off the job and is probably the most familiar training method. It is an effective means of imparting information quickly to large groups with

limited or no knowledge of the subject being presented. It is useful for teaching factual ma-

terial, concepts, principles, and theories. Portions of orientation programs, some aspects of

apprenticeship training, and safety programs are usually presented utilizing some form of

classroom instruction. More frequently, however, classroom instruction is used for technical,

professional, and managerial employees.

Virtual Classroom Internet technology has advanced rapidly and as a result the training of employees is changing.

In some companies, employee training has moved from the classroom to the Internet. A “virtual

classroom” is an online teaching and learning environment that integrates chat rooms, desktop

video conferencing, Web sites, and e-mail distribution into a typical lecture-based system. Virtual

classrooms offer training in either self-paced courses, real-time courses through intranets, or real-

time video conferencing. In a typical virtual classroom, a professor lectures to a local class and

a remote class that may be thousands of miles away. The students at the local and remote classes

can ask questions of the professor. Advancing technology is likely to bring other changes in the

training of employees.

EVALUATING TRAINING

When the results of a training program are evaluated, a number of benefi ts accrue. Less ef-

fective programs can be withdrawn to save time and effort. Weaknesses within established

programs can be identifi ed and remedied.3

Evaluation of training can be broken down into four areas:

1. Reaction: How much did the trainees like the program?

2. Learning: What principles, facts, and concepts were learned in the training program?

3. Behavior: Did the job behavior of the trainees change because of the program?

4. Results: What were the results of the program in terms of factors such as reduced costs or

reduction in turnover?

Even when great care is taken in designing evaluation procedures, it is diffi cult to determine

the exact effects of training on learning, behavior, and results. Because of this, evaluation of

training is often limited and superfi cial.

Reaction Reaction evaluation should consider a wide range of topics, including program content,

program structure and format, instructional techniques, instructor abilities and style, the

quality of the learning environment, the extent to which training objectives were achieved,

and recommendations for improvement. Figure 8.5 illustrates a typical reaction evaluation

questionnaire.

Reaction evaluation questionnaires are normally administered immediately following the

training, but they can be administered several weeks later. The major fl aw in using only reac-

tion evaluation is that the enthusiasm of trainees cannot necessarily be taken as evidence of

improved ability and performance.4

Learning Learning evaluation concerns how well the trainees understood and absorbed the principles,

facts, and skills taught. In teaching skills, classroom demonstrations by trainees are a fairly

objective way to determine how much learning is occurring. Where principles and facts are

being taught, paper-and-pencil tests can be used. Standardized tests can be purchased to

classroom training The most familiar training

method; useful for quickly

imparting information to

large groups with little or no

knowledge of the subject.

Classroom training is an effective way to get information to a large group of employees. BananaStock/ PictureQuest

Chapter 8 Orientation and Employee Training 161

measure learning in many areas. In other areas, the trainers must develop their own tests.

To obtain an accurate picture of what was learned, trainees should be tested both before and

after the program.

Behavior Behavior evaluation deals with the nature of the change in job behavior of the trainee and is

much more diffi cult than reaction or learning evaluation. The following guidelines can help

evaluate behavioral change.

1. A systematic appraisal should be made of on-the-job performance on a before-and-after basis.

2. The appraisal of performance should be made by one or more of the following groups (the

more the better):

a. The trainee.

b. The trainee’s superior or superiors.

c. The trainee’s subordinates.

d. The trainee’s peers or other people thoroughly familiar with his or her performance.

3. A statistical analysis should be made to compare performance before and after training and

to relate changes to the training program.

4. The post-training appraisal should be made several months after the training so that the

trainees have an opportunity to put what they have learned into practice.

5. A control group (one not receiving the training) should be used.

Results Results evaluation attempts to measure changes in variables such as reduced turnover, reduced

costs, improved effi ciency, reduction in grievances, and increases in quantity and quality of

production.5 As with behavior evaluation, pretests, posttests, and control groups are required

in performing an accurate results evaluation.

FIGURE 8.5 Sample Reaction

Evaluation Questionnaire

Name of program _________________________________________________________________________

Instructor ________________________________________________________________________________

Date ____________________________________________________________________________________

1. How would you rate the overall program?

䊐 Excellent 䊐 Very Good 䊐 Good 䊐 Fair 䊐 Poor

Comments:

2. How were the meeting facilities, luncheon arrangements, etc.?

䊐 Excellent 䊐 Very Good 䊐 Good 䊐 Fair 䊐 Poor

Comments:

3. Would you like to attend programs of a similar nature in the future?

䊐 Yes 䊐 No 䊐 Not sure

Comments:

4. To what extent was the program relevant to your current job?

䊐 To a large extent 䊐 To some extent 䊐 Very little

Comments:

5. How would you rate the abilities and style of the instructor?

䊐 Excellent 䊐 Very Good 䊐 Good 䊐 Fair 䊐 Poor

6. Other comments and suggestions for future programs: ______________________________________

______________________________________________________________________________________

Signature (optional) ____________________________________________________________________

162 Part Three Training and Developing Employees

PRINCIPLES OF LEARNING

Previous sections of this chapter discussed not only how training needs are determined but

also how they can be met. The use of sound learning principles during the development and

implementation of these programs helps to ensure that the programs will succeed. The follow-

ing sections discuss several principles of learning.

Motivation to Achieve Personal Goals People strive to achieve objectives they have set for themselves. The most frequently identifi ed

objectives of employees are job security, fi nancially and intellectually rewarding work, recog-

nition, status, responsibility, and achievement. If a training program helps employees achieve

some of these objectives, the learning process is greatly facilitated. For example, unskilled

employees who are given the opportunity to learn a skilled trade may be highly motivated

because they can see that more money and job security will probably result.

Knowledge of Results Knowledge of results (feedback) infl uences the learning process. Keeping employees informed

of their progress as measured against some standard helps in setting goals for what remains

to be learned. The continuous process of analyzing progress and establishing new objectives

greatly enhances learning. However, precautions should be taken to ensure that goals are not

so diffi cult to achieve that the employee becomes discouraged.

Oral explanations and demonstrations by the trainee and written examinations are fre-

quently used tools for providing feedback to both the trainee and the trainer. In addition,

the progress of an individual or a group can be plotted on a chart to form what is commonly

called a learning curve. The primary purpose of a learning curve is to provide feedback

on the trainee’s progress. It can also help in deciding when to increase or decrease training

or when to change methods. Figure 8.6 illustrates two different learning curves. Although

the decreasing returns curve is most frequently encountered, many other shapes of learning

curves are possible.

Reinforcement The general idea behind reinforcement is that behavior that appears to lead to a positive con-

sequence tends to be repeated, while behavior that appears to lead to a negative consequence

tends not to be repeated. A positive consequence is a reward. Praise and recognition are two

typical rewards that can be used in training. For example, a trainee who is praised for good

performance is likely to continue to strive to achieve additional praise.

Decreasing returns curve

Plateau curve

P e rc

e n t

o f co

rr e ct

r e sp

o n se

Length of training (weeks, days, hours, etc.) or

number of repetitions of training program

High

Low

FIGURE 8.6 Sample Learning Curves

Chapter 8 Orientation and Employee Training 163

Flow of the Training Program Each segment of training should be organized so that the individual can see not only its pur-

pose but also how it fi ts in with other parts of the program. In addition, later segments should

build on those presented earlier. Gaps and inconsistencies in material are not condu cive to

effective learning.

Practice and Repetition The old adage “Practice makes perfect” is applicable in learning. Having trainees perform

a particular operation helps them concentrate on the subject. Repeating a task several times

develops facility in performing it. Practice and repetition almost always enhance effective

learning.

Spacing of Sessions Managers frequently want to get an employee out of training and into a productive job as

quickly as possible. However, trade-offs are involved in deciding whether the training should

be given on consecutive days or at longer intervals. Generally, spacing out training over a pe-

riod of time facilitates the learning process. However, the interval most conducive to learning

depends on the type of training.

Whole or Part Training Should training for a job be completed at once, or should the employee train separately for

each job component? The decision should be based on the content of the specifi c job, the

material being taught, and the needs of those being trained. One often successful method is

to fi rst give trainees a brief overview of the job as a whole and then divide it into portions for

in-depth instruction.

1. Defi ne orientation.

Orientation is the introduction of new employees to the organization, work unit, and job.

2. Describe an orientation kit.

An orientation kit is a packet of information given to the new employee to supplement the

verbal orientation program.

3. Defi ne training.

Training is a learning process that involves the acquisition of skills, concepts, rules, or

attitudes to enhance employee performance.

4. Describe needs assessment.

Needs assessment is a systematic analysis of the specifi c training activities the organization

requires to achieve its objectives.

5. Outline three categories of training objectives.

Training objectives can be categorized as instructional objectives, organizational and

departmental objectives, and individual performance and growth objectives.

6. Describe job rotation.

In job rotation, an individual learns several different jobs within a work unit or department

and performs each job for a specifi ed time period.

7. Explain apprenticeship training.

Apprenticeship training is a system in which an employee is given instruction and

experience, both on and off the job, in all the practical and theoretical aspects of the work

required in a skilled occupation, craft, or trade.

8. Defi ne virtual classroom.

A virtual classroom is an online teaching and learning environment that involves chat

rooms, desktop video conferencing, Web sites, and e-mail distribution into a typical

lecture-based system.

Summary of Learning Objectives

164 Part Three Training and Developing Employees

1. What is orientation? General company orientation? Departmental and job orientation?

2. Outline several possible topics for a general company orientation.

3. What is an orientation kit?

4. What is training?

5. Defi ne the following:

a. On-the-job training.

b. Job rotation.

6. Outline fi ve steps to follow in training a new employee to perform a job.

7. Defi ne apprenticeship training.

8. List and explain the four logical areas for evaluating training.

9. What learning principles should be used in all training programs?

10. What is a virtual classroom?

1. Why are most training programs not evaluated?

2. Which principles of learning are applied in college classrooms? Which ones are most

appropriate for use in college classrooms?

3. Why are training programs one of the fi rst areas to be eliminated when an organization’s

budget must be cut?

4. If you were asked to develop a training program for taxicab drivers, how would you do it?

How would you evaluate the program?

Incident 8.1

Starting a New Job

Jack Smythe, branch manager for a large computer manufacturer, had been told by his market-

ing manager, Linda Sprague, that Otis Brown had just given two weeks’ notice. When Jack had

interviewed Otis, he had been convinced of his tremendous potential in sales. Otis was bright

and personable, an MIT honors graduate in electrical engineering who had the qualifi cations

the company looked for in computer sales. Now he was leaving after only two months with the

company. Jack called Otis into his offi ce for an exit interview.

Jack: Come in, Otis, I really want to talk to you. I hope I can change your mind about

leaving.

Otis: I don’t think so.

Review Questions

Discussion Questions

9. Outline the seven principles of learning.

The seven principles of learning are motivation to achieve personal goals, knowledge and

results, reinforcement, fl ow of the training program, practice and repetition, spacing of

sessions, and whole or part training.

10. List the four areas of training evaluation.

Evaluation of training consists of reaction, learning, behavior, and results evaluation.

Key Terms apprenticeship training, 159

classroom training, 160

departmental and job

orientation, 151

job rotation (cross

training), 157

needs assessment, 155

on-the-job training

(OJT), 157

organizational

orientation, 151

orientation kit, 151

training, 154

Chapter 8 Orientation and Employee Training 165

Jack: Well, tell me why you want to go. Has some other company offered you more money?

Otis: No. In fact, I don’t have another job; I’m just starting to look.

Jack: You’ve given us notice without having another job?

Otis: Well, I just don’t think this is the place for me!

Jack: What do you mean?

Otis: Let me see if I can explain. On my fi rst day at work, I was told that formal classroom

training in computers would not begin for a month. I was given a sales manual and

told to read and study it for the rest of the day.

The next day, I was told that the technical library, where all the manuals on

computers are kept, was in a mess and needed to be organized. That was to be my

responsibility for the next three weeks.

The day before I was to begin computer school, my boss told me that the

course had been delayed for another month. He said not to worry, however,

because he was going to have James Crane, the branch’s leading salesperson, give

me some on-the-job training. I was told to accompany James on his calls. I’m

supposed to start the school in two weeks, but I’ve just made up my mind that this

place is not for me.

Jack: Hold on a minute, Otis. That’s the way it is for everyone in the fi rst couple of

months of employment in our industry. Any place you go will be the same. In fact,

you had it better than I did. You should have seen what I did in my fi rst couple of

months.

Questions

1. What do you think about the philosophy of this company pertaining to a new employee’s

fi rst few weeks on the job?

2. What suggestions do you have for Jack to help his company avoid similar problems of

employee turnover in the future?

Incident 8.2

Implementing On-the-Job Training

The fi rst-year training program for professional staff members of a large national account-

ing fi rm consists of classroom seminars and on-the-job training. The objectives of the

training are to ensure that new staff members learn fundamental auditing concepts and

procedures and develop technical, analytical, and communication skills that, with fur-

ther experience and training, will help them achieve their maximum potential with the

organization.

Classroom training is used to introduce concepts and theories applicable to the work envi-

ronment. It consists of three two-day and two three-day seminars presented at varying inter-

vals during the staff member’s fi rst year. Although new staff members do receive this special

training, actual work experience is the principal means by which they develop the many skills

necessary to become good auditors.

Teams supervised by the senior member perform most of the fi rm’s audits. This individual

is responsible for conducting the review and producing the required reports. Normally teams

are assembled on the basis of member availability. For this reason, a senior auditor may be as-

signed one or more fi rst-year employees for a team that must undertake a complex assignment.

Because senior auditors are measured on productivity, their attention is usually focused on the

work being produced. Therefore, they assign routine tasks to new staff employees, with little

or no thought to furthering the career development of these employees. Most senior auditors

assume the next supervisor or the individuals themselves will take care of their training and

development needs.

166 Part Three Training and Developing Employees

Recently the fi rm has lost several capable fi rst-year people. The reason most gave for leav-

ing was that they were not learning or advancing in their profession.

Questions

1. What, if anything, do you think the company should do to keep its young employees?

2. Do you think on-the-job training will work in a situation such as the one described?

Your class has recently been hired by McDonald’s to make recommendations for improving the

orientation and training programs of employees in the company’s franchise operations. The key

job activities in franchise operations are food preparation, order taking and dealing with custom-

ers, and routine cleanup operations. McDonald’s wants you to make your recommendations

based on your observations as customers.

Your assignment is to design a comprehensive orientation and employee training program for

each of the key job activities in franchise operations. Be specifi c by providing an outline, methods

of training, and program evaluation procedures for each activity.

1. The class divides into teams of four to fi ve students.

2. Each group is responsible for designing the program for one of the key job activities.

3. Each team is to prepare a 10- to 15-minute presentation on its recommendations.

1. The class divides into teams of four to fi ve students.

2. Each team is responsible for developing a virtual classroom. The teacher will specify the equip-

ment to be used and material to be covered.

3. Each team is to prepare a 10- to 15-minute presentation on its recommendations.

1. Carroll Lacnit, “Training Proves Its Worth,” Workforce, September 2001, pp. 52–56.

2. See Joy LePree, “Target Your Training,” Industrial Maintenance & Plant Operation, December 2000,

pp. 17–18.

3. See Trevor C. Brown, et al., “What Went Wrong at University Hospital? An Exercise Assessing

Training Effectiveness,” Journal of Management Education, August 2003, p. 496.

4. See Amalia Santos and Mark Stuart, “Employee Perceptions and Their Infl uence on Training

Effectiveness,” Human Resource Management Journal 13, No. 1 (2003), pp. 27–46.

5. See Sandi Mann, “Assessing the Value of Your Training: The Evaluation Process from Training Needs

to the Report to the Board,” Leadership & Organization Development Journal 24, No. 5/6 (2003),

p. 303.

EXERCISE 8.1

McDonald’s

Training

Program

EXERCISE 8.2

Virtual Classroom

Notes and Additional Readings

167

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne management development.

2. Describe a management inventory.

3. Describe a management succession plan.

4. Defi ne the in-basket technique.

Chapter Nine

Management and Organizational Development

5. Describe a business simulation.

6. Describe adventure learning.

7. Defi ne an assessment center.

8. Describe organizational

development (OD).

9. Outline the four phases in

organizational development.

Chapter Outline

The Management Development Process

Determining the Net Management

Requirements

Organizational Objectives

Management Inventory and Succession Plan

Changes in the Management Team

Needs Assessment

Establishing Management Development

Objectives

Methods Used in Management

Development

Understudy Assignments

Coaching

Experience

Job Rotation

Special Projects and Committee Assignments

Classroom Training

In-Basket Technique

Web-Based Training

Business Simulations

Adventure Learning

University and Professional Association

Seminars

Evaluation of Management Development

Activities

Assessment Centers

Organizational Development

Diagnosis

Strategy Planning

Education

Evaluation

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 9.1: The 40-Year Employee

Incident 9.2: Consolidating Three

Organizations

Exercise 9.1: Training Methods

Notes and Additional Readings

On the Job: Comparison of Training

Methods

The previous chapter focused on the orientation and training of new employees and the

training of longer-term employees. In addition, an organization must be concerned with de-

veloping the abilities of its management team, including supervisors, middle-level managers,

and executives. The development and implementation of programs to improve management

effectiveness are major responsibilities of the human resource department.

168 Part Three Training and Developing Employees

THE MANAGEMENT DEVELOPMENT PROCESS

Management development is concerned with developing the experience, attitudes, and skills necessary to become or remain an effective manager. To be successful, it must have

the full support of the organization’s top executives. Management development should be

designed, conducted, and evaluated on the basis of the objectives of the organization, the needs

of the individual managers who are to be developed, and anticipated changes in the organiza-

tion’s management team. Figure 9.1 summarizes the total management development process;

the following sections discuss each of its elements in depth.

DETERMINING THE NET MANAGEMENT REQUIREMENTS

Organizational Objectives An organization’s objectives play a signifi cant role in determining the organization’s requirements

for managers. For instance, if an organization is undergoing a rapid expansion program, new man-

agers will be needed at all levels. If, on the other hand, the organization is experiencing limited

growth, few new managers may be needed, but the skills of the present management team may

need to be upgraded.

Management Inventory and Succession Plan A management inventory, which is a specialized type of skills inventory, provides certain types of information about an organization’s current management team. Management inventories

management development Process concerned with

developing the experience,

attitudes, and skills necessary

to become or remain an

effective manager.

management inventory Specialized, expanded

form of skills inventory for

an organization’s current

management team; in addition

to basic types of information,

it usually includes a brief

assessment of past performance

and potential for advancement.

Net management

requirements

(quantity and quality

of managers needed)

Needs assessment

Management

development

objectives

Management

development

programs

Evaluation of

programs

Organizational

objectives

Management inventory

and succession plan

Changes in the

management team

FIGURE 9.1 The Management

Development Process

Chapter 9 Management and Organizational Development 169

often include information such as present position, length of service, retirement date, education,

and past performance evaluations. Table 9.1 illustrates a simplifi ed management inventory.

A management inventory can be used to fi ll vacancies that occur unexpectedly—for exam-

ple, as a result of resignations or deaths. Another use is in planning the development needs

of individual managers and using these plans to pinpoint development activities for the total

organization.

A management inventory can also be used to develop a management succession plan, some-

times called a replacement chart or schedule. A management succession plan records potential successors for each manager within the organization. Usually presented in a format

similar to an organizational chart, this plan may simply be a list of positions and potential

replacements. Other information, such as length of service, retirement data, past performance

evaluations, and salary, might also be shown on the replacement chart. Figure 9.2 is an exam-

ple of a replacement chart for a company’s administrative division.

Management inventories and succession plans are generally kept confi dential and can be

computerized. They are also maintained by the human resource department for the use of top

executives of the organization.

Changes in the Management Team Certain changes in the management team can be estimated fairly accurately and easily, while

other changes are not so easily determined. Changes such as retirements can be predicted from

information in the management inventory; changes such as transfers and promotions can be

estimated from such factors as the planned retirements of individuals in specifi c jobs and the

objectives of the organization. Deaths, resignations, and discharges are, of course, diffi cult to

forecast. However, when these changes do occur, the management inventory and succession

plan can be used to help fi ll these vacancies. Analyzing the organization’s objectives, studying

the management inventory and succession plan, and evaluating changes in the management

team can give the human resource department a good picture of both the quantity and quality

of managers the organization will need.

NEEDS ASSESSMENT

Every organization has physical, fi nancial, and human resource needs. Needs relate to what

the organization must have to achieve its objectives. A fundamental need of any organiza-

tion is the need for an effective management team. One method of meeting this need is the

use of a well-organized management development program. However, before management

development activities are undertaken, the specifi c development needs of the managers in the

management succession plan Chart or schedule that shows

potential successors for each

management position within

the organization.

Name Present Position

Length of

Service

Retirement

Year

Replacement

Positions

Previous Training

Received

James W. Burch Industrial relations

manager, Greenville

plant

5 years 2007 Corporate industrial

relations staff

B.B.A., University of

South Carolina; middle

management program,

Harvard

Judy S. Chesser Engineering trainee 9 months 2017 Plant engineering

manager, corporate

engineering staff

B.E.E., Georgia Tech

Thomas R. Lackey Supervisor, receiving

department, night shift

15 years 2009 Department manager,

shipping and receiving

High school diploma,

supervisory skills training

Brenda C. Sabo Eastern regional

marketing manager

8 years 2010 Vice president,

marketing

B.B.A., UCLA; M.B.A.,

USC; executive

development program,

Stanford

TABLE 9.1 Sample of a Simplifi ed Management Inventory

170 Part Three Training and Developing Employees

orga nization must be determined. Thus, needs assessment is a systematic analysis of the specifi c management development activities the organization requires to achieve its objec-

tives. The management development needs of any organization result from the overall needs

of the organization and the development needs of individual managers.

Basically, four methods exist to determine management development needs: a training

needs survey, competency studies, task analysis, and performance analysis. A training needs

survey focuses on the knowledge and skills required in performing the job. Figure 9.3 pro-

vides an example of a needs survey instrument for managerial employees. This instrument

lists 18 areas of skill/knowledge managerial personnel require. Competency studies examine

needs assessment A systematic analysis of

the specifi c management

development activities required

by the organization to achieve

its objectives.

Key: Potential replacements

Vice President—

Administration

W. W. Cunningham

R. S. Prevot, Jr.

Aprile Danberry

David Behnke

Accounting

Department Manager

G. R. Gey

David Behnke

Wally Orlow

Phyllis Warner

Finance

Department Manager

A. V. Gray

Carol Brock

Carroll Merry

James Widder

Personnel

Department Manager

Aprile Danberry

B. W. Lee

J. C. Mitchum

George R. Hite

Planning

Department Manager

R. S. Prevot, Jr.

Linda Bevis

George R. Kite

Virgil Dawson

Wage and Salary

Department Manager

Linda Goelz

Dennis Camp

James Wright

Virgil Dawson

Employee

Benefits Manager

W. G. Bevis

Norm Walsh

Mike Black

Angela Long

Employment

Department Manager

B. W. Lee

Steve McDonnell

Max Crane

Don Holland

Training and Development

Department Manager

J. C. Mitchum

Les Chapman

Louise Williams

Barbara Staley

Labor

Relations Manager

Frank M. Brotz

George Thomas

Lavonia Lee

William Tompson

FIGURE 9.2 Replacement Plan for Administrative Division of a Typical Organization

Chapter 9 Management and Organizational Development 171

Employee _________________________________________________ Social Security No.

Position Title

Organization _________________________________________________ Location

Supervisor (Name & Title)

Employee: Please review each “Supervisory/Managerial Function” to assess your need for improving related skills through appropriate

developmental opportunities. Your evaluations are to be shown in the “Employee” portion of the “Developmental Requirement” section. One

of the following codes should be entered in each box: O ⫽ No Need, S ⫽ Some Need, or N ⫽ Need. Immediate Manager: Please review the

employee’s assessments to indicate your fi ndings in respective boxes (“Manager” portion of the “Developmental Requirement” section).

Developmental Requirement

Employee Manager

Supervisory/Managerial Function

A. Helping Workers with Problems

1. Help employees with job adjustment problems

2. Help subordinates improve performance

3. Help employees solve personal problems

4. Listening skill development

5. Confl ict resolution

6. Employee assistance referral techniques

B. Giving Information to Employees

1. Keeping employees informed

2. Conducting effective meetings

3. Responding to employee suggestions

C. Receiving Information from Employees

1. Responding to productivity concepts

2. Encouraging employee participation

3. Consulting with employee concerning work procedures and activities to improve working conditions

D. Labor–Management Relations

1. Employee rights under agreement

2. Handling employee grievances

E. Leadership

1. Participative management concepts

2. Encouraging employees to assume personal responsibility for work performance

3. Promoting employee cooperation

F. Safety and Health

1. Promoting employee understanding of health services and occupational health hazards

2. Promoting adherence to safety regulations

G. Representing Company Management

1. Defi ning and defending company goals and objectives

2. Communicating employee views to company management

3. Assuming responsibility for work group’s problems

H. Employee Development

1. Providing detailed work instruction

2. Introducing change

3. Teaching and coaching skills

4. Encouraging employee skill development

I. Employee Utilization

1. Assessing individual abilities to more effectively assign work

2. Matching individuals with jobs

3. Considering individual interests

4. Understanding employee feelings about their assignments

J. Planning, Scheduling, and Organizing

1. Division of labor assignments

2. Planning strategies and policies

3. Time management

4. Setting priorities

5. Following up to ensure work completion

(continued)

FIGURE 9.3 Management Development Program Needs Assessment Questionnaire

172 Part Three Training and Developing Employees

Developmental Requirement

Employee Manager

K. Controlling Work Progress

1. Assessing daily developments and progress

2. Reviewing individual progress in carrying out orders

3. Correcting employee work problems

4. Early detection of productivity problems

5. Employee participation in setting goals and associated deadlines

L. Appraising Performance

1. Establishing job performance standards

2. Effective employee discussion techniques; feedback on good or poor performance

3. Constructive criticism

M. Cooperation

1. Ensuring that employees have required equipment and materials through obtaining cooperation

from other company units

2. Effective coordination with other members of management to resolve problems

N. Resource Utilization

1. Effective budgeting techniques

2. Financial management

O. Administration

1. Properly prepare paperwork in a timely manner

2. Administrative policies and procedures

3. Preparation and maintenance of records

4. New employee interviewing techniques and selection criteria

P. Equal Employment Opportunity and Affi rmative Action Plan Implementation

1. Equal treatment of employees in work

2. Equal treatment of employees in advancement decisions

Q. Disciplinary Actions

1. Verbal and written disciplinary actions

2. Resolving employee conduct problems

R. Personal

1. Psychological concepts—understanding human behavior

2. Self-analysis for improving effectiveness

3. Coping with stress

4. Improving communications skills (oral and written)

Signature Date

Manager Date

FIGURE 9.3 (Concluded)

the competencies required in performing the managerial job. Task analysis is concerned with

what tasks are required in performing the managerial job. Performance analysis deals with

job performance requirements in performing the managerial job. Table 9.2 summarizes the

general approach, advantages, and disadvantages of each of these methods of determining

management development needs.

ESTABLISHING MANAGEMENT DEVELOPMENT OBJECTIVES

After the management development needs of the organization have been determined, objec-

tives for the overall management development program and for individual programs must be

established to meet those needs. Both types of objectives should be expressed in writing and

should be measurable. As discussed in the previous chapter, training objectives can be catego-

rized within three broad areas: instructional, organizational and departmental, and individual

performance and growth. This categorization scheme can also be used for management devel-

opment objectives.

Instructional objectives might incorporate targets relating to the number of trainees to be

taught, hours of training, cost per trainee, and time required for trainees to reach a standard

Chapter 9 Management and Organizational Development 173

Training Needs Survey:

What Knowledge/Skill (K/S) Is Required?

Competence Study:

What Competencies Are Required?

Approach 1. Ask key people what K/S they think/feel the trainees/

performers require to do their job.

2. Prioritize the K/S recommended and summarize as a

topical list, a training agenda, curriculum, etc.

1. Ask key people what competencies they think/feel

the trainee/performer requires to do his or her job.

2. Determine the K/S required to attain the stated

competencies.

3. Prioritize the K/S recommended and summarize as a

training agenda or curriculum.

Advantages of this

approach

• Fast, inexpensive.

• Broad involvement.

• Low risk.

• Low visibility.

• Relatively fast, inexpensive.

• Broad involvement.

• Consensus.

• In addition to training needs, articulation and

agreement on a success profi le for the performer.

• Identify generic training needs covering a broad

population (fi rst-time supervisors, fi rst-time

managers, etc.).

Disadvantages of

this approach

• Not precise or specifi c.

• Based on opinion, albeit “expert.”

• Diffi cult to validate.

• Diffi cult to set priorities.

• Diffi cult to relate to output, to evaluate importance

of training.

• Once you ask people what training they feel is

important, there is an implicit expectation that you

will deliver it.

• Diffi cult to relate to output, to evaluate training.

• Diffi cult to assess relative importance of competencies

and therefore diffi cult to set priorities for K/S input.

• Consensus will not necessarily identify the critical

difference between exemplary and average

performance.

• Does not address other factors infl uencing

performance.

Task Analysis: What Tasks Are Required?

Performance Analysis:

What Job Performance Is Required?

Approach 1. Determine what tasks are required of the

trainee/performer for the job to be performed

correctly/successfully.

2. Determine the K/S required to correctly perform

the tasks identifi ed.

3. Prioritize the tasks, and thereby the K/S, and

summarize as a training design document,

training agenda, or curriculum.

1. Determine what performance is required.

2. Determine the critical job outputs or

“accomplishments.”

3. Determine what tasks are required of the

trainee/performer to produce the job outputs or

“accomplishments.”

4. Determine the K/S required to correctly perform the

tasks identifi ed.

5. Determine what other factors in addition to K/S

infl uence job performance, such as job design,

resources, consequences, and feedback.

6. Prioritize the K/S required based on impact on job

performance and summarize as a training design

document, training agenda, or curriculum.

7. Summarize recommendations to modify negative

infl uences on performance, as identifi ed in #4 above.

Advantages of this

approach

• Precise identifi cation of tasks and required K/S.

• Is a form of output and can be measured.

• Broad involvement.

• Objective, validated by observation.

• Links K/S requirements to job performance.

• Can validate, evaluate.

• Addresses other factors affecting performance.

• Impact of job outputs is established and therefore

can prioritize K/S input.

Disadvantages of

this approach

• Takes time and skill.

• Diffi cult to assess relative importance of tasks and

therefore diffi cult to set priorities for K/S input.

• Does not address other factors affecting performance.

• Takes time and skill.

• Visible.

TABLE 9.2 Comparison of Four Approaches to Determining Management Development Needs

level of knowledge. Furthermore, objectives are needed for the principles, facts, and concepts

to be learned in the management development programs(s).

Organizational and departmental objectives concern the impact the programs will have on

organizational and departmental outcomes, such as absenteeism, turnover, safety, and number

174 Part Three Training and Developing Employees

of grievances. Individual and personal growth objectives concern the impact on the behavioral

and attitudinal outcomes of the individual. They may also involve the impact on the personal

growth of the individuals participating in the programs.

After the overall management development objectives have been established, individual

program objectives specifying the skills, concepts, or attitudes that should result must be

identifi ed. After these objectives are developed, course content and method of instruction can

be specifi ed.

METHODS USED IN MANAGEMENT DEVELOPMENT

After the company’s needs have been assessed and its objectives stated, management develop-

ment programs can be implemented. This section examines some of the more frequently used

methods of management development. At this point, recall the list of conditions for effective

learning discussed in the previous chapter. These principles of learning also apply to manage-

ment development programs.

The On the Job example at the end of this chapter defi nes and summarizes the strengths and

weaknesses of training methods used in both management development and employee training

courses. As with employee training, management development can be achieved both on and

off the job. Some of the most popular methods of management development are summarized

in Table 9.3 and discussed next.

Understudy Assignments Generally, understudy assignments are used to develop an individual’s capabilities to fi ll a specifi c job. An individual who will eventually be given a particular job works for the in-

cumbent. The title of the heir to the job is usually assistant manager, administrative assistant,

or assistant to a particular manager.

The advantage of understudy assignments is that the heir realizes the purpose of the train-

ing and can learn in a practical and realistic situation without being directly responsible for

operating results. On the negative side, the understudy learns the bad as well as the good

practices of the incumbent. In addition, understudy assignments maintained over a long period

can become expensive. If an understudy assignment system is used, it should generally be

supplemented with one or more of the other management development methods.

Coaching Coaching, which is carried out by experienced managers, emphasizes the responsibility of all managers for developing employees. Under this method of management development, expe-

rienced managers advise and guide trainees in solving managerial problems. The idea behind

coaching should be to allow the trainees to develop their own approaches to management with

the counsel of a more experienced manager.

One advantage to coaching is that trainees get practical experience and see the results of

their decisions. However, there is a danger that the coach will neglect training responsibilities

or pass on inappropriate management practices. The coach’s expertise and experience are criti-

cal with this method.

understudy assignments Method of on-the-job training

in which one individual,

designated as the heir to a job,

learns the job from the present

jobholder.

coaching Method of management

development conducted on the

job that involves experienced

managers advising and guiding

trainees in solving managerial

problems.

TABLE 9.3 Selected Methods Used in

Management Development

On the Job Off the Job

Understudy assignments Classroom training

Coaching Lectures

Experience Case studies

Job rotation Role playing

Special projects and committee assignments In-basket technique

Adventure learning

Business simulations

University and professional association seminars

Web-based training

Chapter 9 Management and Organizational Development 175

Experience Many organizations use development through experience. With this method, individuals are

promoted into management jobs and allowed to learn on their own from their daily experi-

ences. The primary advantage of this method is that the individual, in attempting to perform

a specifi c job, may recognize the need for management development and look for a means

of satisfying it. However, employees who are allowed to learn management only through

experience can create serious problems by making mistakes. Also, it is frustrating to at-

tempt to manage without the necessary background and knowledge. Serious diffi culties can

be avoided if the experience method is supplemented with other management development

techniques.

Job Rotation Job rotation is designed to give an individual broad experience through exposure to many

different areas of the organization. In understudy assignments, coaching, and experience, the

trainee generally receives training and development for one particular job. In job rotation, the

trainee goes from one job to another within the organization, generally remaining in each from

six months to a year. Large organizations frequently use this technique for training recent col-

lege graduates.

One advantage of job rotation is that the trainees can see how management principles can

be applied in a cross section of environments. Also, the training is practical and allows the

trainee to become familiar with the entire operation of the company. One serious disadvantage

of this method is that the trainee is frequently given menial assignments in each job. Another

disadvantage is the tendency to leave the trainee in each job longer than necessary. Both of

these disadvantages can produce negative attitudes.

Special Projects and Committee Assignments Special projects require the trainee to learn about a particular subject. For example, a trainee

may be told to develop a training program on safety. This would require learning about the

organization’s present safety policies and problems and the safety training procedures used

by other companies. The trainee must also learn to work with and relate to other employees.

However, it is critical that the special assignments provide a developing and learning experi-

ence for the trainee and not just busywork.

Committee assignments, which are similar to special projects, can be used if the organiza-

tion has regularly constituted or ad hoc committees. In this approach, an individual works with

the committee on its regularly assigned duties and responsibilities. Thus, the person develops

skills in working with others and learns through the activities of the committee.

Classroom Training Classroom training, the most familiar type of training, can utilize several methods. Classroom

training is used not only in management development programs but also in the orientating and

training activities discussed in the previous chapter. Therefore, some of the material in this

section also applies to those activities.

Lectures

One of the most common methods of instruction is lecturing, or teaching by the spoken word.

Of course, lectures can include other media such as transparencies, slides, videotapes, or com-

puter slides such as PowerPoint. Strengths of the lecture method of instruction include the

following:

1. Lectures can communicate the intrinsic interest of the subject matter. The lecturer can

communicate his or her enthusiasm for the subject, which should enhance the audience’s

interest in learning.

2. Lectures can cover material not otherwise available.

3. Lecturers can reach many learners at one time.

176 Part Three Training and Developing Employees

4. Lecturers can serve as effective models for their audience. An effective lecturer not only

conveys information but also conveys what does and does not work in different settings.

5. The lecture method lets the instructor control what will be covered, the sequence in which

it will be covered, and how much time will be devoted to each topic.

6. Lectures pose a minimal threat to the learner.

Weaknesses of the lecture method include the following:

1. Lectures often do not allow for feedback from the audience.

2. Listeners are often passive.

3. The length of lecture periods often does not match listeners’ interest spans.

4. Lecturing fails to allow for individual differences in ability or experience.

5. Lectures are unsuitable for certain higher forms of learning, such as analysis and diagnosis.

6. Lectures are partially dependent on the public speaking skills and abilities of the lecturer.1

Case Studies

In the case study technique, popularized by the Harvard Business School, real and/or hypo- thetical situations are presented for the trainee to analyze. Ideally, the case study should force

the trainee to think through problems, propose solutions, choose among them, and analyze the

consequences of the decision.

Some major advantages of the case method are as follows:

1. Cases emphasize the analysis of a situation that is typical of the manager’s world.

2. The case study method improves the learner’s verbal and written communications skills.

3. Cases expose learners to a wide range of true-to-life management problems.

4. Cases inspire interest in otherwise theoretical and abstract training material.

Some possible weaknesses of the case study method include the following:

1. Cases often focus on past and static considerations.

2. Case analysis often lacks emotional involvement on the part of the student and thus is

unrealistic in terms of what the trainee would actually do in the situation.

3. Case analysis can sometimes confuse students who are used to defi nite solutions.

Furthermore, the success of the case study method depends heavily on the skills of the instruc-

tor. Asking probing questions and keeping everyone involved in the analysis of the case are

critical to the success of the method.2

One variation of the case study is the incident method. The learner is initially given only the general outline of a situation. The instructor then provides additional information as the

learner requests it. Theoretically, the incident method makes students probe the situations and

seek additional information, much as they would be required to do in real life.3

Role Playing

In this method, participants are assigned different roles and required to act out those roles

in a realistic situation. The idea is for the participants to learn from playing out the as-

signed roles. The success of this method depends on the ability of participants to assume the

roles realistically. Videotaping allows for review and evaluation of the exercise to improve

its effectiveness.

In-Basket Technique The in-basket technique simulates a realistic situation by requiring each participant to answer one manager’s mail and telephone calls. Important duties are interspersed with routine

matters. For instance, one call may come from an important customer who is angry, while a

letter from a local civic club may request a donation. Participants analyze the situations and

suggest alternative actions. They are evaluated on the basis of the number and quality of deci-

sions and on the priorities assigned to each situation. The in-basket technique has been used

case study Method of classroom training

in which the trainee analyzes

real or hypothetical situations

and suggests not only what to

do but also how to do it.

incident method Form of case study in which

learners are initially given

the general outline of a

situation and receive additional

information from the instructor

only as they request it.

in-basket technique Method of training in which

the participant is required to

simulate the handling of a

specifi c manager’s mail and

telephone calls and to react

accordingly.

177

not only for management development but also in assessment centers, which are discussed

later in this chapter.

Web-Based Training Many companies are turning to Web-based training (WBT). Employees can gain access to online courses either via the Internet or through the company’s own intranet. Participants

can take the courses either independently or in real time with an instructor, through a network

connection. Online courses are most often given in conjunction with instructor-led courses,

so that employees still have the advantage of seeing hands-on demonstrations when neces-

sary.4 The fl exibility of time, place and programs offered via WBT appeals to employees who

often must balance school with work and home responsibilities. WBT takes advantage of

the technology available in the virtual classroom. Virtual classrooms can be asynchronous or

synchronous. Asynchronous classrooms allow students and instructors to engage in learning

activities without being online at the same time. Synchronous classrooms allow students and

instructors to be online simultaneously. It is likely that WBT will continue to grow both in

large and small organizations.5

Business Simulations Business simulations generally provide a setting of a company and its environment and require teams of players to make decisions involving their company operations in competition

with other teams. The instructor can add complexity and economic events as well as human

resource challenges. This method forces individuals not only to work with other group mem-

bers but also to function in an atmosphere of competition within the industry. Advantages of

business simulations are that they simulate reality, decisions are made in a competitive environ-

ment, feedback is provided concerning decisions, and decisions are made using less than com-

plete data. The main disadvantage is that many participants simply attempt to determine the key

to winning.6 When this occurs, the simulation is not used to its fullest potential as a learning

device. HRM in Action 9.1 gives an interesting use of a business simulation.

Adventure Learning Adventure learning, or experiential-learning programs, use many kinds of chal- lenging outdoor activities, often involving physical risk, to help participants achieve their

objectives, which generally fall into two categories:

1. Group-focused objectives: These objectives include better communication, more creative

problem solving, more effective teamwork, and improved leadership. One activity often

included in adventure learning is “The Wall,” a 12- to 14-foot structure that teams must get

over by working together. The wall is viewed as a symbol for any business challenge.

2. Personal growth objectives: These objectives include improved self-esteem, improved risk-

taking skills, increased self-awareness, and better stress management. Rope activities are

favorite methods for achieving personal growth objectives. One example of a rope activity

is the “electric rope” game. A team has to get every member over a rope strung high up

Web-based training Method of training in which

material is presented on

computer video screens via

either the Internet or company

intranet; participants are

required to answer questions

correctly before being allowed

to proceed.

business simulation Method of training that

simulates an organization and

its environment and requires

a team of players to make

operating decisions based on

the situation.

adventure learning Programs that use many

kinds of challenging outdoor

activities to help participants

achieve their goals.

Web-based training allows employees to gain access to online courses. Digital Vision

NEW DISTRIBUTION Arrow Electronics Inc. is a global provider of products,

services, and supply chain solutions to industrial and

commercial users of electronic components and enterprise

computing solutions. Arrow wanted its sales force to

recognize different supply chain segments.

The solution was MAX! MAX! is a global supply chain

business simulation. The simulation is set up very much

like a video game with challenges and goals. It has been

an effective tool for Arrow’s sales force as the simulation

has proved more engaging than traditional methods of

training.

Source: Adapted from Jim Wexler, “Distribution: Let the Games Begin,” Industrial Distribution, November 2009, p. 64.

HRM in Action 9.1

178

between two trees. Team members must try not to touch the rope, and they cannot use

props. The electric rope is viewed as an analogy for a diffi cult business challenge the team

faces at work.7 HRM in Action 9.2 describes a fi rm that plans adventure learning programs.

University and Professional Association Seminars Many colleges and universities offer both credit and noncredit courses intended to help meet

the management development needs of various organizations. These offerings range from

courses in principles of supervision to advanced executive management programs. Profes-

sional associations such as the American Management Association also offer a wide variety

of management development programs. These programs use many of the previously discussed

classroom techniques.

EVALUATION OF MANAGEMENT DEVELOPMENT ACTIVITIES

Four alternatives exist for evaluating management development activities. Each alternative

focuses on the following questions:

Alternative I—Are the trainees happy with the course?

Alternative II—Does the training course teach the concepts?

Alternative III—Are the concepts used on the job?

Alternative IV—Does the application of the concepts positively affect the organization?

For each of the four alternatives, an organization must determine what might be measured

to answer the questions posed by the alternative. Table 9.4 provides a summary of the alterna-

tives and possible measures for evaluation.

Web site: Mind Edge www.caso.com

TABLE 9.4 Evaluation Matrix

What We Want to Know What Might Be Measured

I. Are the trainees happy with the course? If not, why?

a. Concepts not relevant

b. Format of the presentation

II. Do the materials teach the concepts? If not, why not?

a. Concepts too complex

b. Examples not relevant

c. Exercises not relevant

d. Format of presentation

III. Are the concepts used? If not, why not?

a. Concepts:

• Not relevant

• Too complex

b. Environment not supportive

IV. Does application of concepts positively affect the

organization? If not, why not?

Trainee reaction during workshop

Trainee reaction after workshop

Trainee performance during workshop

Trainee performance at end of workshop

Performance improvements

HRM in Action 9.2

OWLS CORPORATE AND ADVENTURE LEARNING CENTER The Outdoor Wilderness Leadership School Corporate and

Adventure Learning Center provides high-level facilitaion,

consulting and adventure programming to corporate

groups, resort guests, individuals, families and nonprofi t

organizations. Located in Virginia and Montana, the OWLS

Adventure Learning Centers provide hand-picked certifi ed

instructors to help guests get to the next level in a variety of

outdoor sports and activities.

The OWLS Executive Training Centers specialize in

creating assorted programs of professionals and corporations

throughout the country. Specifi cally, they utilize highly

developed corporate team-building models as well as

unique outdoor adventure recreation programs to enhance

corporate conference retreats.

Source: Adapted from Anonymous, “New Solutions,” Bank News, May 2006, pp. 12–13.

179

ASSESSMENT CENTERS

An assessment center is a method in which trained observers evaluate various personality traits of assessees based on their performance in specially chosen exercises. Assessment centers

are used for making decisions on promoting, evaluating, and training managerial personnel.8

Developing the list of personality characteristics to be assessed is a critical element in any

assessment center. The personality characteristics should be directly related to the successful

performance of the particular jobs for which the assessees are being evaluated. Only when

these personality characteristics have been identifi ed can exercises be selected for use in the

assessment center. Research indicates that certain exercises are more relevant for measuring

some personality traits than others. Exercises used in assessment centers include in-basket

exercises, business simulations, group discussions, cases, interviews, and various paper-and-

pencil tests. These exercises involve the assessees in situations that require decision making,

leadership, written and oral communication, planning, and organizing. Assessors observe the

assessees while they are involved in the various exercises and evaluate their performance

based on the personality characteristics being assessed. Assessees are generally examined

in groups of approximately six persons whose personality characteristics to be assessed are

similar and who occupy similar positions in the organization.

Selection of the assessment staff is another important element in an assessment center. Trained

professionals such as industrial psychologists are frequently used as assessors. In addition, suc-

cessful managers are often used as assessors in the belief that these people would best know the

qualities required for success. Typically, several assessors are used in the evaluation process.

While the assessors observe the assessees in their performance of the various exercises, each

assessor evaluates each assessee individually. The assessors then gather together and review

each assessee in depth on each personality characteristic to be assessed. Each assessee is then

ranked on a relative scale such as “more than acceptable,” “acceptable,” or “not acceptable.”

The primary use of assessment centers has been as a predictor of success in some position

for which the assessee is being considered. However, the method can also be used to iden-

tify special training that the assessee may require.9 HRM in Action 9.3 illustrates one use of

assess ment centers.

ORGANIZATIONAL DEVELOPMENT

Organizational development (OD) seeks to improve the performances of groups, departments,

and the overall organization. Specifi cally, organizational development is an organiza- tionwide, planned effort managed from the top, with the goal of increasing organizational per-

formance through planned interventions and training experiences. In particular, OD looks at

the human side of organizations. It seeks to change attitudes, values, organizational structures,

and managerial practices in an effort to improve organizational performance. The ultimate

assessment center Formal method used in training

and/or selection and aimed

at evaluating an individual’s

potential as a manager by

exposing the individual to

simulated problems that

would be faced in a real-life

managerial situation.

organizational development (OD) Organizationwide, planned

effort managed from the top to

increase performance through

interventions and training.

ASSESSMENT CENTERS Assessment centers are now being utilized by fi re

departments in determining promotions. Assessment centers

use role play and simulation to access how a candidate for

promotion would respond to issues that, for example, a

Los Angeles City fi re captain would face on a day-to-day

basis. This simulation is thought to be more effective than a

traditional written test and interview. For example, it is one

thing for a candidate to say he or she has people skills in an

interview. At an assessment center, recruiters can actually test

an applicant’s people skills through role play and simulation.

Preparing for such an assessment requires a candidate

to overcome several obstacles before the applicant can

be successful. Many fi refi ghters who would make good

captains fail due to a variety of reasons. One is emotional

baggage. Past failures in assessment for promotion often

cause a decline in an applicant’s performance. Other

factors are typical, such as a willingness to accept the added

responsibility of a captain’s position and the willingness to

take the time to receive more than the minimal required

training.

Source: Adapted from Anthony Kastros, “Fire Service Assessment Centers: Beyond the Books,” Fire Engineering, October 2009, pp. 109–117.

HRM in Action 9.3

180 Part Three Training and Developing Employees

goal of OD is to structure the organizational environment so that managers and employees can

use their developed skills and abilities to the fullest.

The initial phase of an OD effort is a recognition by management that organizational

performance can and should be improved. Following this initial recognition, most OD ef-

forts include the following phases: (1) diagnosis, (2) strategy planning, (3) education, and

(4) evaluation.

Diagnosis involves gathering and analyzing information about the organization to de-

termine the areas in need of improvement. Information is usually gathered from employees

through the use of questionnaires or attitude surveys. Change planning involves developing

a plan for organizational improvement based on the data obtained. This planning identifi es

specifi c problem areas in the organization and outlines steps to resolve the problems. Inter-

vention/education involves sharing diagnostic information with the people affected by it and

helping them realize the need for change. The intervention/education phase often involves

the use of outside consultants working with individuals or employee groups. It can also in-

volve the use of management development programs. The evaluation phase in effect repeats

the diagnostic phase. In other words, after diagnosis, strategy planning, and education, data

are gathered to determine the effects of the OD effort on the total organization. This informa-

tion can then lead to more planning and education.

Diagnosis The fi rst decision to be made in the OD process is whether the organization has the talent and

available time necessary to conduct the diagnosis. If not, an alternative is to hire an outside

consultant. Once the decision has been made regarding who will do the diagnosis, the next

step is to gather and analyze information. Some of the most frequently used methods for doing

this involve using the following.

1. Available records. The fi rst step is to review any available records or documents that may

be pertinent. Personnel records and fi nancial reports are two types of generally available

records that can be useful.

2. Survey questionnaires. The most popular method of gathering data is through questionnaires

fi lled out by employees. Usually the questionnaires are intended to measure employee

attitudes and perceptions about certain work-related factors.

3. Personal interviews. In this approach, employees are individually interviewed regard-

ing their opinions and perceptions and certain work-related factors. This method

takes more time than the survey questionnaire method but can result in better

information.

4. Direct observation. In this method, the person conducting the diagnosis observes

fi rsthand the behavior of organizational members at work. One advantage of this

method is that it allows observation of what people actually do as opposed to what they

say they do.

In the diagnosis stage, one should collect data for a reason. A plan for analyzing the data

should be developed even before the data are collected. Too often data are collected simply

because they are available and with no plan for analysis.

Strategy Planning The data collected in the diagnosis stage must be carefully interpreted to determine the best

plan for organizational improvement. If a similar diagnosis has been done in the past, it can

be revealing to compare the data and look for any obvious differences. Because much of the

collected data are based on personal opinions and perceptions, there will always be areas

of disagreement. The key to interpreting the data is to look for trends and areas of general

agreement. The end result of the strategy planning process is to identify specifi c problem areas

and outline steps for resolving the problems.

Web site: Training and Development Resource Center www.tcm.com/trdev

Chapter 9 Management and Organizational Development 181

Education The purpose of the education phase is to share the information obtained in the diagnostic phase

with the affected employees and help them realize the need for change. A thorough analysis

in the change-planning phase often results in identifying the most appropriate intervention/

education method to use. Some of the most frequently used intervention/education methods

are discussed next.

Direct Feedback

With the direct feedback method, the change agent communicates the information gath- ered in the diagnostic and change-planning phases to the involved parties. The change agent

describes what was found and what changes are recommended. Then workshops are often

conducted to initiate the desired changes.

Team Building

The objective of team building is to increase the group’s cohesiveness and general group spirit. Team building stresses the importance of working together. Some of the specifi c activi-

ties used include (1) clarifying employee roles, (2) reducing confl ict, (3) improving interper-

sonal relations, and (4) improving problem-solving skills.

Sensitivity Training

Sensitivity training is designed to make one more aware of oneself and one’s impact on oth- ers. Sensitivity training involves a group, usually called a training group or T-group, that meets

with no agenda or particular focus. Normally the group has between 10 and 15 people who

may or may not know one another. With no planned structure or no prior common experiences,

the behavior of individuals in trying to deal with the lack of structure becomes the agenda.

While engaging in group dialogue, members are encouraged to learn about themselves and

others in the nonstructured environment.

Sensitivity training has been both passionately criticized and vigorously defended as to

its relative value for organizations. In general, the research shows that people who have un-

dergone sensitivity training tend to show increased sensitivity, more open communication,

and increased fl exibility. However, these same studies indicate that while the outcomes of

sensitivity training are benefi cial in general, it is diffi cult to predict the outcomes for any

one person.

Evaluation Probably the most diffi cult phase in the OD process is the evaluation phase. The basic question

to be answered is: Did the OD process produce the desired results? Unfortunately, many OD

efforts begin with admirable but overly vague objectives such as improving the overall health,

culture, or climate of the organization. Before any OD effort can be evaluated, explicit objec-

tives must be determined. Objectives of an OD effort should be outcome oriented and should

lend themselves to the development of measurable criteria.

A second requirement for evaluating OD efforts is that the evaluation effort be methodo-

logically sound. Ideally, an OD effort should be evaluated using hard, objective data. One ap-

proach is to compare data collected before the OD intervention against data collected after the

OD intervention. An even better approach is to compare “before” and “after” data with similar

data from a control group. When using this approach, two similar groups are identifi ed, an

experimental group and a control group. The OD effort is then implemented with the experi-

mental group but not with the control group. After the OD intervention has been completed,

the before and after data from the experimental group are compared with the before and after

data from the control group. This approach helps rule out changes that may have resulted from

factors other than the OD intervention.

From a practical standpoint, it may be desirable to use different personnel to evaluate an

OD effort than those who implemented the effort. The people who implemented the effort may

not be capable of objectively evaluating it.10

direct feedback Process in which the change

agent communicates the

information gathered through

diagnosis directly to the

affected people.

team building Process by which a work

group develops awareness of

conditions that keep it from

functioning effectively and

takes action to eliminate these

conditions.

sensitivity training Method used in OD to make

one more aware of oneself and

one’s impact on others.

182 Part Three Training and Developing Employees

1. Defi ne management development.

Management development is concerned with developing the experience, attitudes, and

skills necessary to become or remain an effective manager.

2. Describe a management inventory.

A management inventory provides certain types of information about an organization’s

current management team. Information contained includes present position, length of

service, retirement date, education, and past performance evaluations.

3. Describe a management succession plan.

A management succession plan records potential successors for each manager within the

organization.

4. Defi ne the in-basket technique.

The in-basket technique simulates a realistic situation by requiring trainees to answer one

manager’s mail and telephone calls.

5. Describe a business simulation.

Business simulations require a team of players to make decisions involving company

operations in a competitive environment.

6. Describe adventure learning.

Adventure learning uses many kinds of challenging outdoor activities, often involving

physical risk, to help participants reach their goals.

7. Describe an assessment center.

An assessment center is a formal method aimed at evaluating an individual’s potential as a

manager and his or her developmental needs.

8. Describe organizational development (OD).

Organizational development (OD) is an organizationwide, planned effort managed from the

top, with the goal of increasing organizational performance through planned interventions

and training experiences.

9. Outline the four phases in organizational development.

The phases are diagnosis, strategy planning, education, and evaluation.

Summary of Learning Objectives

1. Defi ne management development.

2. What is a management inventory? What is a succession plan?

3. Name three classifi cations for overall management development objectives, and give

examples of each.

4. Describe the following on-the-job methods of management development:

a. Understudy assignments.

b. Coaching.

c. Experience.

d. Job rotation.

e. Special projects.

f. Committee assignments.

Review Questions

Key Terms adventure learning, 177 assessment center, 179

business simulation, 177

case study, 176

coaching, 174

direct feedback, 181

in-basket technique, 176

incident method, 176

management

development, 168

management inventory, 168

management succession

plan, 169

needs assessment, 170

organizational development

(OD), 179

sensitivity training, 181

team building, 181

understudy assignments, 174

Web-based training, 177

Chapter 9 Management and Organizational Development 183

5. Describe the following methods of training:

a. Lectures.

b. Case studies.

c. Role playing.

d. In-basket technique.

e. Business simulations.

f. Adventure learning.

6. What is an assessment center?

7. What is organizational development (OD)?

8. Outline the phases of organizational development.

1. Outline a system for evaluating a management development program for supervisors.

2. “It is impossible to evaluate the effectiveness of a supervisory development program.”

Discuss.

3. “Management games are fun, but you don’t really learn anything from them.” Discuss.

4. Organizational development generally takes several years to produce any positive results.

Describe some of the positive results that might accrue from such a program, thus making

the waiting period worthwhile.

Incident 9.1

The 40-Year Employee

John Brown, 62 years old, has been at the State Bank for 40 years. For the past 20 years,

he has worked in the bank’s investment department. During his fi rst 15 years in the de-

partment, it was managed by Bill Adams. The department consisted of Bill, John, and

two other employees. Bill made all decisions, while the others performed record-keeping

functions.

Tom Smith took over the investment department after Bill Adams retired. Tom, 56, has

worked for the State Bank for the past 28 years. Shortly after taking control of the department,

Tom recognized that it needed to be modernized and staffed with people capable of giving

better service to the bank’s customers. As a result, he increased the department workforce to

10 people. Of the 10 employees, only John and Tom are older than 33.

When Tom took over the department, John was able to be helpful since he knew all about

how the department had been run in the past. Tom considered John to be a capable employee;

after about a year, he promoted John to assistant vice president.

After he had headed the department for about a year and a half, Tom purchased a new

computer package to handle the bond portfolio and its accounting. When the new system was

implemented, John said he did not like the new system and preferred the old system. At that

time, his attitude created no real problem, since there were still many other records to be kept.

John continued to handle most of the daily record keeping.

Over the next two years, further changes came about. As the other employees in the depart-

ment became more experienced, they branched into new areas of investment work. The old

ways of doing things were replaced by new, more sophisticated methods. John resisted these

changes; he refused to accept or learn new methods and ideas. He slipped more and more into

doing only simple but time-consuming busywork.

Presently a new computer system is being acquired for the investment section, and another

department is being put under Tom’s control. John has written Tom a letter stating he wants no

part of the new computer system but would like to be the manager of the new department. In

his letter, John said he was tired of being given routine tasks while the young people got all the

exciting jobs. John contended that since he had been with the bank longer than anyone else, he

should be given fi rst shot at the newly created job.

Discussion Questions

184 Part Three Training and Developing Employees

Questions

1. Who has failed, John or the company?

2. Does the company owe something to a 40-year employee? If so, what?

3. What type of development program would you recommend for John?

Incident 9.2

Consolidating Three Organizations

Sitting at his desk, Ray McGreevy considered the situation he faced. His small but prosperous

real estate fi rm had tripled in size because of two simultaneous acquisitions. He now needed

to develop a management team that could coordinate the three previously independent com-

panies into one effi cient fi rm. He knew this would be no easy task, because the two acquired

companies had each been operated as independent entities.

In the seven years since Ray had started his real estate brokerage business, he had com-

piled an enviable record of growth and profi ts. His staff, originally consisting of himself and a

secretary, had grown to more than 25 employees. His organization included himself as presi-

dent, 2 vice presidents, 16 sales representatives, 4 secretaries, and 2 clerical workers. These

employees were distributed equally between the two branches, each supervised by a vice presi-

dent. The sales representatives reported to the vice president in their particular branch. The

two branches covered a large geographic area that was divided into two regions.

About a year ago, Ray had decided to add a branch in a new area. After doing considerable

research, he had decided it might be more feasible to acquire one of the smaller fi rms already

operating in the area. A bank offi cer whom he had contacted approved his plans and promised

to help in locating a company to buy and in fi nancing the acquisition.

Several months went by, and Ray discussed possible mergers with two fi rms; however, sat-

isfactory terms could not be reached. He was becoming slightly discouraged when the banker

called him to set up a meeting with the owner of another real estate fi rm. This fi rm had been

in business for approximately 30 years, and the owner had only recently decided to retire. The

company, which was almost equal in size to Ray’s, did not sell in his fi rm’s geographic area.

Therefore, it appeared to be a natural choice, and Ray was quite excited about prospects for

acquiring it. The owner had agreed to accept payment over several years. Although the price

was higher than Ray had originally intended to pay, the deal was too good to refuse.

Then, when the deal seemed ready to be closed, the owners of one of the other fi rms Ray

had been interested in buying called and said they wished to renegotiate. Ray was able to make

a favorable arrangement with them. After discussing his situation with the banker, he fi nally

decided to purchase both fi rms. Although this plan far exceeded his original intentions, he

knew opportunities such as these did not come along every day.

Now Ray pondered his next step. He had been so busy in the negotiations that he had not

had time to develop a plan for managing his enlarged company. As an entrepreneur, he knew

he needed to develop a professional team to manage the new business properly. He now had

three more branches and about 45 additional employees.

There were so many questions to answer. Would it be better to operate the three branches as

independent divisions? Should he retain the individual identities of the two new fi rms, or should

he rename them after his original one? He needed answers to these and all his other questions.

Questions

1. Does organizational development hold the key to Ray’s questions?

2. As a personnel consultant, what recommendations would you make to him?

The On the Job example at the end of this chapter provides a brief description of many train-

ing methods used in management development. To understand those methods better, the class

breaks into teams of two students each. Each team prepares a 10-minute presentation on the

uses, advantages, and disadvantages of one assigned method.

EXERCISE 9.1

Training Methods

Chapter 9 Management and Organizational Development 185

1. See LeeAnne G. Kryder, “Large Lecture Format: Some Lessons Learned,” Business Communication

Quarterly, March 2002, pp. 88–94. Also see Tracey Sutherland, “Discussion as a Way of Teaching

and How Lectures Can Build Discussion Skills,” Accounting Education News, Winter 2003,

pp. 7–11.

2. See Kevin C. Banning, “The Effect of the Case Method on Tolerance for Ambiguity,” Journal of

Management Education, October 2003, p. 556. See also W. David Rees and Christine Power, “The Use

of Case Studies in Management Training and Development,” Industrial and Commercial Training, 34,

No. 1 (2002), pp. 5–9. See also Fred R. David, “Strategic Management Case Writing: Suggestions after

20 Years of Experience,” S.A.M. Advanced Management Journal, Summer 2003, p. 36.

3. See Bruce Macfarlane, “Tales from the Front-Line: Examining the Potential of Critical Incident

Vignettes,” Teaching Business Ethics, February 2003, p. 55.

4. See Lee Chye Seng and Suliman Al-Hawamdeh, “New Mode of Course Delivery for Virtual

Classroom,” Aslib Proceedings, June 2001, pp. 238–43.

5. Mohamed Taher, “Web-Based Training,” Journal of End User Computing, January–March 2003,

pp. 57–59.

6. See A. J. Faria, “The Changing Nature of Business Simulation/Gaming Research: A Brief History,”

Simulation & Gaming, March 2001, pp. 85–97.

7. See Alvin Hwang, “Adventure Learning: Competitive (Kiasu) Attitudes and Teamwork,” Journal of

Management Education 22, No. 7/8 (2003), p. 562.

8. See Dennis A. Joiner, “Assessment Centers: What’s New,” Public Personnel Management, Summer

2002, pp. 179–86.

9. See Cam Caldwell, George C. Thornton III, and Melissa L. Gruys, “Ten Classic Assessment Center

Errors: Challenges to Selection Validity,” Public Personnel Management, Spring 2003, pp. 73–89.

10. Christopher G. Worley and Ann E. Feyerherm, “Refl ections on the Future of Organization Develop-

ment,” Journal of Applied Behavioral Science, March 2003, pp. 97–116.

Notes and Additional Readings

On the Job

Comparison of Training Methods

Method Defi nition Strengths Weaknesses

1. Lecture A presentation, usually spoken,

by the instructor, with very

limited discussions.

Clear and direct methods of

presentation.

Good if there are more than

20 trainees.

Materials can be provided to

trainees in advance to help in their

preparation.

Trainer has control over time.

Cost effective.

Since there is no discussion, it is

easy to forget.

Sometimes it is not effective.

Requires a high level of speaking

ability.

Requires a high level of quick

understanding by trainees.

2. Group discussion

(conference)

A lecture by the instructor, with a

lot of participation (questions and

comments) from the listeners.

Sometimes an instructor is not

necessary; however, a leader is

needed.

Good if the participants are in

small groups.

Each participant has an opportunity

to present own ideas.

More ideas can be generated.

Sometimes discussions get away

from the subjects.

Some group leaders or instructors

do not know how to guide

discussions.

Sometimes one strong individual

can dominate others.

3. Role playing Creating a realistic situation and

having trainees assume parts

of specifi c personalities in the

situation. Their actions are based

on the roles assigned to them.

Emphasis is not on problem

solving but on skill development.

Good if the situation is similar to

the actual work situation.

Trainees receive feedback that gives

them confi dence.

Good for interpersonal skills.

Teaches individuals how to act in

real situations.

Trainees are not actors.

Trainees sometimes are not serious.

Some situations cannot be

implemented in role playing.

Uncontrolled role playing may not

lead to any desirable results.

If it is very similar to actual life, it

may produce adverse reactions.

186 Part Three Training and Developing Employees

Method Defi nition Strengths Weaknesses

4. Sensitivity training Used for organizational

development.

Creating situations and examining

the participants’ reactions and

behavior, then having feedback

about behavior. Group members

exchange thoughts and feelings in

unstructured ways.

Helps individuals fi nd the reasons

for their behavior (self-insight).

Helps individuals know the effects

of their behavior on others.

Creates more group interactions.

People may not like information

about their behavior, especially if it

is negative.

May lead to confl ict and anger

within the group.

May not be related or transferable

to jobs.

5. Case study A written narrative description of

a real situation, issue, or incident

that a manager faced in a

particular organization. Trainees

are required to propose a suitable

solution or make an appropriate

decision.

Cases can be very interesting.

Much group discussion and

interaction about many solutions,

since there is no absolute solution.

Develops trainees’ abilities in

effective communication and active

participation.

Develops trainees’ ability to fi gure

out various factors that infl uence

their decision building.

Develops trainees’ ability to make

proper decisions in real-life situations

(transfer of learning).

A slow method of training. Often

diffi cult to select the appropriate

case for the specifi c training

situation. Requires high level of

skills by both trainees and trainer,

as the discussion can become

boring.

Can create frustration on part of

trainees, especially if they fail to

arrive at a specifi c solution.

6. Business simulations Giving the trainee information

about the organization and its

environment, then dividing into

teams.

Each team is required to make

operational decisions and then

evaluate them.

Develops practical experience for

the trainees.

Helps in transferring knowledge

and applying thoughts.

Helps evaluate and correct the

trainees’ behavior.

Often it is diffi cult to study the

results of each team’s decision.

Some teams may not take it

seriously.

May be a slow process.

Diffi cult to simulate a very complex

system.

7. Adventure training Several managers meet out of

the workplace and live in cabins

or tents for up to several days.

They test their survival skills and

learn about their own potentials

(for creativity, cooperation, etc.).

People learn their limits and

capabilities.

Very costly.

May not be transferable.

8. In-basket training Creates the same type of

situations trainees face in daily

work.

Trainees observed on how they

arrange the situations and their

actions regarding them.

Effective for corrective action or

reinforcement.

Widely used in assessment centers

for measuring management

potential.

Tendency to be or become overly

simplistic.

9. Incident process Simple variation of the case study

method.

The basic elements are given to

the trainee, who then asks the

instructor for the most suffi cient

information that will help him or

her in making a decision.

The instructor will give only the

requested information.

Has immediate feedback from the

instructor.

Develops supervisory skills in fact

seeking and decision making.

Requires high degree of instruction

skills in forming answers.

10. Vestibule training Setting up a training area very

similar to the work area in

equipment, procedures, and

environment, but separated

from the actual one so trainees

can learn without affecting the

production schedule.

Used for training typists, bank

tellers, and the like.

Fast way to train employees.

Trainees can get the most from this

method.

Very expensive.

11. Apprenticeship

training

Trainee works under guidance

of skilled, licensed instructor and

receives lower pay than licensed

workers.

Develops special skills like

mechanical, electronic,

tailoring, etc.

Extensive training.

Takes a long time.

Chapter 9 Management and Organizational Development 187

Method Defi nition Strengths Weaknesses

12. Internship training According to agreement,

individuals in these programs

earn while they learn, but at a

lower rate than if they worked

full time.

More chance for trainees to apply

what they have learned.

Trainees get exposure to both the

organization and the job.

Takes a long time.

13. Projects Similar to the group discussion

method.

Trainees analyze data and reach

conclusions together.

Helps trainees learn more about the

subject.

Requires instructor’s time to ensure

the group is going in the right

direction.

14. DVDs and movies Recording and producing certain

events or situations with clear

descriptions in order to cover

certain subjects.

Can be shown many times, then

reviewed and discussed to help

trainees understand more fully.

DVDs can be played many times to

ensure individual’s understanding.

Many events and discussions can

be put on one tape.

Because time length is known,

presentation and follow-up can be

scheduled.

Recording and producing has to be

done by professionals to get good

quality.

Expensive.

189

Chapter Ten

Career Development

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne career development and

summarize its major objectives.

2. Name the three entities required

to provide input for a successful

career development program and

briefl y describe their respective

responsibilities.

3. Describe the steps involved in

implementing a career development

program.

4. Defi ne career pathing and career

self-management.

5. List several myths employees hold

related to career planning and

advancement.

6. List several myths management holds

related to career development.

7. Defi ne a career plateau and a

plateaued employee.

8. Describe the four principal career

categories.

9. Explain the concept of a career lattice.

10. Distinguish between dual-career

couples and dual-earner couples.

11. Defi ne outplacement.

12. Explain what the glass ceiling is.

13. List some of the online career

development resources that are

available today.

Chapter Outline

Why Is Career Development Necessary?

Who Is Responsible for Career

Development?

Organization’s Responsibilities

Employee’s Responsibilities

Manager’s Responsibilities

Implementing Career Development

Individual Assessment

Assessment by the Organization

Communicating Career Options

Career Pathing

Career Self-Management

Career Counseling

Reviewing Career Progress

Career-Related Myths

Myths Held by Employees

Myths Held by Managers

Dealing with Career Plateaus

Rehabilitating Ineffective Plateauees

Career Lattices

The Impact of Dual-Employed Couples

and Single-Parent Employees

Outplacement

Breaking the Glass Ceiling

Career Development Online

Summary of Learning Objectives

Key Terms

Review Questions

190 Part Three Training and Developing Employees

Discussion Questions

Incident 10.1: The Unhappy Power Line

Installer

Incident 10.2: Hire Me, Hire My Husband!

Exercise 10.1: How Do You Rate as a

Career Counselor?

Exercise 10.2: Becoming an Effective

Career Planner

Exercise 10.3: Online Self-Assessment

Notes and Additional Readings

On the Job: Online Self-Assessment Tools

Not long ago, individuals joined an organization and often stayed with it for their entire working

careers. Organizations frequently gave gold watches and length-of-service pins to reward loyal

employees. However, the concept of organizational loyalty has faded in the decades following

World War II. Starting in the mid-1960s, the average 20-year-old employee was expected to

change jobs approximately six or seven times during his or her lifetime. According to mid-1990s

statistics from the U.S. Department of Labor, college graduates had, on average, 8 to 10 jobs and

as many as three careers in their lifetimes.1 Recent data show that the average person born in the

later years of the baby booms held slightly over 10.8 jobs from the ages of 18 to 42.2

Other data from different sources reveal that although most employees remain happy in

their work, they sometimes grow increasingly concerned about their career prospects at their

present companies.3 Consequently, instead of thinking in terms of remaining with one organi-

zation, many employees now expect to pursue different careers. Corporate restructuring and the

downsizing that often results have caused many employees to change their careers even when

they did not desire a change.4 Also, in recessioning times, employees who are unhappy with

their current job and careers tend to stay where they are, but only until times get better. Thus,

increased employee mobility and related environmental factors have made career development

increasingly important for today’s organizations. Career development is an ongoing, for- malized effort by an organization that focuses on developing and enriching the organization’s

human resources in light of both the employees’ and the organization’s needs.

WHY IS CAREER DEVELOPMENT NECESSARY?

From the organization’s viewpoint, career development can reduce costs due to employee turn-

over. According to a 2006 survey by the Society of Human Resource Management (SHRM),

nearly three-quarters of employees were engaged in either active or passive job searches.5

However, because of the downturn in the economy, this fi gure was reduced to 22 percent in

2009. Once the economy picks up, this fi gure will likely go back up. If a company assists

employees in developing career plans, these plans are likely to be closely tied to the organiza-

tion; therefore, employees are less likely to move to another organization. Taking an interest

in employees’ careers can also improve morale, boost productivity, and help the organization

become more effi cient. The fact that an organization shows interest in an employee’s career

development has a positive effect on that employee. Under these circumstances, employees

believe the company regards them as part of an overall plan and not just as numbers. An em-

phasis on career development can also have a positive effect on the ways employees view their

jobs and their employers. HRM in Action 10.1 discusses some of the programs IBM uses to

enhance the careers of its high-performing employees.

From the organization’s viewpoint, career development has three major objectives:

• To meet the immediate and future human resource needs of the organization on a timely basis.

• To better inform the organization and the individual about potential career paths within the

organization.

• To utilize existing human resource programs to the fullest by integrating the activities that

select, assign, develop, and manage individual careers with the organization’s plans.6

Career planning is the process by which an individual formulates career goals and develops a plan for reaching those goals. Thus, career development and career planning should reinforce

each other. Career development looks at individual careers from the viewpoint of the organiza-

tion, whereas career planning looks at careers through the eyes of individual employees.

career development An ongoing, formalized

effort by an organization that

focuses on developing and

enriching the organization’s

human resources in light of

both the employees’ and the

organization’s needs.

career planning Process by which an individual

formulates career goals and

develops a plan for reaching

those goals.

191

Realistic career planning forces individuals to look at the available opportunities in rela-

tion to their abilities. For example, a person might strongly desire to be a history teacher until

discovering that two history teachers are available for every job.

With a career plan, a person is much more likely to experience satisfaction while making

progress along the career path. A good career path identifi es certain milestones along the way.

When a person consciously recognizes and reaches these milestones, he or she is much more

likely to experience feelings of achievement. Furthermore, these feelings increase the indi-

vidual’s personal satisfaction and motivation.

WHO IS RESPONSIBLE FOR CAREER DEVELOPMENT?

What are the responsibilities of both the organization and the individual with regard to ca-

reer development? Which has the primary responsibility? The answer is that successful career

development requires actions from three sources: the organization, the employee, and the

employee’s immediate manager.

Organization’s Responsibilities As defi ned earlier, career development is an ongoing, formalized effort by an organization

that focuses on developing and enriching the organization’s human resources in light of both

the employee’s and the organization’s needs. The organization is the entity that has primary

responsibility for instigating and ensuring that career development takes place. Specifi cally,

the organization’s responsibilities are to develop and communicate career options within the

organization to the employee. The organization should carefully advise an employee concern-

ing possible career paths to achieve that employee’s career goals. Human resource personnel

are generally responsible for ensuring that this information is kept current as new jobs are

created and old ones are phased out. Working closely with both employees and their manag-

ers, human resource specialists should see that accurate information is conveyed and that

interrelationships among different career paths are understood. Thus, rather than bearing the

primary responsibility for preparing individual career plans, the organization should promote

the conditions and create an environment that will facilitate the development of individual

career plans by the employees.

Employee’s Responsibilities The primary responsibility for preparing individual career plans rests with the individual em-

ployees.7 Career planning is not something one person can do for another; it has to come from

the individual. Only the individual knows what she or he really wants out of a career, and

certainly these desires vary appreciably from person to person.

CAREER ENHANCEMENT PROGRAMS AT IBM A few years ago IBM realized that it had a problem with

its “executive resources” program. The problem was that

people nominated into the program sometimes languished

there for over fi ve years without landing a promotion.

In an attempt to rectify the problem, IBM began limiting

those individuals eligible for the program to those deemed

likely to move into the executive ranks within 18 months.

Before this change, the 330,000 employee company, which

has about 5,000 leaders with titles of director and above,

relied on executives to nominate people into the executive

resources program. One drawback to this approach was that

sometimes solid performers were nominated as a reward

rather than because of their legitimate near-term potential

to become an executive. The new 18-month rule is intended

to help executives make better choices.

While limiting the executive resources program, IBM has

expanded the range of other standout employee programs.

The company has a mentorship program for budding leaders

(called NextGen) and a career development program for up

and coming technical employees. A “Top Talent” program

is in the works and might include both business managers

and technical employees. This program is being designed for

employees who are high performing but who are not ready

to be considered for an executive post.

Source: Ed Frauenheim, “Firms Walk Fine Line with ‘High-Potential’ Programs,” Workforce Management, September 25, 2006, pp. 44–46.

HRM in Action 10.1

192 Part Three Training and Developing Employees

Career planning requires a conscious effort on the part of the employee; it is hard work, and

it does not happen automatically. Although an individual may be convinced that developing a

sound career plan would be in his or her best interest, fi nding the time to develop such a plan is

often another matter. The organization can help by providing trained specialists to encourage

and guide the employee. This can best be accomplished by allotting a few hours of company

time each quarter to this type of planning.

While the individual is ultimately responsible for preparing his or her individual career

plan, experience has shown that when people do not receive some encouragement and direc-

tion, they make little progress.

Manager’s Responsibilities It has been said that “the critical battleground in career development is inside the mind of the

person charged with supervisory responsibility.”8 Although not expected to be a professional

counselor, the manager can and should play a key role in facilitating the development of a

subordinate’s career. First and foremost, the manager should serve as a catalyst and sounding

board. The manager should show an employee how to go about the process and then help the

employee evaluate the conclusions.

Table 10.1 lists several roles a manager might perform to assist subordinates in developing

their careers. Unfortunately, many managers do not perceive career counseling as part of their

managerial duties. They are not necessarily opposed to this role; rather, they have never consid-

ered it as part of their job. To help overcome this and related problems, many organizations have

designed training programs to help their managers develop the necessary skills in this area.

Figure 10.1 illustrates how Corning, Inc., defi nes the roles of the different entities in the

career development process. As the fi gure shows, successful career development results from

a joint effort by the organization, the individual, and the immediate manager; the organiza-

tion provides the resources and structure, the individual does the planning, and the immediate

manager provides the guidance and encouragement.

IMPLEMENTING CAREER DEVELOPMENT

Successful implementation of a career development program involves four basic steps at the

individual level: (1) the individual’s assessment of his or her abilities, interests, and career

goals; (2) the organization’s assessment of the individual’s abilities and potentials; (3) commu-

nication of career options and opportunities within the organization; and (4) career counseling

to set realistic goals and plans for their accomplishment.9

Individual Assessment Many people never stop to analyze their abilities, interests, and career goals. It isn’t that most

people don’t want to analyze these factors; rather, they simply never take time. While this is

not something an organization can do for the individual, the organization can provide the im-

petus and structure. A variety of self-assessment materials are available over the Internet and

other commercial outlets. Some organizations have developed tailor-made forms and training

programs for the use of their employees. Another option is the use of some form of psycho-

logical testing. The On-the-Job section at the end of this chapter discusses two of the most

respected online self-assessment tools.

An individual’s self-assessment should not necessarily be limited by current resources and

abilities; career plans normally require that the individual acquire additional training and skills.

However, this assessment should be based on reality. For the individual, this involves identi-

fying personal strengths—not only the individual’s developed abilities, but also the fi nancial

resources available.

Once an individual has a grasp of his or her interests and abilities, it is very helpful to

develop a personal vision statement. A vision statement can help an individual stay on track and avoid events that don’t positively relate to his or her career.10 Effective vision state-

ments are concise (not more than one or two sentences) and they are stated in measurable

terms. An example of a vision statement might be, “I want to develop a career in quality by

gaining the knowledge, skills, abilities, and credentials needed to become a quality manager

Managers have many responsibilities, including advocating on their employees’ behalf. Imageshop Punchstock

vision statement A concise statement of career

goals in measurable terms.

Chapter 10 Career Development 193

TABLE 10.1 Potential Career

Development Roles

of Managers

Source: “Training Managers for Their

Role in a Career Development System,”

and Development, p. 74 by Zandy B.

Leibowitz, and Nancy K. Schlossberg.

Reprinted with permission of American

Society for Training and Development;

and Stuart Corger, “Fostering a Career

Development Culture: Refl ections on

the Roles of Managers, Employees and

Supervisors,” Career Development

International No. 7, 6/7 (2002),

pp. 371–375.

Communicator

Holds formal and informal discussion with employees.

Listens to and understands an employee’s real concerns.

Clearly and effectively interacts with an employee.

Establishes an environment for open interaction.

Structures uninterrupted time to meet with employees.

Counselor

Helps employee identify career-related skills, interests, and values.

Helps employee identify a variety of career options.

Helps employee evaluate appropriateness of various options.

Helps employee design/plan strategy to achieve an agreed-on career goal.

Appraiser

Identifi es critical job elements.

Negotiates with employee a set of goals and objectives to evaluate performance.

Assesses employee performance related to goals and objectives.

Communicates performance evaluation and assessment to employee.

Designs a development plan around future job goals and objectives.

Reinforces effective job performance.

Reviews an established development plan on an ongoing basis.

Coach

Teaches specifi c job-related or technical skills.

Reinforces effective performance.

Suggests specifi c behaviors for improvement.

Clarifi es and communicates goals and objectives of work group and organization.

Mentor

Arranges for employees to participate in a high-visibility activity either inside or outside the organization.

Serves as a role model in employee’s career development by demonstrating successful career behaviors.

Supports employee by communicating employee’s effectiveness to others in and out of organization.

Shares knowledge about how to learn and work with others.

Advisor

Communicates the informal and formal realities of progression in the organization.

Suggests appropriate training activities that could benefi t employee.

Suggests appropriate strategies for career advancement.

Broker

Assists in bringing employees together who might mutually help each other in their careers.

Assists in linking employees with appropriate educational or employment opportunities.

Helps employee identify obstacles to changing present situation.

Helps employee identify resources enabling a career development change.

Referral agent

Identifi es employees with problems (e.g., career, personal, health).

Identifi es resources appropriate to an employee experiencing a problem.

Bridges and supports employee with referral agents.

Follows up on effectiveness of suggested referrals.

Advocate

Works with employee in designing a plan for redress of a specifi c issue at higher levels of management.

Works with employee in planning alternative strategies if a redress by management is not successful.

Represents employee’s concern to higher-level management for redress of specifi c issues.

in a midsized manufacturing company in the western United States, earning an annual salary

of $90,000 by the year 2013.” Once a vision statement has been drafted, it is a good idea to

share it with key stakeholders such as current and potential employees and family members.

Depending on the feedback received, the vision statement may need to be revised. A vision

statement might also be revised as one progresses throughout his or her career.

194 Part Three Training and Developing Employees

Assessment by the Organization Organizations have several potential sources of information that can be used for assessing

employees. Traditionally, the most frequently used source has been the performance appraisal

process. The assessment center discussed in Chapter 9 can also be an excellent source of in-

formation. Other potential sources include personnel records refl ecting information such as

education and previous work experience. It is usually a good idea for an organization not to

depend on any one source of information but to use as many as are readily available. Such an

approach provides a natural system of checks and balances.

The organization’s assessment of an individual employee should normally be conducted jointly

by human resource personnel and the individual’s immediate manager, who serves as a mentor.

Communicating Career Options To set realistic career goals, an individual must know the options and opportunities that are

available. The organization can do several things to facilitate such awareness. Posting on the

organization’s intranet and advertising job vacancies is one activity that helps employees get a

feel for their options. Clearly identifying possible paths of advancement within the organiza-

tion is also helpful. This can be done as part of the performance appraisal process. Another

good idea is to share human resource planning forecasts with employees.

Career Pathing Career pathing is a technique that addresses the specifi cs of progressing from one job to another in the organization. It can be defi ned as a sequence of developmental activities involv-

ing informal and formal education, training, and job experiences that help make an individual

capable of holding more advanced jobs.11 Career paths exist on an informal basis in almost all

organizations. However, career paths are much more useful when formally defi ned and docu-

mented. Such formalization results in specifi c descriptions of sequential work experiences, as

well as how the different sequences relate to one another. Table 10.2 outlines the basic steps in

career pathing. HRM in Action 10.2 describes why Molson Canada believes that career path-

ing is for all employees and not just those who aspire to move up several levels.

Career Self-Management Career self-management is closely related to the concept of career pathing. Career self- management is “the ability to keep pace with the speed at which change occurs within the organization and the industry and to prepare for the future.”12 The basic concept of career self-

management is for employees to take the responsibility for managing their own development.

Under career self-management, the organization defi nes the necessary core competencies and

career pathing A technique that addresses

the specifi cs of progressing

from one job to another in an

organization.

career self-management The ability to keep up with the

changes that occur within the

organization and industry and

to prepare for the future.

Employee’s Role

Self-assessment

Gathering data

Setting goals

Working with supervisor

Developing plan

Checking Internet “bulletin board”

Applying for openings

Manager’s Role

Appraising performance

Coaching and supporting

Guiding and counseling

Providing feedback

Supplying information

Maintaining integrity of system

Corning’s Role

Providing job information

Implementing effective placement process

Supporting human resources system

Offering education and training

FIGURE 10.1 Career Planning Roles

at Corning, Inc.

Source: Adapted from Personnel by

Z. B. Liebowitz, B. H. Feldman, &

American Management Association.

Reproduced with permission of

American Management Association

in the format Textbook via Copyright

Clearance Center.

195

each employee assesses whether he or she has these competencies and, if not, how they can be de-

veloped. Career self-management emphasizes the need of individual employees to keep learning

because jobs that are held today may evolve into something different tomorrow or may simply

disappear entirely. Career self-management also involves identifying and obtaining new skills

and competencies that allow the employee to move to a new position. The payoff of career self-

management is more highly skilled and fl exible employees and the retention of these employees.

Career self-management requires commitment to the idea of employee self- development on the

part of management and provision of self-development programs and experiences for employ-

ees. The trend today in many organizations is to emphasize career self-management.13

Career Counseling Career counseling is the activity that integrates the different steps in the career- development

process. Career counseling may be performed by an employee’s immediate manager, a human

resource specialist, or a combination of the two. In most cases, it is preferable to have the

immediate manager conduct counseling with appropriate input from human resource person-

nel. The immediate manager generally has the advantage of practical experience, knows the

company, and is in a position to make a realistic appraisal of organizational opportunities.

Some managers are reluctant to attempt counseling because they haven’t been trained in the

area. However, it is not necessary to be a trained psychologist to be a successful career counselor.

In fact, behavioral research and actual experience suggest that the characteristics that make peo-

ple likable and effective are basically the same qualities that contribute to successful counseling.

Of course, the right type of training can be very benefi cial to accomplished career counselors.

CAREER PATHING AT MOLSON Molson Canada believes that career pathing is for all

kinds of employees and not just those who aspire to move

up several levels. The Montreal-based brewery started

formalizing its career path program in 2007. The program,

which is available online, created a guide to clearly show a

career map with rules of engagement, job descriptions, and

competencies for both upwards moves and cross-functional

experiences. “We have a pretty large sales organization

and there are some sales representatives who don’t aspire

to move out of sales. They love the autonomy, they value

the customer interaction,” says Jennifer Rigas, manager of

talent acquisition and HR at Molson Canada in Toronto. “We

still encourage them to build, grow, and develop within their

area of specialty, whether that’s a new sales technique, a

systems application, or addressing the needs of the economy

or customers.”

The HR people at Molson believe the key is to keep

all employees engaged and to not penalize employees

who don’t want to move or move up in the organization.

Supporting this belief Molson has development plans at all

levels in the organization and every employee—even those

who are happy where they are.

Source: Sarah Dobson, “Unambitious Workers Still Need a Plan,” Canadian HR Reporter, June 15, 2009, p. 16.

HRM in Action 10.2

TABLE 10.2 Basic Steps of Career

Pathing

Source: E. H. Burack and N. J. Mathys,

Career Management in Organizations:

A Practical Human Resource Planning

Approach (Lake Forest, Ill.: Brace-

Park Press, 1979), pp. 79–80. Used

by permission.

1. Determine or reconfi rm the abilities and end behaviors of the target job. Because jobs tend to

change over time, it is important to determine or confi rm requirements and review them periodically.

2. Secure employee background data and review them for accuracy and completeness. Because

people’s interests and career objectives tend to shift, these also have to be confi rmed. Also, it is often

necessary to update an individual’s records concerning skills, experience, etc.

3. Undertake a needs analysis comparison that jointly views the individual and the targeted job.

Determine if the individual and the targeted job tend to match. Surprisingly, many organizations

neglect to query individuals when questions arise concerning their backgrounds, potential abilities,

and interests.

4. Reconcile employee career desires, developmental needs, and targeted job requirements with those

of organizational career management. Individuals formalize their career objectives or modify them as

circumstances warrant.

5. Develop individual training work and educational needs using a time-activity orientation. Identify the

individual actions (work, education, and training experiences) necessary for the individual to progress

to the targeted job.

6. Blueprint career path activities. Create a time-oriented blueprint or chart to guide the individual.

196

Generally, managers who are skilled in basic human relations are successful as career

counselors. Developing a caring attitude toward employees and their careers is of prime

importance. Being receptive to employee concerns and problems is another requirement.

Following are some specifi c suggestions for helping managers become better career

counselors.

1. Recognize the limits of career counseling. Remember that the manager and the organiza-

tion serve as catalysts in the career development process. The primary responsibility for

developing a career plan lies with the individual employee.

2. Respect confi dentiality. Career counseling is very personal and has basic requirements of

ethics, confi dentiality, and privacy.

3. Establish a relationship. Be honest, open, and sincere with the subordinate. Try to be

empathetic and see things from the subordinate’s point of view.

4. Listen effectively. Learn to be a sincere listener. A natural human tendency is to want to do

most of the talking. It often takes a conscious effort to be a good listener.

5. Consider alternatives. An important goal in career counseling is to help subordinates realize

that a number of choices are usually available. Help subordinates expand their thinking and

avoid being limited by past experience.

6. Seek and share information. Be sure the employee and the organization have completed

their respective assessments of the employee’s abilities, interests, and desires. Make sure

the organization’s assessment has been clearly communicated to the employee and that the

employee is aware of potential job openings within the organization.

7. Assist with goal defi nition and planning. Remember that the employee must make the fi nal

decisions. Managers should serve as “sounding boards” and help ensure that the individual’s

plans are valid.14

HRM in Action 10.3 describes how Deloitte and Touche uses counseling to retain staff.

REVIEWING CAREER PROGRESS

Individual careers rarely go exactly according to plan. The environment changes, personal

desires change, and other things happen. However, if the individual periodically reviews both

the career plan and the situation, he or she can make adjustments so that career development is

HOW DELOITTE USES COUNSELING TO RETAIN STAFF One of the “Big Four“ accounting fi rms, Deloitte and

Touche, has instigated a three-year-old program called

Deloitte Career Connections (DCC). The program is designed

to help dissatisfi ed staff fi gure out what their real interests

and skills are and where they might better fi t within the

organization. The overriding philosophy is that it is better

to retain good employees within the company than to lose

them.

DCC features a Web site with a range of self-assessment

tools combined with one-on-one coaching. The DCC

program is based on a three-part talent management

approach: (1) provide real-life development and learning

experiences that people need to master a job, (2) work with

individuals to identify their deep-rooted skills, interests,

and knowledge and help them fi nd their best fi t within

the organization, and (3) help individuals connect with the

people that will help them achieve their objectives.

Confi dentiality and giving staff the freedom to explore

various options are key to the success of DCC. Managers

are encouraged to coach employees and help them fi nd

their best fi t within the organization. The company also

has 14 professional coaches in the DCC program who are

located throughout Deloitte’s geographic regions.

Deloitte reports that over 28,600 U.S. employees have

accessed the DCC Web site and more than 2,700 have received

one-on-one coaching. An additional 1,260 employees have

received “team” coaching. The company estimates that the

fi rm has saved about $83.4 million, calculated with a turnover

cost of twice the average annual salary of $76,000. For the

tenth year Deloitte was named to Fortune magazine’s list of

“100 Best Companies to Work For.”

Sources: “How Coaching Helps a ‘Big Four’ Accounting Firm Retain Staff,” HR Focus, January 2006, pp. 5–6; “How Deloitte Uses Coaching to Build Staff Retention,” Partner’s Report, May 2006, pp. 1–3; and “Deloitte Marks Tenth Year on Fortune’s ‘100 Best Companies to Work For’ List,” PR Newswire, January 23, 2009.

HRM in Action 10.3

Chapter 10 Career Development 197

not impaired. On the other hand, a career plan that is not kept current rapidly becomes useless.

Complacency is the greatest danger once a career plan has been developed. The plan must be

updated as the circumstances and the individual change.

CAREER-RELATED MYTHS

Employees and managers hold many myths related to career development and advancement.

Frequently, such myths are misleading and can inhibit career development and growth. The

following sections explore these myths and provide evidence disproving them.

Myths Held by Employees15

Myth 1: There Is Always Room for One More Person at the Top This myth contradicts the

fact that the structures of the overwhelming majority of today’s organizations have fewer posi-

tions available as one progresses up the organization. Adherence to this myth fosters unrealistic

aspirations and generates self-perpetuating frustrations. There is nothing wrong with wanting

to become president of the organization; however, an individual must also be aware that the

odds of attaining such a position are slim. For example, Ford Motor Company has several hun-

dred thousand employees and only one president. The major lesson to be learned from myth 1

is to pick career paths that are realistic and attainable.

Myth 2: The Key to Success Is Being in the Right Place at the Right Time Like all the

career-related myths, this one has just enough truth to make it believable. One can always fi nd

a highly successful person who attributes all of his or her success to being in the right place at

the right time. People who adhere to this myth are rejecting the basic philosophy of planning:

that a person, through careful design, can affect rather than merely accept the future. Adher-

ence to myth 2 is dangerous because it can lead to complacency and a defeatist attitude.

Myth 3: Good Subordinates Make Good Superiors This myth is based on the belief that

those employees who are the best performers in their current jobs should be the ones who are

promoted. This is not to imply that good performance should not be rewarded, for it should.

However, when an individual is being promoted, those making the decision should look carefully

at the requirements of the new job in addition to the individual’s present job performance. How

many times has a star engineer or salesperson been promoted into a managerial role, only to

fail miserably! Similarly, outstanding athletes are frequently made head coaches, and everybody

seems surprised when the former star fails in that job. Playing a sport and coaching require dif-

ferent talents and abilities. Because someone excels at one job does not mean she or he will excel

at all jobs, or even the next-level job.

Myth 4: Career Development and Planning Are Functions of Human Resource Personnel The

ultimate responsibility for career development and planning belongs to the individual, not to

human resource personnel or the individual’s manager. Human resource specialists can assist

the individual and answer certain questions, but they cannot develop a career plan for him or

her. Only the individual can make career-related decisions.

Myth 5: All Good Things Come to Those Who Work Long, Hard Hours People guided by

this myth often spend 10 to 12 hours a day trying to impress their managers and move ahead

rapidly in the organization. However, the results of these extra hours on the job often have little

or no relationship to what the manager considers important, to the person’s effectiveness on the

job, or (most important in this context) to the individual’s long-range career growth. Unfortu-

nately, many managers reinforce this myth by designing activities “to keep everyone busy.”

Myth 6: Rapid Advancement along a Career Path Is Largely a Function of the Kind of

Manager One Has A manager can affect a subordinate’s rate of advancement. However,

those who adhere to this myth often accept a defensive role and ignore the importance of their

own actions. Belief in this myth provides a ready-made excuse for failure. It is easy and con-

venient to blame failures on one’s manager.

Myth 7: The Way to Get Ahead Is to Determine Your Weaknesses and Then Work Hard to

Correct Them Successful salespeople do not emphasize the weak points of their products;

rather, they emphasize the strong points. The same should be true in career development and

198 Part Three Training and Developing Employees

planning. Individuals who achieve their career objectives do so by stressing those things they

do uncommonly well. The secret is to fi rst capitalize on one’s strengths and then try to improve

defi ciencies in other areas.

Myth 8: Always Do Your Best, Regardless of the Task This myth stems from the Puritan

work ethic. The problem is that believers ignore the fact that different tasks have different

priorities. Because there is only a limited amount of time, a person should spend that time

according to priorities. Those tasks and jobs that rank high in importance in achieving one’s

career goals should receive the individual’s best efforts. Those tasks that do not rank high

should be done, but not necessarily with one’s best effort. The idea is to give something less

than one’s best effort to unimportant tasks in order to have time to give one’s best effort to the

important ones.

Myth 9: It Is Wise to Keep Home Life and Work Life Separated An individual cannot make

wise career decisions without the full knowledge and support of his or her spouse or partner.

Working wives and husbands should share their inner feelings concerning their jobs so that

their spouses will understand the basic factors that weigh in any career decisions.

A healthy person usually has interests other than a job. Career strategy should be designed

to recognize and support, not contradict, these other interests. Career objectives should be a

subset of one’s life objectives. Too often, however, career objectives confl ict with, rather than

support, life objectives.

Myth 10: The Grass Is Always Greener on the Other Side of the Fence Regardless of the

career path an individual follows, another one always seems a little more attractive. However,

utopia does not exist. More than likely, the job John Doe holds involves many of the same

problems every working person might face. As the individual assumes more and more personal

responsibilities, the price of taking that “attractive” job becomes higher in terms of possibly

having to relocate, develop a new social life, and learn new duties. This is not to say that job and

related changes should not be made; however, one should avoid making such changes hastily.

Myths Held by Managers16

Myth 1: Career Development Will Raise Expectations Many managers fear that an emphasis

on career development will raise employee expectations to unrealistically high levels. Career

development should do just the opposite: It should bring employees’ aspirations into the open

and match their skills, interests, and goals with opportunities that are realistically available.

Myth 2: We Will Be Overwhelmed with Requests This myth is based on the fear that employees

will deluge their managers for information about jobs in other parts of the organization and that

employees will expect the organization to provide them with a multitude of career opportunities.

While this fear is very realistic in the minds of many managers, it is basically unfounded.

Myth 3: Managers Will Not Be Able to Cope Management often becomes concerned that

introducing career development and planning will place managers in a counseling role for

which they are ill prepared. While coaching and counseling should be an important part of

any manager’s job, the key to career development and planning is to place the responsibility

primarily on the employee.

Myth 4: We Do Not Have the Necessary Systems in Place This myth is based on the belief

that before the organization can introduce career development, it must fi rst put in place a

whole series of other human resource planning mechanisms, such as job posting, succession

planning, and certain training experiences. In reality, many organizations have implemented

successful career development programs with few formal mechanisms beyond the basic re-

quirement of providing employees with effective career-planning tools.

DEALING WITH CAREER PLATEAUS

A career plateau has been defi ned as “the point in a career where the likelihood of addi- tional hierarchical promotion is very low.”17 Career plateauing takes place when an employee

reaches a position from which she or he is not likely to be promoted further.18 Virtually all

people reach a plateau in their careers; however, some individuals reach their plateaus earlier

career plateau The point in an individual’s

career where the likelihood

of an additional promotion

is very low.

Chapter 10 Career Development 199

than others. Plateaued employees are those who “reach their promotional ceiling” long be-

fore they retire.19

Certain factors in today’s work environment help explain why plateauing may become

more prevalent. The fact that employers are now depending more on older employees

may well cause plateauing problems. Also, today’s employees are generally educated and

thus enter organizations at higher positions. A third factor is that fewer promotions occur

during recessionary periods. These situations ultimately mean that fewer promotion pos-

sibilities exist.

Because it is inherently true that fewer positions are available as one moves up the hierar-

chical ladder, plateauing does not necessarily indicate failure. However, as this section will

show, the case of a plateauee may need to be handled differently in some situations than that

of an employee still on the rise in the organization.

Table 10.3 presents a model for classifying careers. The four principal career categories are:

• Learners. Individuals with high potential for advancement who are performing below standard (e.g., a new trainee).

• Stars. Individuals presently doing outstanding work and having a full potential for continued advancement; these people are on fast-track career paths.

• Solid citizens. Individuals whose present performance is satisfactory but whose chance for future advancement is small. These people make up the bulk of the employees in most

organizations.

• Deadwood. Individuals whose present performance has fallen to an unsatisfactory level; they have little potential for advancement.20

Naturally, organizations would like to have all stars and solid citizens. The challenge, how-

ever, is to transform the learners into stars or solid citizens and keep the current stars and

solid citizens from slipping into the deadwood category. Furthermore, there is a tendency to

overlook solid citizens. The learners, stars, and deadwood usually get most of the attention

in terms of development programs and stimulating assignments. Neglect of the solid citizens

may result in their slipping into the deadwood category.

Three actions can aid in managing the plateauing process: (1) Prevent plateauees from

becoming ineffective (prevent a problem from occurring); (2) integrate relevant career-

related information systems (improve monitoring so that merging problems can be detected

and treated early); and (3) manage ineffective plateauees and frustrated employees more

effectively (cure the problem once it has arisen).21 The fi rst action basically involves help-

ing plateauees adjust to the solid-citizen category and realize they have not necessarily

failed. There are indications that employees’ attitudes toward career plateauing may have

changed in the past decade or so. While plateauing has been historically viewed in a nega-

tive sense, that is not necessarily the case today. Because of the stress of continual advance-

ment, some employees actually welcome plateauing. Others see plateauing as an oppor-

tunity to redirect their careers.22 Available avenues for personal development and growth

should also be pointed out. The second action can largely be implemented through a thor-

ough performance appraisal system. Such a system should encourage open communication

between the manager and the person being appraised (performance appraisal systems are

discussed in the next chapter of this book). The following section discusses how to manage

ineffective plateauees.

learners Individuals in an organization

who have a high potential for

advancement but are currently

performing below standard.

stars Individuals in an organization

who are presently doing

outstanding work and have a

high potential for continued

advancement.

solid citizens Individuals in an organization

whose present performance is

satisfactory but whose chance

for future advancement is

small.

deadwood Individuals in an organization

whose present performance has

fallen to an unsatisfactory level

and who have little potential

for advancement.

TABLE 10.3 Classifying Managerial

Careers

Source: Academy of Management Review

by T. P. Ference, J. A. Stoner, and

of Management (NY). Reproduced with

permission of Academy of Management

(NY) in the format Textbook via

Likelihood of Future Promotion

Current Performance Low High

High Solid citizens

(effective plateauees)

Stars

Low Deadwood

(ineffective plateauees)

Learners (comers)

200 Part Three Training and Developing Employees

Rehabilitating Ineffective Plateauees Rehabilitating ineffective plateauees is diffi cult but certainly possible. The fi rst question the

manager might ask is “Why should we try to help ineffective plateauees; don’t they often have

an overall negative impact on the organization?” Certainly deadwood can have a negative im-

pact, but there are also several good reasons to salvage these employees:

• Job knowledge. Plateaued employees have usually been in the job for quite some time and

have amassed considerable job knowledge.

• Organizational knowledge. Plateaued employees not only know their jobs but also know

the organization.

• Loyalty. Plateaued employees are usually not job-hoppers but often have demonstrated

above-average loyalty to the organization.

• Concern for the well-being of plateauees. If the organization were to terminate all plateaued

employees, this could have a disastrous impact on other employees. Also, the number of

plateaued employees may be large.23

Given that an organization’s management team wants to rehabilitate plateaued employees,

what can be done? At least fi ve possibilities exist:

1. Provide alternate means of recognition. If the chances for the employee to receive recognition

through a future promotion are slim, look for alternative methods of recognition. Some

possibilities include working on a task force or other special assignments, participating

in brainstorming sessions, representing the organization to others, and training new

employees.

2. Develop new ways to make their current jobs more satisfying. The more employees can be

turned on by their current jobs, the lower the likelihood that they will remain ineffective.

Some possibilities here include relating employees’ performance to total organizational

goals and creating competition in the job.

3. Effect revitalization through reassignment. The idea here is to implement systematic job

switching to positions at the same level that require many similar, though not exactly the

same, skills and experiences as the present job.

4. Utilize reality-based self-development programs. Instead of assigning plateauees to

developmental programs designed to help them move into future jobs (which a majority

of development programs do), assign them to development programs that can help them

perform better in their present jobs.

5. Change managerial attitudes toward plateaued employees. It is not unusual for managers

and supervisors to give up on and neglect plateaued employees. The affected employees

quickly pick up on such actions, which only compounds the problem.24

Because plateaued employees often include a signifi cant number of employees who are

worth rehabilitating, it would pay for most organizations to address this issue seriously.

CAREER LATTICES

The idea of a career lattice fi rst emerged in the early 1990s. Before this time careers were dis-

cussed only in terms of career ladders, going straight up or down. The idea of a career lattice

is to think of employees moving at any angle, heading from side to side, supporting organi-

zational goals while getting their career goals met at the same time.25 Career lattices support

moves in all directions, not just up or down. The lattice approach allows employees to move to

different projects and locations across an organization rather than only through higher ladder-

like levels. Table 10.4 presents some examples of ladder thinking compared to lattice thinking.

To facilitate the progression from a ladder to a lattice culture, Deloitte & Touche designed

a framework called mass career customization (MCC).26 The goal of MCC is to align current

and future career development options for the employee with current and future requirements

for the organization in ways that are sustainable for both. The MCC framework outlines a

defi nite set of options along each of four core career dimensions: (1) pace, (2) workload,

Chapter 10 Career Development 201

(3) location/schedule, and (4) role. These career dimensions are interdependent, meaning that

a change in one will result in adjustments to one or more of the others. Working with their

managers, employees periodically select options along each dimension based on their career

objectives and life circumstances within the needs of the organization. Over time each em-

ployee develops his or her own path refl ecting the series of choices made in the past. A major

benefi t of MCC is that it allows employees to modify their activities along the four dimensions

as their personal and career situations evolve.

THE IMPACT OF DUAL-EMPLOYED COUPLES AND SINGLE-PARENT EMPLOYEES

Employment by both spouses has become commonplace in the decades following World

War II. Today, 71 percent of mothers with children under 18 are in the workforce.27 As late as

1975, only 47 percent of women with children under 18 were in the labor force.

Bureau of Labor Statistics data for 2008 showed that 59 percent of married women were

employed.28 Similar data for 2008 indicated that 68 percent of mothers with children under 18

were employed.29 Both economic and social pressures have encouraged this trend.

Dual-employed couples can usually be classifi ed as either dual-career couples or dual-

earner couples. In dual-career couples, both members are highly committed to their careers

and view work as essential to their psychological sense of self and as integral to their personal

identities.30 They view their employment as part of a career path involving progressively more

responsibility, power, and fi nancial remuneration. In dual-earner couples, one or both of the

members defi nes his or her employment as relating to rewards such as money for paying bills,

an opportunity to keep busy, or an additional resource to help out. Dual-earner couples do not

see their employment as an integral part of their self-defi nition.

Some of the biggest challenges for dual-employed couples are a lack of time followed by

the diffi culties in balancing personal and professional life. The biggest advantages for dual-

employed couples are increased income, followed by psychological benefi ts as a distant second.

Dual-employed couple situations can complicate the career development process for both

individuals. A career opportunity that requires a geographical move for one member creates

an obvious problem for the couple and their respective organizations. Other potential prob-

lems of dual-employed couples include the need for child care, balancing time schedules, and

emotional stresses. Engaging in the career-planning process can certainly help dual-employed

couples address potential problems before they become real.

Single-parent employees currently make up about 5 percent of all employees in the U.S.31

Of these single-parent working employees, there are over three times as many women as men.

As with dual-employed couples, single-parent employees have needs and requirements that

are different from those of families that have one parent at home. Many organizations have re-

sponded to these needs by initiating family-friendly policies and programs. Proactive corporate

TABLE 10.4 Lattice Thinking Versus

Ladder Thinking

Source: Adapted from Cliff Hakim,

“Best Morale to Gain Productivity,”

HR Magazine, February 1993,

pp. 46–49.

Lattice Thinking

• Movement in organization is at any angle, side to side or up and down.

• What and how employees contribute is most important.

• Be collaborative.

• Fluid long-term strategy, grow in your current position.

• Look organization-wide for expertise.

• Rewards are based on learning and performance.

Ladder Thinking

• Movement in organization is restricted to up or down.

• Promotions and titles are important.

• The boss always has the answers.

• Static short-term strategy, remembering that promotions are temporary.

• Look upward in the organization for expertise.

• Rewards are related to title.

202 Part Three Training and Developing Employees

programs include child and elder care, fl exible work scheduling, job sharing, part-time work,

telecommuting, parental leave, and personal time.

OUTPLACEMENT

Outplacement refers to “a benefi t provided by an employer to help an employee terminate and get a job someplace else.”32 Outplacement is a way of terminating employees that can

benefi t both the employees and the organization. The organization gains by terminating the

employees before they become deadwood; employees gain by fi nding new jobs and at the

same time preserving their dignity. In addition, an outplacement program can have a very

positive effect on employee morale.

Skill assessment, establishment of new career objectives, résumé preparation, interview

training, and generation of job interviews are services generally offered through an outplace-

ment program. Other services might include training for those who notify terminated employ-

ees, offi ce support, spouse involvement, and individual psychological counseling.

Most company outplacement programs involve the use of outplacement consultants or an

outplacement fi rm. The normal procedure is for the outplacement consultant to be briefed

by the manager before the employee is terminated. During this session, the outplacement

consultant should obtain a clear understanding from the company of why the termination was

necessary. After the manager notifi es the employee of his or her termination, the o utplacement

consultant provides immediate support to the employee. The growth of outsourcing, which

was discussed in Chapters 1 and 5, has increased the need for outplacement services.

BREAKING THE GLASS CEILING

The term glass ceiling refers to invisible, yet real or perceived, barriers found in many organi-

zational structures that appear to stymie the executive advancement opportunities of women

and minorities.33

The Glass Ceiling Commission was created as part of the Civil Rights Act of 1991.

The mandate of the commission was to focus greater public attention on the importance of

eliminating barriers and to promote workforce diversity. The commission, which was staffed

by the U.S. Department of Labor, was asked to specifi cally look at the compensation systems

and reward structures currently used in the workplace, and at how business fi lls management

and decision-making positions and trains and develops employees for advancement.

According to the commission’s initial report, the three most common practices that

contribute to the creation of a glass ceiling are (1) word-of-mouth recruiting (or using executive

search fi rms without stating an interest in a diverse array of candidates), (2) inadequate access

to developmental opportunities for women and minorities, and (3) a lack of responsibility

among senior management for equal employment opportunity efforts.34 Subsequently the

commission, “which was dissolved in 1995,” formulated the following suggestions for

toppling job- advancement barriers:

• Demonstrate commitment. Top management should communicate its dedication to diversity

and enact policies that promote it.

• Hold line managers accountable for progress by including diversity in all strategic business

plans. Performance appraisals, compensation incentives, and other evaluation measures

should refl ect this priority.

• Use affi rmative action as a tool to ensure that all qualifi ed individuals compete based on

ability and merit.

• Expand your pool of candidates. Look for prospects from noncustomary sources who may

have nontraditional backgrounds and experiences.

• Educate all employees about the strengths and challenges of gender, racial, ethnic, and

cultural differences.

• Initiate family-friendly programs that help men and women balance their work and family

responsibilities.35

outplacement Benefi t provided by an

employer to help an employee

leave the organization and get a

job someplace else.

203

Because many factors that contribute to the glass ceiling stem from the common tendency

“to hire in one’s own image,” glass ceilings will be eliminated only when all employees are

evaluated, hired, and promoted on the basis of merit. If followed, the previously discussed

suggestions from the Glass Ceiling Commission should go a long way toward creating such a

culture. Data from the Bureau of Labor Statistics indicate that women have made gains over

the last several years. For example, 2008 data show that almost 40 percent of employed women

are in managerial or professional jobs, up from 36 percent in 1997 and 24 percent in 1977.36

These same data, however, also show that women’s median weekly earnings still lag behind

men’s by 20 percent ($638.00 per week versus $798.00 per week).37

Other data show that in 2008, women accounted for 15.7 percent of Fortune 500 corporate

offi cer jobs ( jobs with titles of at least vice president and requiring board approval).38 These

same data found that women comprised just 15.2 percent of the 5,610 director positions at

these fi rms. Barron’s magazine estimates that by 2020 women could hold one in fi ve powerful

posts in corporate America.39

CAREER DEVELOPMENT ONLINE

Today many companies are developing comprehensive, online career development centers.

These online career development centers provide access to a wide variety of services to

help employees manage their careers and, in some instances, even fi nd jobs outside their

present company. Online capabilities can provide many types of career-related information

on demand. For example, employees can look up the competencies and skills required for

jobs they aspire to have. Some of the online career planning resources being offered include

these:

• Information about employment trends and job opportunities.

• Self-assessment tools, such as personality tests and interest indicators, that employees can

use to determine which types of jobs they might best pursue.

• Links to online employment resources such as job listings and career development

information.

• Individual online job counseling, including advice on preparing for interviews.40

In addition to company-sponsored online services, many resources are available on the Inter-

net to help individuals with career development. These resources include job search guides,

self-assessment tools, résumé preparation aids, job listings, career-related articles, and other

similar services. There is little doubt that online career-development resources will continue

to expand in the future. The On-the-Job section at the end of this chapter describes two of the

most used and most respected online self assessment tools. HRM in Action 10.4 describes a

recent venture of one of the leading online career development networks.

MYWORKSTER CONNECTS WITH FACEBOOK MyWorkster is a leading online career development network.

MyWorkster partners with institutions like universities to

strengthen their career development assistance to students

and alumni. It only takes a few seconds to become a member

of MyWorkster and the cost is free. MyWorkster members

have immediate access to nearly 5,000,000 jobs and thousands

of decision makers. Members can seek mentorships from

their university alumni, connect with others in their fi eld of

interest, and fi nd information resources to help with their

career development.

In January of 2009, MyWorkster announced an arrangement

with Facebook, one of the Internet’s most powerful brands.

“By combining the viral reach of Facebook, the Web’s largest

social network, with the power of MyWorkster’s extensive

job search and career-building tools, we are creating a way

to access professional opportunities on a scale never seen

before,” said Jeff Saliture, CEO of MyWorkster.

Source: “MyWorkster Launches Facebook Connect,” Business Wire, January 27, 2009.

HRM in Action 10.4

204 Part Three Training and Developing Employees

1. Defi ne career development and summarize its major objectives.

Career development is an ongoing, formalized effort by an organization that focuses

on developing and enriching the organization’s human resources in light of both the

employees’ and the organization’s needs. From the organization’s viewpoint, career

development has three major objectives: (1) to meet the immediate and future human

resource needs of the organization on a timely basis, (2) to better inform the organization

and the individual about potential career paths within the organization, and (3) to utilize

existing human resource programs to the fullest by integrating the activities that select,

assign, develop, and manage individual careers with the organization’s plans.

2. Name the three entities required to provide input for a successful career development

program and briefl y describe their respective responsibilities.

Successful career development results from a joint effort by the organization, the

employee, and the immediate manager. The organization provides the resources and

structure, the employee does the planning, and the immediate manager provides the

guidance and encouragement.

3. Describe the steps involved in implementing a career development program.

The implementation of a career development program involves four basic steps: (1) an

assessment by the individual of his or her abilities, interests, and career goals; (2) an

assessment by the organization of the individual’s abilities and potential; (3) communica-

tion of career options and opportunities within the organization; and (4) career counseling

to set realistic goals and plans for their accomplishment.

4. Defi ne career pathing and career self-management.

Career pathing is a technique that addresses the specifi cs of progressing from one job to

another in the organization. Career self-management is the ability to keep pace with the

speed at which change occurs within the organization and the industry and to prepare for

the future.

5. List several myths employees hold related to career planning and advancement.

Employees often hold many myths related to career planning and advancement: (1) There

is always room for one more person at the top; (2) the key to success is being in the

right place at the right time; (3) good subordinates make good superiors; (4) career

development and planning are functions of human resource personnel; (5) all good things

come to those who work long, hard hours; (6) rapid advancement along a career path is

largely a function of the kind of manager one has; (7) the way to get ahead is to determine

your weaknesses and then work hard to correct them; (8) always do your best, regardless

of the task; (9) it is wise to keep home life and work life separated; and (10) the grass is

always greener on the other side of the fence.

6. List several myths management holds related to career development.

Management personnel often hold certain myths related to career management: (1) Career

development will raise expectations to unrealistically high levels; (2) management will be

overwhelmed with requests; (3) managers will not be able to cope; and (4) management

does not have the necessary systems in place.

7. Defi ne a career plateau and a plateaued employee.

A career plateau is the point in a career where the likelihood of additional hierarchical

promotion is very low. A plateaued employee is an employee who reaches his or her

promotional ceiling long before retirement.

8. Describe the four principal career categories.

The four principal career categories are learners, stars, solid citizens, and deadwood.

Learners are individuals with a high potential for advancement who are performing below

standard. Stars are individuals presently doing outstanding work, with a high potential

for continued advancement. Solid citizens are individuals whose present performance

is satisfactory but whose chance for future advancement is small. Deadwood refers to

individuals whose present performance has fallen to an unsatisfactory level and who have

little potential for advancement.

Summary of Learning Objectives

Chapter 10 Career Development 205

9. Explain the concept of a career lattice.

Career lattices support career moves in all directions within an organization, not just up

or down movement.

10. Distinguish between dual-career couples and dual-earner couples. Describe some

possible ways organizations can accommodate dual-employed couples.

In dual-career couples, both members are highly committed to their careers and view

work as essential to their psychological sense of self and as integral to their personal

identities. They view their employment as part of a career path involving progressively

more responsibility, power, and fi nancial remuneration. In dual-earner couples, one

or both of the members defi nes his or her employment as relating to rewards such as

money for paying bills, an opportunity to keep busy, or an additional resource to help out.

Dual-earner couples do not both see their employment as an integral part of their self-

defi nition. Many organizations have responded to the needs of dual-employed couples by

updating their human resource policies to accommodate them. Some possibilities include

provision of child and elder care, fl exible work scheduling, job sharing, part-time work,

telecommuting, parental leave, and personal time.

11. Defi ne outplacement.

Outplacement refers to a benefi t an employer provides to help an employee terminate

employment with the organization and get a job someplace else.

12. Explain what the glass ceiling is.

The term glass ceiling refers to invisible, yet real or projected barriers found in many

organizational structures that appear to stymie the executive advancement opportunities

of women and minorities.

13. List some of the online career development resources available today.

Some of the online career development resources that are available today include

information about employment trends and job opportunities, self-assessment tools, links

to online employment services, and individual online job counseling.

1. Defi ne career development and career planning.

2. What are the three major objectives of career development from the organization’s viewpoint?

3. What is the role of the individual employee in career development?

4. What are the four basic steps in implementing a career development program?

5. What is a personal vision statement?

6. What are career pathing and career self-management?

7. Give some specifi c suggestions for helping managers become better career counselors.

8. How often should an individual review and revise his or her career plan?

9. Identify several myths employees often hold relating to career development and

advancement.

10. Identify several myths managers often hold relating to career development.

11. Defi ne the following categories: learners, stars, solid citizens, and deadwood.

12. Name and briefl y describe several methods an organization might use to rehabilitate

ineffi cient plateauees.

Review Questions

career development, 190

career pathing, 194

career planning, 190

career plateau, 198

career self-management, 194

deadwood, 199

learners, 199

outplacement, 202

solid citizens, 199

stars, 199

vision statement, 192

Key Terms

206 Part Three Training and Developing Employees

13. What is a career lattice?

14. Distinguish between dual-career couples and dual-earner couples and identify some of the

challenges these groups face.

15. What is outplacement, and how does it usually work?

16. What is the glass ceiling and what are the three most common practices that contribute

to it?

17. Name several types of online career planning resources currently available.

1. Do you think career development can adversely affect organizational performance in that

the process sometimes convinces the involved parties to change jobs?

2. Is the concept of career development realistic in today’s rapidly changing environment?

3. Discuss how career-related myths can inhibit career planning and growth.

4. Is it better to tell a person that he or she has reached a plateau in the organization or to allow

the person to maintain hope of eventual promotion?

5. What advice would you offer today’s employees regarding the problems dual-employed

couples and single-parent employees face?

Incident 10.1

The Unhappy Power Line Installer

John James had been an installer-repairer for the power company for almost six years. The

work kept him outdoors most of the day, and he liked the job, the pay was good, and his

coworkers were congenial. John had gone to work on this job right after high school gradua-

tion and had never considered doing anything else. Through the years, others in the same job

occasionally had been promoted into supervisory positions, taken advantage of company-paid

educational benefi ts, or received recognition for outstanding service to the company.

John was close friends with Ross Bartlett, his partner on the line. Ross, who had been in

his job about two years, was a good worker. About six months ago, Ross began to express

dissatisfaction with the routine, monotonous work, saying there had to be some better way to

make a living.

Last week, John learned the company would pay Ross’s way to take college courses in busi-

ness administration. That same day, John really began to feel some concern about himself and

his status with the power company. He began having restless, sleepless nights as he thought

back over the past years: what he had done with his life, where he was now in his career, and

where he was going. His thoughts became so muddled that he realized he was going to need

some help.

John had never set any personal goals for himself other than to live reasonably comfortably

from day to day and month to month. He had come from a poor family and had received little

encouragement or help from his parents to develop ambitions when he was young. The one

thing his mother and father had insisted on was that someone in the family was going to be a

high school graduate; luckily, John was that person. He never had any desire to go to college

because graduation from high school had proven to be extremely diffi cult for him. John could

not think of spending four more years in school when he needed and wanted to be out making

money for himself and the family.

Now, with people around him moving on in their careers and John’s career at a standstill,

he felt he was at a dead end. He realized suddenly that he needed to do something, but he was

not sure just what.

Questions

1. What advice might you give John?

2. Would a career plan help a person like John?

3. Is John’s situation atypical of that of most employees?

Discussion Questions

Chapter 10 Career Development 207

Incident 10.2

Hire Me, Hire My Husband!*

Pete Gettings, director of human resources for XYZ Company’s research and development

laboratories, was relating a success from his State University recruiting trip to Derek Hills,

XYZ’s manager of computer operations.

“Derek,” Gettings said excitedly, “you know how you’ve had me looking for engineers who

could add technical strength to your operation? Well, I’ve found one—a senior at State Univer-

sity and a straight-A student, with lots of ambition, interested in computers for what they can

do in applications, and anxious to work in industry. I’m bringing her in for an interview—I’m

sure you’ll want to hire her, and I’m positive we can.

“But,” Gettings continued, “that’s the good news. The bad news is that she’s married and

she and her husband want to work for the same company. Her husband is a marketing major

and a jock. He played four years of basketball for State but is not nearly good enough to con-

sider a pro career. I met him; he’s got lots of personality and a C-grade average. I don’t see any

particular talent in him, and I think our marketing people will turn him down fl at. But if we

want her, we’ve got to fi nd him a job!”

Sally Finch and her husband, Mike, were brought in for interviews with exactly the results

Pete Gettings had predicted. Everybody was impressed with Sally, for she had prepared well

for the interview and was able to point out some unexploited applications of computers at

XYZ. Her suggestions about product performance simulation were particularly thought pro-

voking and impressive.

Her husband, on the other hand, did very poorly in his interview. Mike could discuss his

basketball prowess, but little else. His earring and ponytail hairstyle did not fi t the conserva-

tive atmosphere of XYZ either.

The interviews resulted in a very attractive offer to Sally and a rejection for Mike. Sally’s

response was a blunt retort that she and Mike would continue to look for opportunities to work

for the same company. XYZ wanted to employ Sally so badly that it made a diligent search of

local employment possibilities for her husband, thinking this might be a good alternative to

employing both of them at XYZ. A small telemarketing fi rm fi nally exhibited some interest

in employing Mike, and because of the excellent offer that XYZ had made to Sally, the pair

decided to accept both offers.

Sally subsequently proved to be a valuable asset to XYZ’s R&D computer operations, and

her work resulted in some excellent product development progress for the company. Derek

was pleased and continued to pay for her additional training.

Sally received two promotions during her fi rst two years at XYZ. Occasionally Derek asked

about her husband, and Sally’s only response was that he was doing OK and they were con-

sidering buying a home. This was good news because XYZ felt that Sally was defi nitely an

employee they wanted to keep.

As time went on, Derek saw Mike several times at departmental social functions and

noted that he had matured and become a very self-assured individual. In conversations

with him, Derek observed that Mike seemed to have all the characteristics of a successful

young businessman. Derek, in fact, wondered to himself if XYZ had made a mistake in

not hiring him.

Derek was surprised and ill prepared one morning when Sally walked into the offi ce and

told him she was resigning.

“What’s the problem?” Derek asked.

“My husband has done very well in the telemarketing business and has been offered a

promotion and transfer to the West Coast. His company has asked him to open and manage a

new branch operation there. I’m certain I’ll be able to fi nd employment in our new location,

and we think this is the chance of a lifetime for Mike. I’m sorry to leave XYZ, but I really see

no other choice. I’m willing to stay a month or so to help train a replacement if you can fi nd

one quickly. Of course, if XYZ could come up with a job for Mike equivalent to the one he’s

been offered on the Coast, we would stay here.”

208 Part Three Training and Developing Employees

Questions

1. Should XYZ fi nd (or “create”) a job for Mike to retain Sally, a valued and well-trained

employee?

2. Should XYZ management have anticipated a possible retention problem due to different

career paths when it placed Sally and Mike in jobs with separate companies?

3. Do situations such as the one presented here make companies cautious about offering

positions to members of dual-career families?

*Source: W. Gale Cutler, “Hire Me, Hire My Husband!” Research-Technology Management 38, no. 4

This quiz helps managers examine their knowledge of the career counseling function and discover those areas in which some skill building may be necessary. Rate your knowledge, skill, and confi dence as a managerial career counselor by scoring yourself on a scale of 0 (low) to 10 (high) on each of the following statements:

_____ 1. I am aware of how career orientations and life stages can infl uence a person’s perspective and contribute to career planning problems.

_____ 2. I understand my own career choices and changes and feel good enough about what I have done to be able to provide guidance to others.

_____ 3. I am aware of my own biases about dual-career paths and feel that I can avoid these biases in coaching others to make a decision on which way to go with their careers.

_____ 4. I am aware of how my own values infl uence my point of view, and I recognize the importance of helping others defi ne their values and beliefs so they are congruent with career goals.

_____ 5. I am aware of the pitfalls of not knowing what is going on within my organization. As a result, I try to stay informed about my organization so I can help others.

_____ 6. I know the norms existing within my own department as well as those within other de- partments and parts of the organization, so I can help others deal with them effectively.

_____ 7. I understand the organizational reward system (nonmonetary) well enough to help others make informed decisions about career goals, paths, and plans.

_____ 8. I have access to a variety of techniques I can use to help others articulate their skills, set goals, and develop action plans to realize their career decisions.

_____ 9. I am informed on the competencies required for career success in this organization in both the managerial and technical areas, so I can advise others on the particular skills they need to build and how to go about developing that expertise.

_____ 10. I feel confi dent enough about my own skills as a career counselor that I can effectively help my people with their problems and plans and make midcourse corrections when necessary.

SCORING Add up your score and rate yourself against the following scale:

0–30 It might be a good idea if you found yourself a career counselor.

31–60 Some of your people are receiving help from you. . . . However, do you know how many and which ones are not?

61–80 You’re a counselor! You may not be ready for the big league yet, but you are providing help for your people.

81–100 Others have a lot to learn from you. You understand the importance of career counseling, and you know how to provide it.

*Source: Adapted from P. R. Jones, B. Kaye, and H. R. Taylor, “You Want Me to Do What?” Training and

Society for Training & Development.

EXERCISE 10.1

How Do You

Rate as a Career

Counselor?*

Chapter 10 Career Development 209

Look over the nine potential career-planning roles of managers listed in Table 10.1. Rank-order them in terms of which roles you think would best fi t you (1 being the role you would fi t best, 9 being the role you would fi t least). After you have completed this ranking, complete the quiz in Exercise 10.1. How does your score on this quiz correlate with how you ranked the counselor role (i.e., if you scored high on this quiz, did you rank the role of the counselor relatively high, and vice versa)? Make a list of some things you might do to become a better counselor. Be prepared to share your list with the class.

Take either one of the online self-assessment tests discussed in the On the Job section at the end of this chapter (pp. 210–211). The cost of either test will be $9.95. After you have fi nished the test and looked at your results, answer the following questions:

1. Were you surprised at which category you most closely fi t?

2. Were you surprised at the occupations and work environments that most closely matched your profi le?

3. Do you think that the career information you received was worth your time and money?

1. William J. Morin, “You Are Absolutely Positively on Your Own,” Fortune, December 9, 1996, p. 222.

2. U.S. Department of Labor, http://www.bls.gov/nls. New release June 27, 2008.

3. Anne Fisher, “Surviving the Downturn,” Fortune, April 2, 2001.

4. Matthew Boyle, “First, You Have to Figure Out Who You Are,” Fortune, February 18, 2002; David

Firestone, “Thomaston Journal: Mill Town Mourns Its Mill, Then Reinvents Itself,” New York Times,

January 21, 2002, p. A10.

5. “The Employee Point of View: The Economic Downturn,” The Society for Human Resource

Management, April 1, 2009. Accessed at www.shrm.org/Research/Survey Findings, January 21, 2010.

6. B. C. Winterscheid, “A Career Development System Coordinates Training Efforts,” Personnel

Administrator, August 1980, pp. 28–32.

7. For example see H. Fred Walker, “Climbing the Career Ladder: It’s Up to You,” Quality Progress,

October 2006, pp. 28–32.

8. A. B. Randolph, “Managerial Career Coaching,” Training and Development Journal, July 1981,

pp. 54–55.

9. T. H. Stone, Understanding Personnel Management (Hinsdale, Ill.: Dryden Press, 1981), p. 324.

10. This paragraph is drawn from H. Fred Walker, “Climbing the Career Ladder: It’s Up to You,”

Quality Progress, October 2006, pp. 28–32.

11. E. H. Burack and N. J. Mathys, Career Management in Organizations: A Practical Human Resource

Planning Approach (Lake Forest, Ill.: Brace-Park Press, 1979), p. 78; Carla Joinson, “Employee,

Sculpt Thyself . . . With a Little Help,” HR Magazine, May 2001, pp. 60–64.

12. Jeanne C. Meister, “The Quest for Lifetime Employability,” Journal of Business Strategy, May/June

1998, pp. 25–28.

13. Mary Bambacas and Prashant Bordia, “Predicting Different Commitment Components: The Relative

Effects of How Career Development HRM Practices are Perceived,” Journal of Management and

Organization, May 2009, pp. 224–240.

14. These suggestions are adapted from N. T. Meckel, “The Manager as Career Counselor,” Training

and Development Journal, July 1981, pp. 65–69.

15. Many of these myths were originally suggested by E. Staats, “Career Planning and Development:

Which Way Is Up?” Public Administration Review, January–February 1977, pp. 73–76; and A. H.

Soverwine, “Mythology of Career Growth,” Management Review, June 1977, pp. 56–60.

16. The myths in this section were adapted from Barbara Moses, “Giving Employees a Future,” Training

and Development Journal, December 1987, pp. 25–28.

17. T. P. Ference, J. A. F. Stoner, and E. K. Warren, “Managing the Career Plateau,” Management

Review, October 1977, p. 602.

EXERCISE 10.2

Becoming an

Effective Career

Planner

EXERCISE 10.3

Online

Self-Assessment

Notes and Additional Readings

210 Part Three Training and Developing Employees

18. Steven H. Applebaum and Dvorah Firestone, “Revisiting Career Plateauing: Same Old Problems—

Avant Garde Solutions,” Journal of Managerial Psychology 9, no. 5 (1994), pp. 12–21; Suzanne

Koudsi, “You’re Stuck,” Fortune, December 10, 2001.

19. Beverly Kaye, “Are Plateaued Performers Productive?” Personnel Journal, August 1989, p. 57; Judith

M. Bardwick, The Plateauing Trap (New York: American Management Association, 1986), pp. 1–17.

20. Ference, Stoner, and Warren, “Managing,” pp. 603–64.

21. Ibid., p. 607.

22. Patrick Chang Boon Lee, “Going Beyond Career Plateau: Using Professional Plateau to Account for

Work Outcomes,” The Journal of Management Development 22, No. 5/6 (2003), pp. 538–551; and

Theresa Smith Ruig, “Exploring Career Plateau as a Multi-Faceted Phenomenon: Understanding the

Types of Career Plateaux Experienced by Accounting Professionals,” British Journal of Management,

December 2009, p. 610.

23. Richard C. Payne, “Mid-Career Block,” Personnel Journal, April 1984, p. 42.

24. Ibid., pp. 44–48.

25. Cliff Hakim, “Best Morale to Gain Productivity,” HR Magazine, February 1993, pp. 46–49.

26. Much of this section is drawn from Cathleen Benko and Anne Weisberg, “Implementing a Corporate

Career Lattice: The Mass Career Customization Model,” Strategy and Leadership 35, No. 5 (2007),

p. 29 and Cathy Benko and Anne Weisberg, “Mass Career Customization: A New Model for How

Careers Are Built,” Ivey Business Journal Online, May/June 2008, p. 1.

27. Women in the Labor Force: A Databook 2009, p. 1, www.bls.gov/cps/wlf-databook 2009.htm,

accessed January 26, 2010.

28. Ibid., Table 4, p. 12. Accessed January 26, 2010.

29. Ibid., Table 5, p. 13. Accessed January 26, 2010.

30. Nancy Carter, “Solve the Dual-Career Challenge,” Workforce (Global Workforce Supplement),

October 1997, pp. 21–22.

31. This fi gure is derived from the data in Table 4 of Employment Characteristics of Families in 2008,

www.bls.gov/news.release/pdf/famee/pdf. Accessed January 26, 2010.

32. T. M. Camden, “Using Outplacement as a Career Development Tool,” Personnel Administration,

January 1982, p. 35.

33. Cari M. Dominguez, “A Crack in the Glass Ceiling,” HR Magazine, December 1990, pp. 65–66. It

should be noted that some authors interpret the glass ceiling as applying only to women as opposed

to women and minorities.

34. “The Glass Ceiling,” HR Magazine, October 1991, pp. 91–92.

35. “Dismantling the Glass Ceiling,” HR Focus, May 1996, p. 12.

36. Women in the Labor Force: A Databook 2009, Table 10, p. 26. www.bls.gov/cps/wlf-databook

2009.htm. Accessed January 27, 2010.

37. Ibid., p. 2.

38. Alexander H. Tullo, “Women in Industry,” Chemical & Engineering News, July 20, 2009, p. 26.

39. Gene Epstein, “Breaking the Glass,” Barron’s, May 26, 2003, p. 17.

40. Jim Warner, “Creating Virtual Career Development Center,” HR Focus, October 1997, pp. 11–12;

Sarah Fister Gale, “Tapping Unused Resources in Lean Times,” Workforce, October 2001, pp. 86–87;

and Christopher J. McCarthy, Naomi Moller, and L. Michelle Beard, “Suggestions for Training

Students in Using the Internet for Career Counseling,” Career Development Quarterly, June 2003,

pp. 368–78.

On the Job

ONLINE SELF-ASSESSMENT TOOLS

Many online self-assessment tools are available. Unfortunately not all of them are reliable and

valid. An unreliable and/or invalid self-assessment tool can result in inaccurate information,

mislead, and harm the user. The two online self-assessment tools discussed below are two of

the most used and well-respected self-assessment tools available.

Chapter 10 Career Development 211

THE SELF-DIRECTED SEARCH (SDS)

The Self-Directed Search (SDS) has been used by over 30 million people worldwide and has

been translated into 25 different languages.1 SDS results have been supported by over 500

research studies.

SDS was developed by Dr. John L. Holland and is based on Holland’s theory that most peo-

ple can be loosely categorized with respect to six basic types: realistic, investigative, artistic,

social, enterprising, and conventional. Under Holland’s theory, occupations and work environ-

ments can also be classifi ed by these same categories. The basic idea is that people who choose

careers that match their own types are more likely to be both satisfi ed and successful. The SDS

takes about 15 minutes and costs $9.95 to take.

THE CAREER KEY™ TEST2

The Career Key™ Test also measures your skills, abilities, values, and interests using the same

six personality types as Holland’s (described in the previous paragraph). The Career Key™

has been scientifi cally validated and been in use for over 23 years. The Career Key™ is cur-

rently used by over 3 million people per year. The Career Key™ takes about 10 minutes and

costs $9.95 to take. The Web site for Career Key™ is www.careerkey.org.

1 The information about the SDS was gathered from the SDS Web site (www.self-directed-search.com). 2 The information about the Career Key™ was gathered from the Career Key™ Web site (www.careerkey.org).

213

Chapter Eleven

Performance Management Systems

Chapter Outline

Understanding Performance

Determinants of Performance

Environmental Factors as Performance

Obstacles

Responsibilities of the Human Resource

Department in Performance Management

Performance Appraisal: Defi nition and Uses

Performance Appraisal Methods

Management by Objectives (MBO)

Multi-Rater Assessment (or 360-Degree

Feedback)

Graphic Rating Scale

Behaviorally Anchored Rating Scale (BARS)

Critical-Incident Appraisal

Essay Appraisal

Checklist

Forced-Choice Rating

Ranking Methods

Work Standards

Potential Errors in Performance Appraisals

Overcoming Errors in Performance

Appraisals

Providing Feedback through the

Appraisal Interview

Developing Performance Improvement

Plans

Performance Appraisal and the Law

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 11.1: The College Admissions

Offi ce

Incident 11.2: The Lackadaisical Plant

Manager

Exercise 11.1: Developing a Performance

Appraisal System

Notes and Additional Readings

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne performance.

2. Defi ne performance appraisal.

3. Explain management by objectives.

4. Describe multi-rater assessment.

5. Describe the graphic rating scale.

6. Explain critical-incident appraisal.

7. Describe essay appraisal.

8. Describe the checklist method of

performance appraisal.

9. Explain the forced-choice method of

performance appraisal.

10. Describe the work standards

approach to performance appraisal.

11. Defi ne leniency, central tendency,

recency, and the halo effect.

Performance management systems that are directly tied to an organization’s reward system

provide a powerful incentive for employees to work diligently and creatively toward achieving

organizational objectives. When properly designed and implemented, performance management

systems not only let employees know how well they are presently performing but also clarify

what needs to be done to improve performance.

214 Part Three Training and Developing Employees

UNDERSTANDING PERFORMANCE

Performance refers to the degree of accomplishment of the tasks that make up an employee’s job. It refl ects how well an employee is fulfi lling the requirements of a job. Often confused

with effort, which refers to energy expended, performance is measured in terms of results. For

example, a student may exert a great deal of effort in preparing for an examination and still

make a poor grade. In such a case the effort expended was high, yet the performance was low.

Determinants of Performance Job performance is the net effect of an employee’s effort as modifi ed by abilities and role (or

task) perceptions. Thus, performance in a given situation can be viewed as resulting from

the interrelationships among effort, abilities, and role perceptions. Effort, which results from

being motivated, refers to the amount of energy (physical and/or mental) an individual uses

in performing a task. Abilities are personal characteristics used in performing a job. Abilities

usually do not fl uctuate widely over short periods of time. Role (task) perceptions refer to

the direction(s) in which individuals believe they should channel their effort on their jobs.

The activities and behaviors people believe are necessary in the performance of their jobs

defi ne their role perceptions.

To attain an acceptable level of performance, a minimum level of profi ciency must exist

in each of the performance components. Similarly, the level of profi ciency in any one per-

formance component can place an upper boundary on performance. If employees put forth

tremendous effort and have excellent abilities but lack a clear understanding of their roles,

performance will probably not be good in the eyes of their managers. Much work will be

produced, but it will be misdirected. Likewise, an employee who puts forth a high degree of

effort and understands the job but lacks ability probably will rate low on performance. A fi nal

possibility is the employee who has a good ability and understanding of the role but is lazy and

expends little effort. This employee’s performance will likely be low. Of course, an employee

can compensate up to a point for a weakness in one area by being above average in one or both

of the other areas.

Environmental Factors as Performance Obstacles Other factors beyond the control of the employee can also stifl e performance. Although

such obstacles are sometimes used merely as excuses, they are often very real and should be

recognized. Some of the more common potential performance obstacles include the employ-

ee’s lack of time or confl icting demands upon it, inadequate work facilities and equipment,

restrictive policies that affect the job, lack of cooperation from others, type of supervision,

temperature, lighting, noise, machine or equipment pacing, shifts, and even luck.

Environmental factors should be viewed not as direct determinants of individual perfor-

mance but as modifying the effects of effort, ability, and direction. For example, poor ventila-

tion or worn-out equipment may well affect the effort an individual expends. Unclear policies

or poor supervision can also produce misdirected effort. Similarly, a lack of training can result

in underutilized abilities. One of management’s greatest responsibilities is to provide employ-

ees with adequate working conditions and a supportive environment to eliminate or minimize

performance obstacles.

Responsibilities of the Human Resource Department in Performance Management Performance management systems require a coordinated effort between the human resource

department and the managers of the organization who are responsible for conducting perfor-

mance appraisals. Generally, the responsibilities of the human resource department are to

1. Design the performance management system and select the methods and forms to be used

for appraising employees.

2. Train managers in conducting performance appraisals.

3. Maintain a reporting system to ensure that appraisals are conducted on a timely basis.

performance Degree of accomplishment

of the tasks that make up an

employee’s job.

215

4. Maintain performance appraisal records for individual employees.

The responsibilities of managers in performance appraisals are to

1. Evaluate the performance of employees.

2. Complete the forms used in appraising employees and return them to the human resource

department.

3. Review appraisals with employees.

4. Establish a plan for improvement with employees.

PERFORMANCE APPRAISAL: DEFINITION AND USES

Performance appraisal is the process of evaluating and communicating to an employee how he or she is performing the job and establishing a plan of improvement. When properly

conducted, performance appraisals not only let employees know how well they are perform-

ing but also infl uence their future level of effort and task direction. Effort should be enhanced

if good performance is positively reinforced. The task perception of the employee should be

clarifi ed through establishing a plan for improvement.

One of the most common uses of performance appraisals is for making administrative

decisions relating to promotions, fi rings, layoffs, and merit pay increases.1 For example, an

employee’s present job performance is often the most signifi cant consideration for determin-

ing whether to promote the person. While successful performance in the present job does

not necessarily mean an employee will be an effective performer in a higher-level job, perfor-

mance appraisals do provide some predictive information.

Performance appraisal information can also provide needed input for determining both

individual and organizational training and development needs. For example, this information

can be used to identify an individual employee’s strengths and weaknesses. These data can

then be used to help determine the organization’s overall training and development needs. For

an individual employee, a completed performance appraisal should include a plan outlining

specifi c training and development needs.

Another important use of performance appraisals is to encourage performance improve-

ment. In this regard, performance appraisals are used as a means of communicating to

employees how they are doing and suggesting needed changes in behavior, attitude, skills,

or knowledge. This type of feedback clarifi es for employees the manager’s job expectations.

Often this feedback must be followed by coaching and training by the manager to guide an

employee’s work efforts.2 The development of a performance improvement plan is discussed

in more depth later in this chapter.

Finally, two other important uses of information generated through performance appraisals

are (1) input to the validation of selection procedures and (2) input to human resource plan-

ning. Both of these topics were described in detail in earlier chapters. HRM in Action 11.1

shows the use of performance appraisals in three central New Jersey hospitals.

performance appraisal Process of evaluating and

communicating to an employee

how he or she is performing the

job and establishing a plan for

improvement.

EVALUATION OF DOCTORS About fi ve years ago, physicians and executives at three

central New Jersey hospitals that encompass Meridian

Health were concerned that scorecards developed by health

plans and others might portray its doctors unfairly. So Jeffrey

Borell, Meridian’s manager of outcomes measurement, and

members of Meridian’s teaching hospital staff at Jersey Shore

University Medical Center, created their own scorecard from

scratch. The scorecards compare physician performance to

members of his or her own group, members of the same

specialty who work at their hospital, and to other doctors

who treat similar conditions at their hospital. For readability

and ease of use, Borell and his team limited color-coded

scorecards to one page. Next year, Meridian plans to

include patient satisfaction. One goal of the scorecards is to

standardize medical practices more quickly than what has

taken place in the past. While some Meridian doctors agree

with the need to standardize medicine, they take issue with

the methods used to grade them.

Sources: Adapted from Maureen Glabman, “Keeping Score: Scorecards, Profi les and Report Cards Rapidly Expanding to Track Physician Perfor mance,” Physician Executive, November/December 2005, pp. 26–32.

HRM in Action 11.1

216 Part Three Training and Developing Employees

A concern in organizations is how often to conduct performance appraisals. There seems to

be no real consensus on how frequently performance appraisals should be done, but in general

the answer is as often as necessary to let employees know what kind of job they are doing

and, if performance is not satisfactory, the measures that must be taken for improvement. For

many employees, this cannot be accomplished through one annual performance appraisal.

Therefore, it is recommended that for most employees, informal performance appraisals be

conducted two or three times a year in addition to an annual formal performance appraisal.

PERFORMANCE APPRAISAL METHODS

Whatever method of performance appraisal an organization uses, it must be job related. There-

fore, prior to selecting a performance appraisal method, an organization must conduct job

analyses and develop job descriptions. After this, one or more of the following performance

appraisal methods can be used.

This section will discuss each of the following performance appraisal methods:

1. Management by objectives (MBO).

2. Multi-rater assessment (or 360-degree feedback).

3. Graphic rating scale.

4. Behaviorally anchored rating scale (BARS).

5. Critical-incident appraisal.

6. Essay appraisal.

7. Checklist.

8. Forced-choice rating.

9. Ranking methods.

10. Work standards approach.

Management by Objectives (MBO) Management by objectives (MBO) is more commonly used with professional and managerial employees. Other names for MBO include management by results, performance

management, results management, and work planning and review program.

The MBO process typically consists of the following steps:

1. Establishing clear and precisely defi ned statements of objectives for the work to be done by

an employee.

2. Developing an action plan indicating how these objectives are to be achieved.

3. Allowing the employee to implement the action plan.

4. Measuring objective achievement.

5. Taking corrective action when necessary.

6. Establishing new objectives for the future.

For an MBO system to be successful, several requirements must be met. First, objectives

should be quantifi able and measurable; objectives whose attainment cannot be measured or at

least verifi ed should be avoided where possible. Objectives should also be challenging yet achiev-

able, and they should be expressed in writing and in clear, concise, unambiguous l anguage.

Table 11.1 presents examples of how some poorly stated objectives might be better stated.

Table 11.2 shows some typical areas in which a supervisor might set objectives.

MBO requires that employees participate in the objective-setting process. The employ-

ee’s active participation is also essential in developing the action plan. Managers who set an

employee’s objectives without input and then ask the employee, “You agree to these, don’t

you?” are unlikely to get high levels of employee commitment.

A fi nal requirement for the successful use of MBO is that the objectives and action plan

must serve as a basis for regular discussions between the manager and the employee concern-

ing the employee’s performance. These regular discussions provide an opportunity for the

manager and employee to discuss progress and modify objectives when necessary.3

management by objectives (MBO) Consists of establishing

clear and precisely defi ned

statements of objectives

for the work to be done by

an employee, establishing

an action plan indicating

how these objectives are

to be achieved, allowing

the employee to implement

the action plan, measuring

objective achievement,

taking corrective action when

necessary, and establishing new

objectives for the future.

Chapter 11 Performance Management Systems 217

Multi-Rater Assessment (or 360-Degree Feedback) Another method of performance appraisal is called multi-rater assessment, or 360-degree

feedback. With this method, managers, peers, customers, suppliers, or colleagues are asked to

complete questionnaires on the employee being assessed. The person assessed also completes

a questionnaire. The questionnaires are generally lengthy. Typical questions are: “Are you

crisp, clear, and articulate? Abrasive? Spreading yourself too thin?” The human resources de-

partment provides the results to the employee, who in turn gets to see how his or her opinion

differs from those of the group doing the assessment.4 HRM in Action 11.2 describes the lack

of use of 360-degree feedback.

Graphic Rating Scale With the graphic rating scale method, the rater assesses an employee on factors such as quantity of work, dependability, job knowledge, attendance, accuracy of work, and

cooperativeness. Graphic rating scales include both numerical ranges and written descrip-

tions. Table 11.3 gives an example of some items that might be included on a graphic rating

scale that uses written descriptions.

The graphic rating scale method is subject to some serious weaknesses. One potential

weakness is that evaluators are unlikely to interpret written descriptions in the same man-

ner due to differences in background, experience, and personality. Another potential problem

relates to the choice of rating categories. It is possible to choose categories that have little

relationship to job performance or to omit categories that have a signifi cant infl uence on job

performance.

Behaviorally Anchored Rating Scale (BARS) The behaviorally anchored rating scale (BARS) method of performance appraisal is designed to assess behaviors required to successfully perform a job. The focus of BARS and,

to some extent, the graphic rating scale and checklist methods is not on performance outcomes

but on functional behaviors demonstrated on the job. The assumption is that these functional

behaviors will result in effective job performance.

graphic rating scale Method of performance

appraisal that requires the rater

to indicate on a scale where

the employee rates on factors

such as quantity of work,

dependability, job knowledge,

and cooperativeness.

behaviorally anchored rating scale (BARS) Method of performance

appraisal that determines an

employee’s level of performance

based on whether or not certain

specifi cally described job

behaviors are present.

TABLE 11.2 Typical Areas

of Supervisory

Objectives

1. Production or output:

Usually expressed as number of units per time period.

Example: Our objective is to average 20 units per hour over the next year.

2. Quality:

Usually expressed as number of rejects, number of customer complaints, amount of scrap.

Example: Our objective is to produce fewer than 10 rejects per week for the next six months.

3. Cost:

Usually expressed as dollars per unit produced or dollars per unit of service offered.

Example: Our objective is that the cost of each widget produced will average less than $5 over the

next three months.

4. Personnel:

Usually expressed in terms of turnover, absenteeism, tardiness.

Example: Our objective is to average fewer than three days of absenteeism per employee per year.

5. Safety:

Usually expressed in terms of days lost due to injury.

Example: Our objective is to reduce the number of days lost due to injury this year by 10 percent.

TABLE 11.1 Examples of How

to Improve

Work Objectives

Poor: To maximize production.

Better: To increase production by 10 percent within the next three months.

Poor: To reduce absenteeism.

Better: To average no more than three absent days per employee per year.

Poor: To waste less raw material.

Better: To waste no more than 2 percent of raw material.

Poor: To improve the quality of production.

Better: To produce no more than 2 rejects per 100 units of production.

218

HRM in Action 11.2

PROMOTING EMPLOYEES MISMANAGED Some companies feel that the diffi cult part of fi nding

upper management is in selecting and promoting existing

employees to new higher management positions. Research,

however, does not support this theory. A survey conducted

by The Institute for Corporate Productivity showed only

24 percent of 324 employee respondents rated their company

as good in terms of transitioning employees to managers.

Sixty percent of those employees surveyed said their

companies do not utilize 360-degree feedback mechanisms

or other performance metrics to gauge the transitional

success of new managers. This is cause for concern because

many of the promoted employees are at the point of taking

their new position very seriously and want to achieve in their

new position, but their company is not necessarily giving

them the tools to be successful. Companies argue that these

metrics are costly, but in the long run many experts feel

these companies who shortchange their managers’ training

will pay the far more costly price of mismanagement.

Source: Adapted from Aparna Nancheria, “Mismanaged Transitions,” Training & Development, October 29, 2009, p. 18.

Most BARSs use the term job dimension to mean those broad categories of duties and

responsibilities that make up a job. Each job is likely to have several job dimensions, and

separate scales must be developed for each. Table 11.4 illustrates a BARS written for the

job dimension found in many managerial jobs of planning, organizing, and scheduling

project assignments and due dates. Scale values appear on the left side of the table and defi ne

specifi c categories of performance. Anchors, which appear on the right side, are specifi c

written statements of actual behaviors that, when exhibited on the job, indicate the level of

performance on the scale opposite that particular anchor. As the anchor statements appear

beside each scale value, they are said to “anchor” each scale value along the scale.

Rating performance using a BARS requires the rater to read the list of anchors on each

scale to fi nd the group of anchors that best describe the employee’s job behavior during the

period being reviewed. The scale value opposite the group of anchors is then checked. This

TABLE 11.3 Sample Items on a Graphic

Rating Scale

Quantity of work—the amount of work an employee does in a workday

( ) ( ) ( ) ( ) ( )

Does not meet Does just Volume of work Very Has a superior

minimum enough to get is satisfactory. industrious, work

requirements. by. does more than production

is required. record.

Dependability—the ability to do required jobs well with a minimum of supervision

( ) ( ) ( ) ( ) ( )

Requires close Sometimes Usually Requires little Requires

supervision; is requires completes supervision; is absolute

unreliable. prompting. necessary tasks reliable. minimum of

with reasonable supervision.

promptness.

Job knowledge—information an employee should have on work duties for satisfactory job performance

( ) ( ) ( ) ( ) ( )

Is poorly Lacks Is moderately Understands all Has complete

informed about knowledge of informed; can phases of job. mastery of all

work duties. some phases of answer most phases of job.

job. questions about

the job.

Accuracy—the correctness of work duties performed

( ) ( ) ( ) ( ) ( )

Makes frequent Careless, often Usually Requires little Requires

errors. makes errors. accurate, makes supervision; is absolute

only average exact and minimum of

number of precise most of supervision; is

mistakes. the time. almost always

accurate.

Chapter 11 Performance Management Systems 219

process is followed for all the identifi ed dimensions of the job. The total evaluation combines

the scale values checked for all job dimensions.

BARSs are normally developed through a series of meetings that both managers and job

incumbents attend. Three steps are usually followed:

1. Managers and job incumbents identify the relevant job dimensions for the job.

2. Managers and job incumbents write behavioral anchors for each job dimension. As many

anchors as possible should be written for each dimension.

3. Managers and job incumbents reach a consensus concerning the scale values to be used and

the grouping of anchor statements for each scale value.

The use of a BARS can result in several advantages. First, BARSs are developed through

the active participation of both managers and job incumbents. This increases the likelihood

that the method will be accepted. Second, the anchors are developed from the observations

and experiences of employees who actually perform the job. Finally, BARSs can be used to

provide specifi c feedback concerning an employee’s job performance.

One major drawback to the use of BARSs is that they take considerable time and commit-

ment to develop. Furthermore, separate forms must be developed for different jobs. From a

technical point of view, BARS is a graphic rating scale that was developed to help overcome

errors in performance appraisals that are discussed later in this chapter.

Critical-Incident Appraisal The critical-incident appraisal method requires the evaluator to keep a written record of incidents as they occur. The incidents recorded should involve job behaviors that illustrate

both satisfactory and unsatisfactory performance of the employee being rated. As they are

recorded over time, the incidents provide a basis for evaluating performance and providing

feedback to the employee.

The main drawback to this approach is that the rater is required to jot down incidents

regularly, which can be burdensome and time consuming. Also, the defi nition of a critical

incident is unclear and may be interpreted differently by different people. This method may

critical-incident appraisal Method of performance

appraisal in which the rater

keeps a written record of

incidents that illustrate both

positive and negative employee

behaviors. The rater then uses

these incidents as a basis for

evaluating the employee’s

performance.

TABLE 11.4 Example of a Behaviorally

Anchored Rating Scale

Source: C. E. Schneier and R. W.

Beatty, from Review of Public Personnel

Reprinted by permission of Sage

Publications, Inc.

Scale Values Anchors

7[ ] Excellent Develops a comprehensive project plan, documents it well, obtains

required approval, and distributes the plan to all concerned.

6[ ] Very good Plans, communicates, and observes milestones; states week by week

where the project stands relative to plans. Maintains up-to-date charts

of project accomplishments and backlogs and uses these to optimize

any schedule modifi cations required.

Experiences occasional minor operational problems but communicates

effectively.

5[ ] Good Lays out all the parts of a job and schedules each part; seeks to beat

schedule and will allow for slack.

Satisfi es customers’ time constraints; time and cost overruns occur

infrequently.

4[ ] Average Makes a list of due dates and revises them as the project progresses,

usually adding unforeseen events; instigates frequent customer

complaints.

May have a sound plan, but does not keep track of milestones; does

not report slippages in schedule or other problems as they occur.

3[ ] Below average Plans are poorly defi ned; unrealistic time schedules are common.

Cannot plan more than a day or two ahead; has no concept of a

realistic project due date.

2[ ] Very poor Has no plan or schedule of work segments to be performed.

Does little or no planning for project assignments.

1[ ] Unacceptable Seldom, if ever, completes project because of lack of planning, and

does not seem to care.

Fails consistently due to lack of planning and does not inquire about

how to improve.

220 Part Three Training and Developing Employees

also lead to friction between the manager and employees when the employees believe the

manager is keeping a “book” on them.

Essay Appraisal The essay appraisal method requires that the evaluation describe an employee’s performance in written narrative form. Instructions are often provided as to the topics to be covered. A

typical essay appraisal question might be “Describe, in your own words, this employee’s

performance, including quantity and quality of work, job knowledge, and ability to get along

with other employees. What are the employee’s strengths and weaknesses?” The primary

problem with essay appraisals is that their length and content can vary considerably, depending

on the rater. For instance, one rater may write a lengthy statement describing an employee’s

potential and little about past performance; another rater may concentrate on an employee’s

past performance. Thus, essay appraisals are diffi cult to compare. The writing skill of the

appraiser can also affect the appraisal. An effective writer can make an average employee look

better than the actual performance warrants. It is possible to use a critical-incident method to

support the essay methods, however.

Checklist In the checklist method, the rater makes yes-or-no responses to a series of questions concern- ing the employee’s behavior. Table 11.5 lists some typical questions. The checklist can also

assign varying weights to each question.

Normally the human resource department keeps the scoring key for the checklist method;

the evaluator is generally not aware of the weights associated with each question. But raters can

see the positive or negative connotation of each question, which introduces bias. Additional

drawbacks to the checklist method are that it is time-consuming to assemble the questions for

each job category, a separate listing of questions must be developed for each job category, and

the checklist questions can have different meanings for different raters.

Forced-Choice Rating Many variations of the forced-choice rating method exist. The most common practice requires the evaluator to rank a set of statements describing how an employee carries out the

duties and responsibilities of the job. Table 11.6 illustrates a group of forced-choice state-

ments. The statements are normally weighted, and the rater generally does not know the

weights. After the rater ranks all the forced-choice statements, the human resource department

applies the weights and computes a score.

This method attempts to eliminate evaluator bias by forcing the rater to rank statements that

are seemingly indistinguishable or unrelated. However, the forced-choice method has been

essay appraisal Method of performance

appraisal in which the rater

prepares a written statement

describing an employee’s

strengths, weaknesses, and past

performance.

checklist Method of performance

appraisal in which the rater

answers with a yes or no a

series of questions about the

behavior of the employee being

rated.

forced-choice rating Method of performance

appraisal that requires the rater

to rank a set of statements

describing how an employee

carries out the duties and

responsibilities of the job.

TABLE 11.5 Sample Checklist Questions

Yes No

1. Does the employee lose his or her temper in public? _____ _____

2. Does the employee play favorites? _____ _____

3. Does the employee praise employees in public when they have done

a good job? _____ _____

4. Does the employee volunteer to do special jobs? _____ _____

TABLE 11.6 Sample Set of Forced-

Choice Statements

Instructions: Rank the following statements according to how they describe the manner in which this

employee carries out duties and responsibilities. Rank 1 should be given to the most descriptive, and

Rank 5 to the least descriptive. No ties are allowed.

Rank Description

_____ Is easy to get acquainted with.

_____ Places great emphasis on people.

_____ Refuses to accept criticism.

_____ Thinks generally in terms of money.

_____ Makes decisions quickly.

Chapter 11 Performance Management Systems 221

reported to irritate raters, who feel they are not being trusted. Furthermore, the results of the

forced-choice appraisal can be diffi cult to communicate to employees.

Ranking Methods When it becomes necessary to compare the performance of two or more employees, ranking

methods can be used. Three of the more commonly used ranking methods are alternation, paired comparison, and forced distribution.

Alternation Ranking

The alternation ranking method lists the names of the employees to be rated on the left side

of a sheet of paper. The rater chooses the most valuable employee on the list, crosses that

name off the left-hand list, and puts it at the top of the column on the right-hand side of the

paper. The appraiser then selects and crosses off the name of the least valuable employee

from the left-hand column and moves it to the bottom of the right-hand column. The rater

repeats this process for all of the names on the left-hand side of the paper. The resulting

list of names in the right-hand column gives a ranking of the employees from most to least

valuable.

Paired Comparison Ranking

Paired comparison ranking is best illustrated with an example. Suppose a rater is to evalu-

ate six employees. The names of these individuals are listed on the left side of a sheet of

paper. The evaluator then compares the fi rst employee with the second employee on a chosen

performance criterion, such as quantity of work. If he or she believes the fi rst employee has

produced more work than the second employee, a check mark is placed by the fi rst employee’s

name. The rater then compares the fi rst employee to the third, fourth, fi fth, and sixth employee

on the same performance criterion, placing a check mark by the name of the employee who

produced the most work in each paired comparison. The process is repeated until each em-

ployee has been compared to every other employee on all of the chosen performance criteria.

The employee with the most check marks is considered to be the best performer. Likewise,

the employee with the fewest check marks is the lowest performer. One major problem with

the paired comparison method is that it becomes unwieldy when comparing more than fi ve or

six employees.

Forced Distribution

The forced-distribution method requires the rater to compare the performance of employees

and place a certain percentage of employees at various performance levels. It assumes the

performance level in a group of employees will be distributed according to a bell-shaped, or

“normal,” curve. Figure 11.1 illustrates how the forced-distribution method works. The rater is

required to rate 60 percent of the employees as meeting expectations, 20 percent as exceeding

expectations, and 20 percent as not meeting expectations.

ranking methods Methods of performance

appraisal in which the

performance of an employee

is ranked relative to the

performance of others.

FIGURE 11.1 Forced-Distribution Curve

N u m

b e r

o f e m

p lo

ye e s

Does not

meet

expectations

(20%)

Meets expectations

(60%)

Performance evaluation ratings

Exceeds

expectations

(20%)

222 Part Three Training and Developing Employees

One problem with the forced-distribution method is that in small groups of employees, a

bell-shaped distribution of performance may not be applicable. Even where the distribution

may approximate a normal curve, it is probably not a perfect curve. This means some employees

probably will not be rated accurately. Also, ranking methods differ dramatically from the other

methods in that one employee’s performance evaluation is a function of the performance of

other employees in the job. Furthermore, the Civil Service Reform Act does not permit the use

of ranking methods for federal employees.

Work Standards The work standards approach to performance appraisal is most frequently used for production employees and is basically a form of goal setting for these employees. It involves

setting a standard or an expected level of output and then comparing each employee’s

performance to the standard. Generally, work standards should refl ect the average output of

a typical employee. Work standards attempt to defi ne a fair day’s output. Several methods

can be used to set work standards. Some of the more common ones are summarized in

Table 11.7.

An advantage of the work standards approach is that the performance review is based on

highly objective factors. Of course, to be effective, the affected employees must view the

standards as being fair. The most serious criticism of work standards is a lack of comparability

of standards for different job categories.

POTENTIAL ERRORS IN PERFORMANCE APPRAISALS

Several common errors have been identifi ed in performance appraisals. Leniency is the grouping of ratings at the positive end instead of spreading them throughout the performance

scale. The central tendency occurs when appraisal statistics indicate that most employees are appraised as being near the middle of the performance scale. Recency occurs when evaluations are based on work performed most recently—generally work performed one

to two months prior to evaluation. Leniency, central tendency, and recency errors make it

diffi cult, if not impossible, to separate the good performers from the poor performers. In

addition, these errors make it diffi cult to compare ratings from different raters. For example,

it is possible for a good performer who is evaluated by a manager committing central

tendency errors to receive a lower rating than a poor performer who is rated by a manager

committing leniency errors.

Another common error in performance appraisals is the halo effect. This occurs when a rater allows a single prominent characteristic of an employee to infl uence his or her judgment

on each separate item in the performance appraisal. This often results in the employee receiving

approximately the same rating on every item.

Personal preferences, prejudices, and biases can also cause errors in performance apprais-

als. Managers with biases or prejudices tend to look for employee behaviors that conform to

their biases. Appearance, social status, dress, race, and sex have infl uenced many performance

appraisals. Managers have also allowed fi rst impressions to infl uence later judgments of an

work standards approach Method of performance

appraisal that involves setting a

standard or an expected level of

output and then comparing each

employee’s level to the standard.

leniency Occurs in performance

appraisals when a manager’s

ratings are grouped at the

positive end instead of

being spread throughout the

performance scale.

central tendency Tendency of a manager to rate

most employees’ performance

near the middle of the

performance scale.

recency Tendency of a manager to

evaluate employees on work

performed most recently—one

or two months prior to

evaluation.

halo effect Occurs when a rater allows a

single prominent characteristic

of an employee to infl uence

his or her judgment on

each separate item in the

performance appraisal.

TABLE 11.7 Frequently Used Methods

for Setting Work Standards

Method Areas of Applicability

Average production of work groups When tasks performed by all employees are the

same or approximately the same.

Performance of specially selected employees When tasks performed by all employees are

basically the same and it would be cumbersome

and time-consuming to use the group average.

Time study When jobs involve repetitive tasks.

Work sampling Noncyclical types of work where many different tasks

are performed and there is no set pattern or cycle.

Expert opinion When none of the more direct methods (described

above) apply.

Chapter 11 Performance Management Systems 223

employee. First impressions are only a sample of behavior; however, people tend to retain

these impressions even when faced with contradictory evidence.5

OVERCOMING ERRORS IN PERFORMANCE APPRAISALS

As the preceding discussion indicates, the potential for errors in performance appraisals

is great. One approach to overcoming these errors is to make refi nements in the design of

appraisal methods. For example, one could argue that the forced-distribution method of

performance appraisal attempts to overcome the errors of leniency and central tendency. In

addition, behaviorally anchored rating scales are designed to reduce halo, leniency, and central

tendency errors because they provide managers with specifi c examples of performance against

which to evaluate an employee. Unfortunately, because refi ned instruments frequently do not

overcome all the obstacles, it does not appear likely that refi ning appraisal instruments will

totally overcome errors in performance appraisals.

A more promising approach to overcoming errors in performance appraisals is to improve

the skills of raters. Suggestions on the specifi c training that should be given to evaluators

are often vague, but they normally emphasize that evaluators should be trained to observe

behavior more accurately and judge it more fairly.

More research is needed before a defi nitive set of topics for rater training can be established.

However, at a minimum, raters should receive training in the performance appraisal method(s)

used by the company, the importance of the rater’s role in the total appraisal process, the use

of performance appraisal information, and the communication skills necessary to provide

feedback to the employee.6

PROVIDING FEEDBACK THROUGH THE APPRAISAL INTERVIEW

After one of the previously discussed methods for developing an employee’s performance

appraisal has been used, the results must be communicated to the employee. Unless this

interview is properly conducted, it can and frequently does result in an unpleasant experience

for both manager and employee.

To prepare for the interview, the manager should answer the following questions:

1. What results should the interview achieve?

2. What good contributions is the employee making?

3. Is the employee working up to his or her potential?

4. Is the employee clear about the manager’s performance expectations?

5. What training does the employee need to improve?

6. What strengths does the employee have that can be built on or improved?

In addition, the manager should remember several basic guidelines in conducting the interview:

1. The manager must know the employee’s job description.

2. The evaluation must be based on the employee’s performance and not on his or her

personality.

3. The manager must be positive and build on the employee’s strengths.

4. The manager must be candid and specifi c.

5. The manager must listen to the employee as well as presenting her or his own views.

6. The manager must elicit employee feedback on how to improve performance.

Some of the more important factors infl uencing the success or failure of appraisal interviews

are the following:

1. The more employees are allowed to participate in the appraisal process, the more satisfi ed

they will be with the appraisal interview and with the manager and the more likely they will

be to accept and meet performance improvement objectives.7

Employers must evaluate employees based on their overall performance to avoid potential errors. © Brand X Pictures/PunchStock

224

2. The more a manager uses positive motivational techniques (e.g., recognizing and praising

good performance), the more satisfi ed the employee is likely to be with the appraisal

interview and with the manager.

3. When the manager and the employee mutually set specifi c performance improvement

objectives more improvement in performance results than when the manager uses a general

discussion or criticism.

4. Discussing and solving problems that may be hampering the employee’s current job

performance improve the employee’s performance.

5. The more thought and preparation that both the manager and the employee devote before

the appraisal interview, the greater the benefi ts of the interview.

6. The more the employee perceives that performance appraisal results are tied to organizational

rewards, the more benefi cial the interview will be.

Many of the variables that have been identifi ed and associated with positive outcomes

from performance appraisal interviews are behaviors and skills that managers responsible for

conducting the interviews can learn. The human resource department should play a key role

in developing and implementing these training programs. HRM in Action 11.3 describes the

components of a performance improvement plan.

DEVELOPING PERFORMANCE IMPROVEMENT PLANS

Earlier in this chapter, we stated that a completed performance appraisal should include a

performance improvement plan. This important step is often ignored. However, managers

must recognize that an employee’s development is a continuous cycle of setting performance

goals, providing training necessary to achieve the goals, assessing performance related to

accomplishing the goals, and then setting new, higher goals.8 A performance improvement

plan consists of the following components:

1. Where are we now? This question is answered in the performance appraisal process.

2. Where do we want to be? This requires the evaluator and the person being evaluated to

mutually agree on the areas that can and should be improved.

3. How does the employee get from where he or she is now to where he or she wants to be?

This component is critical to the performance improvement plan. The manager and

employee must agree upon specifi c steps to be taken. The steps may include training the

employee will need to improve his or her performance and how the evaluator will help

the employee achieve the performance goals.

HRM in Action 11.3

PERFORMANCE IMPROVEMENT PLAN There are 10 key items to focus on when attempting to

improve a performance problem and looking for ways

to improve the performance of an employee. The 10 items

to remember are as follows:

1. Defi ne the problem.

2. Defi ne the duties or behaviors where improvement is

required.

3. Establish the priorities of the duties.

4. Identify the standards upon which performance will be

measured for each of the duties identifi ed.

5. Establish short-range and long-range goals and

timetables for accomplishing change in performance/

behavior with employee.

6. Develop an action plan.

7. Establish periodic review dates.

8. Measure actual performance against the standards to

determine if expectations were met or exceeded.

9. Establish a performance improvement fi le for the

employee.

10. Put the performance improvement plan in writing.

Source: Adapted from Indiana University Human Resources, “Performance Improvement Plan,” Indiana University Human Resource Services, 2009.

Chapter 11 Performance Management Systems 225

PERFORMANCE APPRAISAL AND THE LAW

Title VII of the Civil Rights Act permits the use of a bona fi de performance appraisal system.

Performance appraisal systems generally are not considered to be bona fi de when their appli-

cation results in adverse effects on minorities, women, or older employees.

A number of court cases have ruled that performance appraisal systems used by orga nizations

were discriminatory and not job related. In one case involving layoffs, Brito et al. v. Zia Com-

pany, Spanish-surnamed workers were reinstated with back pay because the company had used

a performance appraisal system of unknown validity in an uncontrolled and unstandardized

manner. In Mistretta v. Sandia Corporation, performance appraisals were used as the main

basis of layoff decisions, affecting a disproportionate number of older employees. The judge

awarded the plaintiffs double damages plus all court costs.

In Chamberlain v. Bissel, Inc., an evaluator expressed dissatisfaction with an employee’s

performance but did not inform the employee that his job was in jeopardy. On being

terminated, the employee sued the company, claiming he had never been warned that he

mi ght be dismissed. The Michigan state court ruled the company had been negligent in

not informing the employee that he might be fi red and awarded the employee $61,354 in

damages.

In Price Waterhouse v. Hopkins, the plaintiff, Ann Hopkins, charged she was denied a part-

nership at Price Waterhouse because of sexual stereotyping. Although Hopkins had generated

more new business and logged more billable hours than any other candidate for partner, she

was denied partnership consideration because the partners concluded she lacked the proper

interpersonal skills. The court ruled that the interpersonal skills category was a legitimate

performance evaluation measure, but it found that some of the evaluations of Hopkins were

sexual stereotyping. For example, one member of the fi rm advised Hopkins to walk, talk,

and dress in a more feminine fashion. In its decision, the Supreme Court found that Price

Waterhouse had violated Title VII of the Civil Rights Act and stated that evaluating employees

by assuming or insisting that they match a stereotype was illegal.

Many suggestions have been offered for making performance appraisal systems more

legally acceptable. Some of these include (1) deriving the content of the appraisal system

from job analyses; (2) emphasizing work behaviors rather than personal traits; (3) ensuring

that the results of appraisals are communicated to employees; (4) ensuring that employees

are allowed to give feedback during the appraisal interview; (5) training managers in how

to conduct proper evaluations; (6) ensuring that appraisals are written, documented, and

retained; and (7) ensuring that personnel decisions are consistent with the performance

appraisals.9

1. Defi ne performance.

Performance refers to the degree of accomplishment of the tasks that make up an

employee’s job.

2. Defi ne performance appraisal.

Performance appraisal involves determining and communicating to an employee how he

or she is performing the job and, ideally, establishing a plan of improvement.

3. Explain management by objectives.

Management by objectives (MBO) consists of establishing clear and precisely defi ned

statements of objectives for the work to be done by an employee, developing an action

plan indicating how these objectives are to be achieved, allowing the employee to

implement this action plan, measuring objective achievement, taking corrective action

when necessary, and establishing new objectives for the future. MBO also requires that

employees participate in the objective-setting process.

4. Describe multi-rater assessment.

Multi-rater assessment is a method of assessment under which managers, customers, and

colleagues evaluate performance.

Summary of Learning Objectives

226 Part Three Training and Developing Employees

5. Describe the graphic rating scale.

With this method, the rater assesses an employee on factors such as quantity of work com-

pleted, dependability, job knowledge, attendance, accuracy of work, and coopera tiveness.

6. Explain critical-incident appraisal.

This method requires the rater to keep a written record of incidents as they occur.

Incidents should involve job behaviors that illustrate both satisfactory and unsatisfactory

performances of the employee being rated.

7. Describe essay appraisal.

The essay appraisal method requires that the rater describe an employee’s performance in

narrative form.

8. Describe the checklist method of performance appraisal.

In this method, the rater makes yes-or-no responses to a series of questions concerning

the employee’s behavior.

9. Explain the forced-choice method of performance appraisal.

In this method, the rater is required to rank a set of statements describing how an employee

carries out the duties and responsibilities of the job.

10. Describe the work standards approach to performance appraisal.

The work standards approach involves setting a standard or expected level of output and

then comparing each employee’s performance to the standard.

11. Defi ne leniency, central tendency, recency, and the halo effect.

Leniency refers to grouping ratings at the positive end of a curve instead of spreading

them throughout the performance scale. Central tendency occurs when appraisal statistics

indicate that most employees are appraised as being near the middle of the performance

scale. Recency occurs when evaluations are based only on work performed most

recently. The halo effect occurs when a rater allows a single prominent characteristic of

an employee to infl uence his or her judgment on each separate item in the performance

appraisal.

behaviorally anchored rating

scale (BARS), 217

central tendency, 222

checklist, 220

critical-incident

appraisal, 219

essay appraisal, 220

forced-choice rating, 220

graphic rating scale, 217

halo effect, 222

leniency, 222

management by objectives

(MBO), 216

performance, 214

performance appraisal, 215

ranking methods, 221

recency, 222

work standards

approach, 222

Key Terms

1. Defi ne performance appraisal.

2. What is performance? What factors infl uence an employee’s level of performance?

3. Give at least three uses of performance appraisal information.

4. Describe the following methods used in performance appraisal:

a. Management by objectives.

b. Multi-rater assessment.

c. Graphic rating scale.

d. Behaviorally anchored rating scale (BARS).

e. Critical-incident.

f. Essay.

g. Checklist.

h. Forced-choice rating.

Review Questions

Chapter 11 Performance Management Systems 227

i. Ranking methods.

j. Work standards.

5. Defi ne the following types of performance appraisal errors:

a. Leniency.

b. Central tendency.

c. Recency.

d. Halo effect.

6. Outline some conditions associated with the success or failure of appraisal interviews.

7. Describe some conditions that might make a performance appraisal system illegal.

8. Outline some recommendations for ensuring a legally acceptable performance appraisal

system.

1. How often do you think performance appraisals should be conducted?

2. What do you think about discussing salary raises and promotions during the performance

appraisal interview?

3. What performance appraisal method do you believe would best apply to the evaluation of a

college professor?

4. Was your last exam a performance appraisal? Use your last exam to discuss both the reasons

for using performance appraisals and the limitations of such appraisals.

Incident 11.1

The College Admissions Offi ce

Bob Luck was hired to replace Alice Carter as administrative assistant in the admissions

offi ce of Claymore Community College. Before leaving, Alice had given a month’s notice

to the director of admissions, hoping this would allow ample time to locate and train her

replacement. Alice’s responsibilities included preparing and mailing transcripts at the request

of students, mailing information requested by people interested in attending the college,

answering the telephone, assisting students or potential enrollees who came to the offi ce, and

general supervision of clerical personnel and student assistants.

After interviewing and testing many people for the position, the director hired Bob, mainly

because his credentials were good and he made a favorable impression. Alice spent many

hours during the next 10 days training Bob. He appeared to be quite bright and seemed to

quickly pick up the procedures involved in operating a college admissions offi ce. When Alice

left, everyone thought Bob would do an outstanding job.

However, little time had elapsed before people realized that Bob had not caught on to

his job responsibilities. Bob seemed to have personal problems that were severe enough

to stand in the way of his work. He asked questions about subjects that Alice had covered

explicitly; he should have been able to answer these himself if he had comprehended her

instructions.

Bob appeared to constantly have other things on his mind. He seemed to be preoccupied

with such problems as his recent divorce, which he blamed entirely on his ex-wife, and the

distress of his eight-year-old daughter, who missed her father terribly. His thoughts also

dwelled on his search for peace of mind and some reasons for all that had happened to him.

The director of admissions was aware of Bob’s preoccupation with his personal life and his

failure to learn the offi ce procedures rapidly.

Questions

1. What would you do at this point if you were the director of admissions?

2. Describe how you might effectively use a performance appraisal in this situation.

Discussion Questions

228 Part Three Training and Developing Employees

Incident 11.2

The Lackadaisical Plant Manager

Plant manager Paul Dorn wondered why his boss, Leonard Hech, had sent for him. He thought

Leonard had been tough on him lately, and he was slightly uneasy at being asked to come to

Leonard’s offi ce at a time when such meetings were unusual. “Close the door and sit down,

Paul,” invited Leonard. “I’ve been wanting to talk to you.” After preliminary conversation,

Leonard said that because Paul’s latest project had been fi nished, he would receive the raise he

had been promised on its completion.

Leonard went on to say that it was time for Paul’s performance appraisal and they might

as well do that now. Leonard explained that the performance appraisal was based on four cri-

teria: (1) amount of high-quality merchandise manufactured and shipped on time, (2) quality

of relationships with plant employees and peers, (3) progress in maintaining employee safety

and health, and (4) reaction to demands of top management. The fi rst criterion had a weight of

40 percent, and the rest had a weight of 20 percent each.

On the fi rst item, Paul received an excellent rating. Shipments were at an all-time high,

quality was good, and few shipments had arrived late. On the second item, Paul was also rated

excellent. Leonard said plant employees and peers related well to Paul, labor relations were

excellent, and there had been no major grievances since Paul had become plant manager.

However, on attention to matters of employee safety and health, the evaluation was

below average. Leonard stated that no matter how much he prodded Paul about improv-

ing housekeeping in the plant, Paul never seemed to produce results. He also rated Paul

below average on meeting demands from top management. He explained that Paul always

answered yes to any request and then disregarded it, going about his business as if nothing

had happened.

Seemingly surprised at the comments, Paul agreed that perhaps Leonard was right and that

he should do a better job on these matters. Smiling as he left, he thanked Leonard for the raise

and the frank appraisal.

As weeks went by, Leonard noticed little change in Paul. He reviewed the situation with

an associate. “It’s frustrating. In this time of rapid growth, we must make constant changes in

work methods. Paul agrees but can’t seem to make people break their habits and adopt more

effi cient ones. I fi nd myself riding him very hard these days, but he just calmly takes it. He’s

well liked by everyone. But somehow he’s got to care about safety and housekeeping in the

plant. And when higher management makes demands he can’t meet, he’s got to say, ‘I can’t do

that and do all the other things you want, too.’ Now he has dozens of unfi nished jobs because

he refuses to say no.”

As he talked, Leonard remembered something Paul had told him in confi dence once. “I take

Valium for a physical condition I have. When I don’t take it, I get symptoms similar to a heart

attack. But I only take half as much as the doctor prescribed.” Now, Leonard thought, I’m really

in a spot. If the Valium is what is making him so lackadaisical, I can’t endanger his health by

asking him to quit taking it. And I certainly can’t fi re him. Yet, as things stand, he really can’t

implement all the changes necessary to fulfi ll the goals we have set for the next two years.

Questions

1. What would you do if you were in Leonard’s place?

2. What could have been done differently during the performance appraisal session?

A large manufacturing company has been having diffi culty with its performance evaluation system. All operating employees and clerical employees are evaluated semiannually by their supervisors. The form the organization has been using appears in Exhibit 11.A; it has been in use for 10 years. The form is scored as follows: excellent ⫽ 5, above average ⫽ 4, average ⫽ 3, below average ⫽ 2, and poor ⫽ 1. The scores for each facet are entered in the right-hand column and totaled for an overall evaluation score.

EXERCISE 11.1

Developing a

Performance

Appraisal

System

Chapter 11 Performance Management Systems 229

In the procedure used, each supervisor rates each employee on July 30 and January 30. The supervisor discusses the rating with the employee and then sends the rating to the human resource department. Each rating is placed in the employee’s personnel fi le. If promotions come up, the cumulative ratings are considered at that time. The ratings are also supposed to be used as a check when raises are given. The system was designed by Joanna Kyle, the human resource manager who retired two years ago. Her replacement was Eugene Meyer. Meyer graduated 15 years ago with a degree in business from the University of Texas. Since then, he’s had a variety of work experience, mostly in manufacturing. For about fi ve of those years, he worked in human resources. Meyer has been reviewing the evaluation system. Employees have a mixture of indifferent and negative feelings about it. An informal survey has shown that about 60 percent of the supervi- sors fi ll the forms out, give about three minutes to each form, and send them to the human resource department without discussing them with the employees. Another 30 percent do a little better. They spend more time completing the forms but communicate about them only briefl y and superfi cially with their employees. Only about 10 percent of the supervisors seriously try to do what was intended. Meyer also found out that the forms were rarely used for promotion or pay raise decisions. Because of this, most supervisors may have felt the evaluation program was a useless ritual. Where he had been previously employed, Meyer had seen performance appraisal as a much more useful experience, which included giving positive feedback to employees, improving future employee per- formance, developing employee capabilities, and providing data for promotion and compensation. Meyer has not had much experience with the design of a performance appraisal system. He believes he should seek advice on the topic. Write a report summarizing your evaluation of the strengths and weaknesses of the present appraisal system. Recommend some specifi c improvements or data-gathering exercises to develop a better system.

1. See Dayton Fandray, “The New Thinking in Performance Appraisals,” Workforce, May 2001,

pp. 36–40. See also Matthew J. Camardella, “Effective Management of the Performance-Appraisal

Process,” Employment Relations Today, Spring 2003, p. 103.

2. See David Martone, “A Guide to Developing a Competency-Based Performance-Management

System,” Employment Relations Today, Fall 2003, p. 23.

3. See Harry Levinsin, “Management by Whose Objectives?” Harvard Business Review,

January 2003, p. 107.

4. See Ginka Toegel and Jay A. Conger, “360-Degree Assessment: Time for Reinvention,” Academy of

Management Learning & Education, September 2003, p. 297.

Notes and Additional Readings

Performance Evaluation

Supervisors: When you are asked to do so by the human resource department, please complete this form

on each of your employees. The supervisor who is responsible for 75 percent or more of an employee’s

work should complete this form on the employee. Please evaluate each facet of the employee separately.

Facet Rating Score

Quality of

work

Excellent Above

average

Average Below

average

Poor

Quantity

of work

Poor Below

average

Average Above

average

Excellent

Dependability

at work

Excellent Above

average

Average Below

average

Poor

Initiative

at work

Poor Below

average

Average Above

average

Excellent

Cooperativeness Excellent Above

average

Average Below

average

Poor

Getting along

with coworkers

Poor Below

average

Average Above

average

Excellent

Total

Supervisor’s signature

Employee name

Employee number

EXHIBIT 11.A A Performance

Evaluation Form

230 Part Three Training and Developing Employees

5. See Edwin Arnold and Marcia Pulich, “Personality Conflicts and Objectivity in Appraising

Performance,” The Health Care Manager, July–Sept., p. 227.

6. See W. David Rees and Christine Porter, “Appraisal Pitfalls and the Training Implications—Part 1,”

Industrial and Commercial Training 35 (2003), p. 280.

7. See Gary E. Roberts, “Employee Performance Appraisal System Participation: A Technique That

Works,” Public Personnel Management, Spring 2003, pp. 89–99.

8. See Terry Gillen, “Appraisal: How to Make It Achieve What You Want It To,” Training Journal,

Sept. 2003, p. 10. See also Charles N. Painter, “Ten Steps for Improved Appraisals,” SuperVision,

Oct. 2003, p. 12.

9. See Inge C. Kerssens-van Drongelen and Olaf A. M. Fisscher, “Ethical Dilemmas in Performance

Measurement,” Journal of Business Ethics, June 2003, p. 51.

Part Four

Compensating Human Resources 12. The Organizational Reward System

13. Base Wage and Salary Systems

14. Incentive Pay Systems

15. Employee Benefi ts

St e ve

C o

le /G

e tt

y Im

a g

e s

233

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne organizational rewards.

2. Distinguish between intrinsic and

extrinsic rewards.

3. List several desirable preconditions for

implementing a pay-for-performance

program.

4. Defi ne job satisfaction and list its fi ve

major components.

Chapter Twelve

The Organizational Reward System

5. Summarize the satisfaction–

performance relationship.

6. Defi ne compensation, pay, incentives,

and benefi ts.

7. List several pieces of government

legislation that have had a

signifi cant impact on organizational

compensation.

8. Explain the equity theory of

motivation.

9. Discuss internal, external, individual,

and organizational equity.

Chapter Outline

Defi ning the System

Selection of Rewards

Relating Rewards to Performance

Job Satisfaction and Rewards

The Satisfaction–Performance Controversy

Other Factors Affecting Job Satisfaction

Employee Compensation

Compensation Policies

Pay Secrecy

Government and Union Infl uence

Impact of Comparable Worth

The Importance of Fair Pay

Pay Equity

Pay Satisfaction Model

The Role of the Human Resource

Manager in the Reward System

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 12.1: An Informative Coffee Break

Incident 12.2: Does Money Motivate?

Exercise 12.1: Relating Rewards to

Performance

Notes and Additional Readings

Few things evoke as much emotion as the organization’s reward system. Employees often

interpret the design and use of the organizational reward system as a refl ection of management

attitudes, intentions, and the entire organizational climate. Because of this, the organizational

reward system is one of the most effective motivation tools managers have at their disposal.

The responsibility for coordinating and administering the system usually resides with the

human resource manager.

234 Part Four Compensating Human Resources

DEFINING THE SYSTEM

The organizational reward system consists of the types of rewards to be offered and their distribution. Organizational rewards include all types of rewards, both intrinsic and extrinsic, that are received as a result of employment by the organization. Intrinsic rewards are internal to the individual and are normally derived from involvement in certain activities

or tasks. Job satisfaction and feelings of accomplishment are examples of intrinsic rewards.

Most extrinsic rewards are directly controlled and distributed by the organization and are more tangible than intrinsic rewards. Pay and hospitalization benefi ts are examples of extrinsic

rewards. Table 12.1 provides examples of both types of rewards.

Though intrinsic and extrinsic rewards differ, they are also closely related. Often an ex-

trinsic reward provides the recipient with intrinsic rewards. For example, an employee who

received an extrinsic reward in the form of a pay raise may also experience feelings of accom-

plishment (an intrinsic reward) by interpreting the pay raise as a sign of a job well done.

SELECTION OF REWARDS

Selection of the rewards to be offered is critical if the reward system is to function effectively. As

a fi rst step, management must recognize what employees perceive as meaningful rewards. Pay

is usually the fi rst, and sometimes the only, reward most people think about. There is little doubt

that pay is a very signifi cant reward. However, rewards should be viewed in the larger perspective

as anything employees value and may include things such as offi ce location, the allocation of

certain pieces of equipment, the assignment of preferred work tasks, and informal recognition.

If an organization is going to distribute rewards—and all do—why should it not get the maxi-

mum in return? Such a return can be realized only if the desires of employees are known. Organi-

zations should learn what employees perceive as meaningful rewards, which is not necessarily

what management perceives. Traditionally, managers have assumed they are fully capable of de-

ciding just what rewards employees need and want. Unfortunately, this is often not true. Rewards

don’t necessarily have to be costly to be valued. Studies have shown that employees tend to rank

lack of recognition as the most probable reason good employees quit their jobs. One survey

asked employees to rank job incentives. The fi rst choice was a personal thank-you, followed by

a handwritten note of thanks from the supervisor. Money came in at a surprising sixteenth.1

Another closely related, and often false, assumption is exemplifi ed by the fact that most

organizations offer the same mix of rewards to all employees. Studies have shown that many

variables, such as age, sex, marital status, number of dependents, and years of service, can

infl uence employee preferences for certain rewards.2 For example, older employees are usu-

ally much more concerned with pension and retirement benefi ts than are younger employees.

Recent research has also shown that employees in different countries have different prefer-

ences regarding incentives.3 This is especially relevant in today’s global environment.

Another dimension to be considered when selecting the types of rewards to offer is the

intrinsic benefi ts that might accrue as a result of the rewards. All too often, managers and

employees alike consider only the tangible benefi ts associated with a reward.

In addition to the internal factors just mentioned are external factors that place limitations

on an organization’s reward system. These factors include such things as the organization’s

size, environmental conditions, the stage in the product life cycle, and the labor market. Since

organizational reward system Organizational system

concerned with the selection of

the types of rewards to be used

by the organization.

organizational rewards Rewards that result from

employment with the

organization; includes

all types of rewards, both

intrinsic and extrinsic.

intrinsic rewards Rewards internal to the

individual and normally

derived from involvement in

certain activities or tasks.

extrinsic rewards Rewards that are controlled

and distributed directly by

the organization and are of a

tangible nature.

TABLE 12.1 Intrinsic versus Extrinsic

Rewards

Intrinsic Rewards Extrinsic Rewards

Achievement Formal recognition

Feelings of accomplishment Fringe benefi ts

Informal recognition Incentive payments

Job satisfaction Pay

Personal growth Promotion

Status Social relationships

Physical work environment

Chapter 12 The Organizational Reward System 235

these external factors are usually beyond the control of the organization, this chapter will con-

centrate primarily on internal factors.

RELATING REWARDS TO PERFORMANCE

The free enterprise system is based on the premise that rewards should depend on perform-

ance. This performance–reward relationship is desirable not only at the organizational or

corporate level but also at the individual level. The underlying theory is that employees will

be motivated when they believe such motivation will lead to desired rewards. Unfortunately,

many formal rewards provided by organizations are not related to performance. Rewards in

this category, including paid vacations, insurance plans, and paid holidays, are almost always

determined by organizational membership and seniority rather than by performance.

Other rewards, such as promotion, can and should be related to performance. However,

opportunities for promotion may occur only rarely. When available, the higher positions may

also be fi lled on the basis of seniority or by someone outside the organization.

The primary organizational variable used to reward employees and reinforce performance is

pay. Even though many U.S. companies have some type of pay-for-performance program, most

do a poor job of relating the two.4 Surveys repeatedly show that employees do not have much

confi dence that a positive relationship exists between performance and pay. For example, a

2006 survey of 10,000 respondents by Hudson Talent Management, a staffi ng and outsourcing

fi rm, found that only 35 percent of the respondents believed that performance was the decid-

ing factor in determining their pay.5 A later study by Authoria Inc. found that only 15 percent

of respondents believed that compensation was used effectively for aligning individual and

corporate performance.6 There is evidence, however, that paying for performance is becoming

more prevalent at the highest levels in many companies. Surveys by The Wall Street Journal

and the Hay Group found that performance-based compensation plans overtook stock options

as the most popular of long-term incentive compensation in 2007 and 2008.7

If relating rewards to performance is desirable, why is the practice not more widespread?

One answer is that it is not easy to do; it is much easier to give everybody the same thing, as

evidenced by the ever-popular across-the-board pay increase. Relating rewards to perform-

ance requires that performance be accurately measured, and this is often not easily accom-

plished (Chapter 11 discussed performance appraisal). It also requires discipline to actually

relate rewards to performance. Another reason is that many union contracts require that cer-

tain rewards be based on totally objective variables, such as seniority. While no one successful

formula for implementing a pay-for-performance program has yet been developed, a number

of desirable preconditions have been identifi ed and generally accepted:

1. Trust in management. If employees are skeptical of management, it is diffi cult to make a

pay-for-performance program work.

2. Absence of performance constraints. Since pay-for-performance programs are usually

based on an employee’s ability and effort, the jobs must be structured so that an employee’s

performance is not hampered by factors beyond his or her control.

3. Trained supervisors and managers. The supervisors and managers must be trained in

setting and measuring performance standards.

4. Good measurement systems. Performance should be based on criteria that are job specifi c

and focus on results achieved.

5. Ability to pay. The merit portion of the salary increase budget must be large enough to get

the attention of employees.

6. Clear distinction among cost of living, seniority, and merit. In the absence of strong evidence

to the contrary, employees will naturally assume a pay increase is a cost-of-living or seniority

increase.

7. Well-communicated total pay policy. Employees must have a clear understanding of how

merit pay fi ts into the total pay picture.

8. Flexible reward schedule. It is easier to establish a credible pay-for-performance plan if all

employees do not receive pay adjustments on the same date.8

236

LINKING PAY TO PERFORMANCE AT LINCOLN ELECTRIC www.lincolnelectric.com Lincoln Electric Company celebrated its 115th anniversary

in 2010. The Cleveland, Ohio–based manufacturer of arc

welders has 9,000 employees in its global workforce. The

U.S. employees do not belong to a union, have never gone

out on strike, and deferred vacation when necessary to meet

worldwide demand. Figures have shown that Lincoln’s U.S.

employees are two-and-a-half to three times more productive

than employees of other, similar manufacturing companies.

The key to Lincoln’s success is that the company bases pay

on performance and sets virtually no limit on what employees

can earn. For example, it is not unusual for top factory

workers to receive sizeable bonuses and to make more

than $100,000 per year. Lincoln’s U.S. employees have not

experienced a layoff since 1948 and have received an annual

bonus every year since 1934. Once they have been with the

company for three years, Lincoln’s U.S. employees are also

guaranteed their jobs until retirement if they agree to pay

cuts or reassignment within the company when necessary. In

response to demand, employees may work overtime or work

fewer hours. According to John Stropki, chairman and CEO,

“Most of our people get paid by the number of parts they

produce. (Years ago) the Lincolns had the foresight to know

that if they didn’t guarantee employment, people would say

(to each other), ‘Make less, so we’ll have a job even when

things are slow.’ The way we can be successful is having a

high level of productivity all the time.”

On December 12, 2008, Lincoln distributed profi t-sharing

bonuses totaling $89 million to employees. The distribution

was the seventy-fi fth consecutive year that Lincoln had paid

a profi t-sharing bonus.

Sources: Daniel Eisenberg, “When People Are Never Let Go,” Time, June 18, 2001, p. 40; and Jennifer Gill, “How No Layoff Can Work,” BusinessWeek Online, November 6, 2001, at http://www.businessweek.com; “Lincoln Electric Distributes 75th Consecutive Profi t-Sharing Bonus—Gross Bonus Pool of $89 Million—Takes Actions to Weather Economic Uncertainty— Remains Committed to Guaranteed Employment Policy,” PR Newswire, December 12, 2008, and www.lincolnelectric.com; accessed February 2, 2010.

HRM in Action 12.1

HRM in Action 12.1 describes how Lincoln Electric Company has successfully related pay

to performance.

JOB SATISFACTION AND REWARDS

Job satisfaction is an employee’s general attitude toward the job. The organizational reward system often has a signifi cant impact on the level of employee job satisfaction. In addition to

their direct impact, the manner in which the extrinsic rewards are dispersed can affect the in-

trinsic rewards (and satisfaction) of the recipients. For example, if everyone receives an across-

the-board pay increase of 5 percent, it is hard to derive any feeling of accomplishment from the

reward. However, if pay raises are related directly to performance, an employee who receives

a healthy pay increase will more than likely also experience feelings of accomplishment and

satisfaction. A 2009 study of more than 600 employees by the Society for Human Resource

Management (SHRM) reported that job security was cited as the most important factor in job

satisfaction by 63 percent of the respondents.9 This same survey taken in 2008 also found job

security to be the most important determinant of job satisfaction. These fi ndings are not surpris-

ing given the economic downturn that occurred in these years: Benefi ts was the second most

important in both 2008 and 2009. Compensation/pay came in third for both of these years.

Prior to the economic downturn, compensation/pay had held or tied for the top spot for the

previous two years (2006 and 2007). These fi gures indicate that the major determinants of job

satisfaction can vary from year to year depending on both internal and external factors. Other

variables that have been found to have a signifi cant impact on job satisfaction the last several

years include opportunities to use skills and abilities, feeling safe in the workplace, relationship

with immediate supervisor, and fl exibility to balance life and work issues.

Job satisfaction is not synonymous with organizational morale, which is a feeling of being accepted by and belonging to a group of employees through adherence to common

goals, confi dence in the desirability of those goals, and the desire to progress toward the

goals. Morale is the by-product of a group, whereas job satisfaction is more an individual

state of mind. Morale refers to how a person feels about the organization he or she is working

for, whereas job satisfaction is about how an employee feels about his or her particular job.

However, the two concepts are interrelated in that job satisfaction can contribute to morale

job satisfaction An employee’s general attitude

toward the job.

Organizational morale is boosted when an employee feels like part of a group. © Brand X Pictures/PunchStock

organizational morale An employee’s feeling of being

accepted by and belonging to

a group of employees through

common goals, confi dence in

the desirability of those goals,

and the desire to progress

toward the goals.

and morale can contribute to job satisfaction. HRM in Action 12.2 discusses the status of job

satisfaction in the United States.

The Satisfaction–Performance Controversy For many years, managers generally have believed that a satisfi ed employee is necessarily a

good employee. In other words, if management could keep all employees happy, good perform-

ance would automatically follow. Years ago Professor Charles Greene suggested that many

managers subscribe to this belief because it represents “the path of least resistance.”10 Greene’s

thesis is that if a performance problem exists, increasing an employee’s happiness is far more

pleasant than discussing with the employee his or her failure to meet standards. Before discuss-

ing the satisfaction–performance controversy, we should point out that there are subtle but real

differences between being satisfi ed and being happy. Although happiness eventually results

from satisfaction, the latter goes much deeper and is far less tenuous than happiness.

The following incident illustrates two propositions concerning the satisfaction– performance

relationship:

As Ben walked by, smiling on the way to his offi ce, Ben’s boss remarked to a friend, “Ben really

enjoys his job, and that’s why he’s the best worker I ever had. And that’s reason enough for me to

keep Ben happy.” The friend replied, “No, you’re wrong! Ben likes his job because he does it so

well. If you want to make Ben happy, you ought to do whatever you can to help further improve

his performance.”11

The fi rst proposition is the traditional view that satisfaction causes performance. The sec-

ond is that satisfaction is the effect rather than the cause of performance. In this position, per-

formance leads to rewards that result in a certain level of satisfaction. Thus, rewards constitute

a necessary intervening variable in the relationship. Another position considers both satisfac-

tion and performance to be functions of rewards. It postulates that satisfaction results from

rewards, but current performance also affects subsequent performance if rewards are based on

current performance.

Research evidence generally rejects the more popular view that satisfaction leads to per-

formance. However, it does provide moderate support for the view that performance leads

to satisfaction. The evidence also strongly indicates that (1) rewards constitute a more direct

cause of satisfaction than does performance and (2) rewards based on current performance

enhance subsequent performance.12

While the assumption that job satisfaction and job performance are related has much

intuitive appeal, reviews of the studies in this area do not support a strong relationship. A

comprehensive review of over 100 published studies involving job satisfaction and job per-

formance found that “the best estimate of the true population correlation between satisfaction

and performance is relatively low.”13 In spite of the weak correlation between job satisfac-

tion and job performance, lay people often tend to believe strongly that satisfi ed employees

are more productive at work.14 One relationship that has been clearly established is that job

FALLING JOB SATISFACTION IN THE UNITED STATES A 2010 report based on a survey of 5,000 U.S. households

found that only 45 percent of the respondents said they

were satisfi ed with their job. This is down from 61.1 percent

in 1987, the fi rst year this survey was conducted. No age

or income group escaped the generally low level of job

satisfaction. In fact, the youngest group of employees, those

under age 25, expressed the highest level of dissatisfaction

ever recorded by the survey for that age group. The drop

in job satisfaction between 1987 and 2009 covered all

components of job satisfaction from interest in the work

(down 18.9 percent) to job security (down 17.5 percent).

The drop was also refl ected in four major drivers of

employee engagement: job design, organizational health,

managerial quality, and extrinsic rewards. “Challenging and

meaningful work is vitally important to engaging American

workers,” said John Gibbons, program director of employee

engagement research and services at the Conference Board

(the sponsor of the report). “Widespread job dissatisfaction

negatively affects employee behavior and retention, which

can impact enterprise-level success.” The survey also found

that 22 percent of respondents expected to leave their

current jobs within a year.

Source: “U.S. Job Satisfaction at Lowest Level in Two Decades; Red Flag for Employers When Economy Rebounds,” PR Newswire, January 5, 2010.

HRM in Action 12.2

237

238 Part Four Compensating Human Resources

satisfaction does have a positive impact on turnover, absenteeism, tardiness, accidents, griev-

ances, and strikes.15 Studies have also reported that experience, gender, and performance can

have a moderating effect on these relationships.16 In addition, organizations prefer satisfi ed

employees simply because such employees make the work environment more pleasant. Thus,

even though a satisfi ed employee is not necessarily a high performer, there are numerous

reasons for cultivating employee satisfaction.

Other Factors Affecting Job Satisfaction As mentioned earlier, a wide range of both internal and external factors affect an employ-

ee’s level of satisfaction. Throughout the 1990s employee job-satisfaction surveys generally

found that base pay ranked third, fourth, or lower in factors that most infl uenced job satisfac-

tion.17 However, this has changed over the last several years. For example, the 2009 survey

by SHRM (referenced earlier) found that the top drivers of employee job satisfaction were

job security, benefi ts, pay, opportunities to use skills and abilities, and feeling safe in the

work environment.18 The left portion of Figure 12.1 summarizes these and other factors that

determine an employee’s level of satisfaction or dissatisfaction. The total impact of these

factors causes employees to be either generally satisfi ed or dissatisfi ed with their jobs. As

the right side of Figure 12.1 indicates, employees who are satisfi ed with their jobs tend to be

committed to the organization; these employees are likely to be very loyal and dependable.

Employees who are dissatisfi ed with their jobs tend to behave in ways that can be detrimental

to the organization; these employees are likely to have higher rates of turnover, absenteeism,

tardiness, accidents, strikes, and grievances.

Job satisfaction and motivation are not synonymous. Motivation is a drive to perform,

whereas job satisfaction refl ects the employee’s attitude toward or happiness with the job situ-

ation. As Figure 12.1 suggests, a satisfi ed or “happy” employee is not necessarily a motivated

or productive employee. The organizational reward system can infl uence both job satisfaction

and employee motivation. The reward system affects job satisfaction by making the employee

more or less comfortable as a result of the rewards received. The reward system infl uences

motivation primarily through the perceived value of the rewards and their contingency on

performance.

EMPLOYEE COMPENSATION

Compensation and pay are not synonymous terms. Compensation refers to all the extrinsic rewards employees receive in exchange for their work. Pay refers only to the actual dol- lars employees receive in exchange for their work. Usually compensation is composed of the

compensation All the extrinsic rewards that

employees receive in exchange

for their work: composed of

the base wage or salary, any

incentives or bonuses, and any

benefi ts.

pay Refers only to the actual dollars

employees receive in exchange

for their work.

Job satisfaction Commitment to

the organization

Turnover, absenteeism,

tardiness, accidents,

strikes, grievances,

sabotage

Job dissatisfaction

Safety in work environment

Quality

Style and quality of

management

Working conditions

Pay, benefits and fairness of

compensation

Job security

Balance of work life

Perceived opportunities

elsewhere

FIGURE 12.1 Determinants of

Employee Satisfaction

and Dissatisfaction

Chapter 12 The Organizational Reward System 239

base wage or salary, any incentives or bonuses, and any benefi ts. The base wage or salary is the hourly, weekly, or monthly pay employees receive for their work. Incentives are rewards offered in addition to the base wage or salary and are usually directly related to performance.

Benefi ts are rewards employees receive as a result of their employment and position with the organization. Paid vacations, health insurance, and retirement plans are examples of benefi ts.

Table 12.2 presents some examples of the different types of compensation. The next three

chapters cover base wages or salaries, incentives, and benefi ts, respectively.

Compensation Policies Certain policies must be formulated before a successful compensation system can be devel-

oped and implemented. Naturally, these policies are strongly infl uenced by the organization’s

objectives and its environments. Policies must deal with the following issues:

1. Minimum and maximum levels of pay (taking into consideration the worth of the job to the

organization, the organization’s ability to pay, government regulations, union infl uences,

and market pressures).

2. General relationships among levels of pay (e.g., between senior management and operating

management, operative employees, and supervisors).

3. The division of the total compensation dollar (i.e., what portion goes into base pay, incentive

programs, and benefi ts).

In addition to these issues, organizations must make decisions concerning how much money

will go into pay increases for the next year, who will recommend them, and how raises will

generally be determined. Another important decision concerns whether pay information will

be kept secret or made public.

Pay Secrecy Many organizations have a policy of not disclosing pay-related information. This includes

information about the pay system as well as individual pay received. The justifi cation for pay

secrecy is usually to avoid any discontent that might result from employees’ knowing what

everybody else is being paid. Further justifi cation is that many employees, especially high

achievers, feel very strongly that their pay is nobody else’s business.19

On the other hand, pay secrecy makes it diffi cult for employees to determine whether

pay is related to performance. Also, pay secrecy does not eliminate pay comparisons, and

it may cause employees to overestimate the pay of their peers and underestimate the pay of

their supervisors. Both situations can unnecessarily create feelings of dissatisfaction. Also,

when managers refuse to disclose pay, employees naturally become suspicious and often con-

clude that the managers are hiding something. Prior to the National Labor Relations Board’s

(NLRB) ruling that it was illegal, some companies actually forbade employees to discuss and/

or disclose their pay. In 1992, the NLRB ruled that forbidding employees to discuss their pay

constitutes a violation of the National Labor Relations Act (the National Labor Relations Act

is discussed in Chapter 18).20 Recently, women’s groups in the United States and the United

Kingdom have begun to challenge pay-secrecy rules on the grounds that they perpetuate the

income gap between men and women.21

A good compromise on the issue of pay secrecy is to disclose the pay ranges for various

job levels within the organization. This approach clearly communicates the general ranges

of pay for different jobs, but it does not disclose exactly what any particular employee is

making.

base wage or salary Hourly, weekly, or monthly pay

that employees receive for their

work.

incentives Rewards offered in addition

to the base wage or salary

and usually directly related to

performance.

benefi ts Rewards employees receive as

a result of their employment

and position with the

organization.

TABLE 12.2 Components of Employee

Compensation

Base Wage or Salary Incentives Benefi ts

Hourly wage Bonuses Paid vacation

Weekly, monthly, or annual salary Commissions Health insurance

Overtime pay Profi t sharing Life insurance

Piece rate plans Retirement pension

240 Part Four Compensating Human Resources

Government and Union Infl uence Government legislation and union contracts can have a signifi cant impact on organizational

compensation. Both of these factors are discussed in the following sections.

Davis-Bacon Act

Passed by Congress on March 3, 1931, the Davis-Bacon Act required that contractors and sub-

contractors on federal construction contracts in excess of $2,000 pay the prevailing wage rates

for the locality of the project. This prevailing wage rate, which is determined by the secretary

of labor, has normally been the same as the prevailing union rate for the area. Overtime of

time-and-a-half must be paid for more than 40 hours per week.

Walsh-Healey Public Contracts Act

The Walsh-Healey Public Contracts Act, passed by Congress on June 30, 1936, requires

that organizations manufacturing or furnishing materials, supplies, articles, or equipment

in excess of $10,000 to the federal government pay at least the minimum wage for the

industry as determined by the secretary of labor. Originally the Walsh-Healey Act called

for overtime pay for anything over eight hours in a single day. However, the Defense

Authorization Act of 1986 changed the requirement to overtime for hours worked over 40

in a week.

Fair Labor Standards Act (FLSA)

The FLSA, commonly called the Wage and Hour Act, was passed in 1938 and has been

amended several times. Its primary requirements are that individuals employed in interstate

commerce or in organizations producing goods for interstate commerce must be paid a certain

minimum wage and be paid time-and-a-half for hours over 40 worked in one week. (Table 12.3

shows how the minimum wage has changed over the years.) Section 218 of the FLSA per-

mits states, localities, and collective bargaining agreements to set a higher standard than the

federal minimum. In addition, the FLSA places restrictions on the employment of individuals

between ages 14 and 18. The most complex parts of the law deal with possible exemptions.

Amendments to the law have reduced the number of exemptions, but careful study is neces-

sary to determine an organization’s obligations.

Discussions of compensation systems often use the terms exempt and nonexempt person-

nel. Nonexempt employees are covered by the FLSA; they must be paid overtime and are sub-

ject to minimum wage. Exempt employees are not covered by the FLSA and include executive,

administrative, and professional employees.

Equal Pay Act

The Equal Pay Act was introduced and discussed in Chapter 2. Signed into law on June 10,

1963, the Equal Pay Act was an amendment to the Fair Labor Standards Act, eliminating pay

differentials based solely on sex. The law makes it illegal to pay different wages to men and

TABLE 12.3 History of Minimum

Wage Rates

Date Rate per Hour Date Rate per Hour

October 24, 1938 $0.25 January 1, 1976 $2.30

October 24, 1939 0.30 January 1, 1978 2.65

October 24, 1945 0.40 January 1, 1979 2.90

January 25, 1950 0.75 January 1, 1980 3.10

March 1, 1956 1.00 January 1, 1981 3.35

September 3, 1961 1.15 April 1, 1990 3.80

September 3, 1963 1.25 April 1, 1991 4.25

February 1, 1967 1.40 October 1, 1996 4.75

February 1, 1968 1.60 September 1, 1997 5.15

May 1, 1974

January 1, 1975

2.00

2.10

July 24, 2007

July 24, 2008

July 24, 2009

5.85

6.55

7.25

Chapter 12 The Organizational Reward System 241

women for jobs that require equal skill, effort, and responsibility and are performed under

similar conditions. This law does not prohibit the payment of wage differentials based on sen-

iority systems, merit systems that measure earnings by quantity and quality of production, or

systems based on any factor other than sex.

Federal Wage Garnishment Law

Garnishment is a legal procedure by which an employer is empowered to withhold wages for payment of an employee’s debt to a creditor. The Federal Wage Garnishment Law, which

became effective on July 1, 1970, limits the amount of an employee’s disposable earnings

that can be garnished in any one week and protects the employee from discharge because

of garnishment. However, the law did not substantially alter state laws on this subject. For

instance, if the state prohibits or provides for more limited garnishment than the federal law,

the state law is applied. Thus, a human resource manager must be familiar with state laws

applicable to garnishment.

Lilly Ledbetter Fair Pay Act of 2009

The Lilly Ledbetter Fair Pay Act was passed in 2009 and made retroactive to May 28, 2007.

Prior to the Ledbetter Act, an employee had a narrow window (180 or 300 days, depending

on the state) within which to bring a lawsuit against his or her employer for unfair pay or

discrimination pay practices. Under the Ledbetter Act the statute of limitations on pay dis-

crimination claims begins running whenever a discriminatory pay decision or pay practice is

adopted, when an individual becomes subject to such a decision or practice, and/or whenever

the paycheck or other benefit is issued.

The Ledbetter Act is named after Lilly Ledbetter, a former supervisor at an Alabama Good-

year Tire & Rubber Company plant. Ledbetter sued Goodyear after discovering that she had

been paid less than her male colleagues for almost 19 years. A jury ruled in favor of Ledbetter

but that decision was overturned by the Supreme Court in 2007. The Supreme Court ruled that

Ledbetter should have filed suit within 180 days of the very first time Goodyear paid her less

than her peers. The Ledbetter Fair Pay Act was passed in response to that ruling and basically

eliminated any time limitations.

Union Contracts

If an organization is unionized, the wage structure is usually largely determined through the

collective bargaining process. Because wages are a primary concern of unions, current union

contracts must be considered in formulating compensation policies. Union contracts can even

affect nonunionized organizations. For example, the wage rates and increases paid to union

employees often infl uence the wages paid to employees in nonunion organizations. Unions are

discussed at length in Chapters 18 and 19.

Impact of Comparable Worth Comparable worth theory, introduced in Chapter 3, holds that while the true worth of jobs to

the employer may be similar, some jobs (especially those held by women) are often paid at

a lower rate than other jobs (often held by men). A major problem associated with compara-

ble worth theory is determining the worth of the jobs in question. How should job worth be

established? U.S. courts have generally rejected cases based on comparable worth claims.22

Although comparable worth has generally fl oundered in court, it has received considerable

attention at the collective bargaining table and in the political arena.23

The Importance of Fair Pay As discussed earlier in this chapter employee motivation is closely related to the types of re-

wards offered and their method of disbursement. While there is considerable debate over the

motivational aspect of pay, little doubt exists that inadequate pay can have a very negative

impact on an organization. Figure 12.2 presents a simple model that summarizes the reactions

of employees when they are dissatisfi ed with their pay. According to this model, pay dissatis-

faction can infl uence employees’ feelings about their jobs in two ways: (1) It can increase the

garnishment A legal procedure by which

an employer is empowered to

withhold wages for payment of

an employee’s debt to a creditor.

242 Part Four Compensating Human Resources

desire for more money, and (2) it can lower the attractiveness of the job. An employee who

desires more money is likely to engage in actions that can increase pay. These actions might

include joining a union, looking for another job, performing better, fi ling a grievance, or going

on strike. With the exception of performing better, all of the consequences are generally classi-

fi ed as undesirable by management. Better performance results only in those cases where pay is

perceived as being directly related to performance. On the other hand, when the job decreases

in attractiveness, the employee is more likely to be absent or tardy, quit, or become dissatisfi ed

with the job itself. Thus, while its importance may vary somewhat from situation to situation,

pay satisfaction can and usually does have a signifi cant impact on employee performance.

The fairness of executive pay has received much attention in recent years as the pay of

top executives has soared to astronomical levels in some situations. This issue is discussed at

length in the next chapter.

Pay Equity The equity theory of motivation basically holds that employees have a strong need to main-

tain a balance between what they perceive as their inputs to their jobs and what they receive

from their jobs in the form of rewards. In this theory, employees who perceive inequities will

Joining a union

Increased

performance

Strikes

Grievances Absenteeism

Turnover

Absenteeism

Tardiness

Psychological

withdrawal

Visit to

doctor

Poor mental

health

Pay

dissatisfaction

Desire for

more pay

Search for

higher-paying

job

Lower

attractiveness

of job

Job

dissatisfaction

FIGURE 12.2 Model of the Consequences of Pay Dissatisfaction

Source: Adapted from Edward E. Lawler III, Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-Hill, 1971), p. 233.

243

take action to eliminate or reduce them. For example, if an employee believes he or she is

underpaid, that employee will likely reduce expended effort by working more slowly, taking

off early, or being absent. Similarly, if an employee believes she or he is being overpaid, that

employee is likely to work harder or for longer hours.

Pay equity concerns whether employees believe they are being fairly paid. There are several

dimensions of equity to consider in looking at pay equity. Internal equity concerns what an employee is being paid for doing a given job compared to what other employees in the same

organization are being paid to do their jobs. External equity deals with what employees in other organizations are being paid for performing similar jobs. Individual equity addresses the issue of rewarding individual contributions and is very closely related to the pay-for-

performance question. Organizational equity concerns how profi ts are divided up within the organization. In other words, do the employees believe the organization’s profi ts are fairly

distributed? It is important to recognize that employee interpretations of pay equity are based

on their perceptions. Because employee feelings about pay equity are based on perceptions,

organizations should do whatever they can to make these perceptions as accurate as possible.

Also, it is not unusual for an employee to feel good about one or more of the equity dimen-

sions and feel bad about the others. For example, an employee may feel good about his or

her pay in comparison to what friends working in other organizations are making. She or he

may also believe the company profi ts are fairly distributed within the company. However, this

same person may be very unhappy about his or her pay relative to several other people in the

same organization. HRM in Action 12.3 discusses pay inequities between women and men in

today’s work environment.

Pay Satisfaction Model Figure 12.3 presents a model of the determinants of pay satisfaction. The model is based on

the idea that employees will be satisfi ed with their pay when their perception of what their pay

is and of what they think it should be agree. This happens when employees feel good about the

internal and external equity of their pay.

Naturally, present pay is a primary factor infl uencing an employee’s perception of equity.

However, the person’s wage history and perception of what others are getting also have an

infl uence. For example, employees who have historically received high pay tend to lower their

perception of present pay. Similarly, the higher the pay of friends and peers, the lower one’s

individual pay appears to be. These factors account for the fact that two people may view the

same level of pay in a very different manner.

The model also shows that an employee’s perception of what pay should be depends on

several other factors, including job inputs, the perceived inputs and outcomes of friends and

internal equity Addresses what an employee

is being paid for doing a

job compared to what other

employees in the same

organization are being paid to

do their jobs.

external equity Addresses what employees in

an organization are being paid

compared to employees in

other organizations performing

similar jobs.

individual equity Addresses the rewarding of

individual contributions; is

very closely related to the pay-

for-performance question.

organizational equity Addresses how profi ts

are divided up within the

organizations.

GENDER PAY INEQUITIES While the pay gap between women and men has narrowed

over the past 30 years, it is still substantial. The good news

is that while the gap closed only 1 percentage point from

1970, when women earned 59 percent as much as men, to

1980, when they earned 60 percent as much, it closed by

8 points from 1980 to 1989.

In 1992, the gap continued to close. Based on median

weekly earnings, women working full-time earned 75 cents

for every dollar earned by men full-time; by 1994, the fi gure

had grown to 77 cents. Unfortunately from 1994 to 1998 the

fi gure dropped back down to 76 cents.

In 1999 women again earned approximately 77 percent

as much as men and by 2003 the fi gure had grown to

80 percent. The ratio was 80.3 percent in 2004 and peaked

at 81 percent for 2005. The fi gure slipped to 80.7 percent in

2006, 80.2 percent in 2007, and 80.0 percent in 2008.

While women have made some progress regarding equal

pay, the progress has been slow and still has some distance

to go. The gap has not changed signifi cantly in the last

several years and remains around 20 percent.

Not surprisingly, studies have found that men tend to

be more satisfi ed with their pay when compared to others

within their organizations than do women.

Sources: Diane Crispell, “Women’s Earnings Gap Is Closing— Slowly,” American Demographics, February 1991, p. 14; Steven E. Rhoas, “Pay Equity Won’t Go Away,” Across the Board, July– August 1993, pp. 37–41; Teresa Brady, “How Equal Is Equal Pay?” Management Review, March 1998, pp. 59–61; “Gender Gap Narrowed in 2005,” HR Focus, December 2006, p. 12; “Highlights of Women’s Earnings in 2008,” U.S. Department of Labor, July 2009, www.bls.gov.

HRM in Action 12.3

244 Part Four Compensating Human Resources

Skill

Experience

Training

Effort

Age

Seniority

Education

Company loyalty

Past performance

Present performance

Level

Difficulty

Time span

Amount of

responsibility

Status

Security

Perceived

personal job

inputs

Perceived inputs

and outcomes of

referent others

Perceived job

characteristics

Perceived

nonmonetary

outcomes

Wage history

Perceived pay of

referent others

Actual pay rate

Perceived amount

of pay that should

be received

Perceived amount

of pay received

a = b

a > b

a < b

pay satisfaction

pay dissatisfaction

guilty, inequity,

discomfort

FIGURE 12.3 Model of the Determinants of Pay Satisfaction

Source: Edward E. Lawler III, Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-Hill, 1971), p. 215.

peers, and nonmonetary outcomes. Job inputs include all the experience, skills, and abilities

an employee brings to the job in addition to the effort the employee puts into it. The perceived

inputs and outcomes refer to the individual’s perception of what friends and peers put into their

jobs and what kind of pay they get in return. The nonmonetary outcomes received refer to the

fact that certain nonmonetary rewards can sometimes substitute for pay, at least up to a point.

The model also makes allowances for employees who believe their pay exceeds what they

think it should be. Research has shown that in such cases, people often experience feelings of

guilt, inequity, and discomfort.24

THE ROLE OF THE HUMAN RESOURCE MANAGER IN THE REWARD SYSTEM

The role of the human resource manager in the overall organizational reward system is to

assist in its design and to administer the system. Administering the system inherently carries

the responsibility of ensuring that the system is fair to all employees and that it is clearly

245

COMMUNICATING THE TOTAL COMPENSATION PACKAGE Yahoo, one of the most recognized brands in the world,

has more than 10,500 employees worldwide and annual

revenues of more than $5.2 billion. Because many, if not

most, employees do not understand the true value of

their total compensation, Yahoo believed that they were

losing talent to other employers who might pay a slightly

higher base salary or hourly wage. To overcome this, to

“get a bigger bang for its benefi ts buck,” Yahoo recently

implemented Web-based total reward statements (TRS).

Yahoo also believed that the TRS program would help pave

the way for medical premium cost sharing.

Yahoo worked with Enwisen to create Yahoo’s My Life:

My Rewards—a secure, Web-based TRS that is available

24 hours a day from home or work, and is updated every pay

period. By accessing the TRS, employees could immediately

better see the true value of their total compensations including

such things as the value of their stock options (the average

Yahoo employee has a stock option package with one-and-a-

half to two-and-a-half times their base pay), 401(k) plan

value, health care value and other indirect benefi ts such

as fi tness center, subsidized cafeteria, free lattes and other

drinks, and the like.

Upon launch, 96 percent of Yahoo’s employees viewed

the TRS and Yahoo realized the following immediate

benefi ts:

• Voluntary turnover for the three-month period after

launch went down signifi cantly.

• There was a measurable spike in 401(k) enrollment.

• Medical premium cost sharing was implemented with

little resistance from employees.

As of January 2010 Yahoo accounted for about 17 percent of

the total U.S. Internet searches, a distant second to Google,

who captured approximately 66 percent.

Sources: Barbara Levin, “Attracting and Retaining Employees with Total Reward Statements: The Yahoo Way,” Workspan, October 2006, pp. 35–37, and “Yahoo Posts Profi t as Revenue Lags,” Informationweek, January 27, 2010.

communicated to all employees. Ensuring that the system is fair places the burden of minimiz-

ing reward inequities and employees’ perceptions of reward inequities squarely on the human

resources manager. There is little doubt that organizations need to do a better job of explaining

and communicating their compensation system to employees. For example, a survey conducted

by Harris International and Charlton Consulting Group found that half of the employees sur-

veyed underestimated the value of their total compensation.25 HRM in Action 12.4 describes a

tool that Yahoo has recently implemented to better communicate the true value of its compensa-

tion package.

Many tools and techniques are available to assist human resource managers in designing

and administering compensation systems. Some of them are discussed in the following three

chapters.

1. Defi ne organizational rewards.

Organizational rewards include all types of rewards, both intrinsic and extrinsic, that are

received as a result of employment by the organization.

2. Distinguish between intrinsic and extrinsic rewards.

Intrinsic rewards are rewards internal to the employee and are normally derived from

involvement in certain activities or tasks. Extrinsic rewards are directly controlled and

distributed by the organization and are more tangible than intrinsic rewards.

3. List several desirable preconditions for implementing a pay-for-performance program.

Several preconditions have been identifi ed for implementing a successful pay-for-performance

program. These include (1) trust in management; (2) absence of performance constraints;

(3) trained supervisors and managers; (4) good measurement systems; (5) ability to pay; (6) a

clear distinction among cost of living, seniority, and merit; (7) a well-communicated total pay

policy; and (8) a fl exible reward schedule.

4. Defi ne job satisfaction and list its fi ve major components.

Job satisfaction is an employee’s general attitude toward the job. The fi ve major components

of job satisfaction are (1) attitude toward the work group; (2) general working conditions,

(3) attitude toward the company, (4) monetary benefi ts, and (5) attitude toward supervision.

Summary of Learning Objectives

HRM in Action 12.4

246 Part Four Compensating Human Resources

5. Summarize the satisfaction–performance relationship.

Research evidence generally rejects the popular view that satisfaction leads to performance.

The evidence does, however, provide moderate support for the view that performance leads

to satisfaction. The evidence also provides strong indications that rewards constitute a

more direct cause of satisfaction than does performance, and rewards based on current

performance lead to subsequent performance. In general, the best estimate of the correlation

between satisfaction and performance is relatively low.

6. Defi ne compensation, pay, incentives, and benefi ts.

Compensation refers to all the extrinsic rewards employees receive in exchange for their

work. Pay includes only the actual dollars employees receive in exchange for their work.

Incentives are rewards offered in addition to the base wage or salary and are directly related

to performance. Benefi ts are rewards employees receive as a result of their employment and

position with an organization.

7. List several pieces of government legislation that have had a signifi cant impact on

organizational compensation.

Numerous pieces of government legislation have affected organizational compensation.

Some of the most signifi cant include the Davis-Bacon Act, the Walsh-Healey Act, the Fair

Labor Standards Act (FLSA), the Equal Pay Act, the Federal Wage Garnishment Law, and

the Lilly Ledbetter Fair Pay Act.

8. Explain the equity theory of motivation.

The equity theory of motivation holds that employees have a strong need to maintain a

balance between what they perceive as their inputs to their jobs and what they receive from

their jobs in the form of rewards. In this theory, employees who perceive inequities will

take action to eliminate or reduce the inequities.

9. Discuss internal, external, individual, and organizational equity.

Internal equity concerns what an employee is being paid for doing a given job compared

to what other employees in the same organization are being paid to do their jobs. External

equity deals with what employees in other organizations are being paid for performing

similar jobs. Individual equity addresses rewarding individual contributions and is very

closely related to the pay-for-performance question. Organizational equity concerns how

profi ts are divided up within the organization.

base wage or salary, 239

benefi ts, 239

comparable worth, 241

compensation, 238

Davis-Bacon Act, 240

Equal Pay Act, 240

external equity, 243

extrinsic rewards, 234

Fair Labor Standards Act

(FLSA), 240

garnishment, 241

incentives, 239

individual equity, 243

internal equity, 243

intrinsic rewards, 234

job satisfaction, 236

organizational equity, 243

organizational morale, 236

organizational reward

system, 234

organizational rewards, 234

pay, 238

pay secrecy, 239

Walsh-Healey Public

Contracts Act, 240

Key Terms

1. What are organizational rewards?

2. Explain the differences between intrinsic and extrinsic rewards.

3. What variables have been found to infl uence employee preferences for certain rewards?

4. Discuss two reasons organizations do a poor job of relating rewards to performance.

5. List eight preconditions that have been found to be desirable for establishing a successful

pay-for-performance program.

6. What is job satisfaction? What are its major components?

7. Discuss the satisfaction–performance controversy.

Review Questions

Chapter 12 The Organizational Reward System 247

8. Defi ne compensation and distinguish it from pay.

9. What is the primary organizational variable that can be used to reward individuals and

reinforce performance?

10. Describe some of the consequences of pay dissatisfaction.

11. What are the two general factors relating to the question of fair pay?

12. Describe the pay satisfaction model. How does it determine pay satisfaction?

1. XYZ Company has just decided to take all its 200 employees to Las Vegas for an

expense-paid, three-day weekend to show its appreciation for their high level of perform-

ance this past year. What is your reaction to this idea?

2. Comment on the following statement: “Employees are not capable of deciding what rewards

they should receive.”

3. Recently a manager was overheard making the following comment: “Most employees are

never satisfi ed with their pay anyway, so why should we even try? I think we should pay as

little as possible and just accept the fact that the employees won’t like it.” If you were this

manager’s superior, what would you say?

4. Do you think a very loyal employee is necessarily a good employee? Why or why not?

Incident 12.1

An Informative Coffee Break

On Monday morning, April 28, George Smith was given the news that effective May 1 he would

receive a raise of 6 percent. This raise came two months before his scheduled performance

appraisal. His manager, Loretta Weeks, informed him that the basis for the raise was his per-

formance over the past several months and his potential worth to the company. He was told

this was a very considerable increase.

On Tuesday, a group of George’s coworkers were having their normal coffee break. The

conversation turned to salary increases. One member of the group had received a perform-

ance review in April, but no indication of an impending salary adjustment had been given.

George made a comment concerning the amount of any such increase, specifi cally questioning

the range of increase percentages. Another coworker responded that she was surprised to have

received an across-the-board 4 percent increase the previous Friday. A third individual had

received a similar salary increase. Defi nitely astounded, George pressed for information, only

to learn that several people had received increases of “around” 3 to 5 percent. George excused

himself and left the group.

That evening, George wrestled with his conscience concerning the discussion that day.

His fi rst impression of his raise was that it had been given based on performance. His second

impression was decidedly sour. Several questions were bothering him:

1. Why did his boss present the raise as a merit increase?

2. Was job performance really a basis for salary increases in his department?

3. Did his boss hide the truth regarding the raise?

4. Could he trust his boss in the future?

5. On what basis would further increases be issued?

Questions

1. What effect do you think this new information will have on the effort George Smith puts

forth?

2. What can Loretta Weeks do to regain George Smith’s confi dence?

3. Has the concept of pay secrecy backfi red on Loretta Weeks in this case? If so, how?

Discussion Questions

248 Part Four Compensating Human Resources

Incident 12.2

Does Money Motivate?

About four months ago, Greg Holcomb was promoted to supervisor of the claims depart-

ment for a large eastern insurance company. It is now time for all supervisors to make

their annual salary increase recommendations. Greg doesn’t feel comfortable in making

these recommendations, since he had been in his job for only a short time. To further

complicate the situation, the former supervisor has left the company and is unavailable for

consultation.

There are no formal company restrictions on the kinds of raises that can be given, but

Greg’s boss has said the total amount of money available to Greg for raises would be 8 percent

of Greg’s total payroll for the past year. In other words, if the sum total of the salaries for all of

Greg’s employees were $100,000 Greg would have $8,000 to allocate for raises. Greg is free

to distribute the raises just about any way he wants, within reason.

Summarized below is the best information on his employees that Greg can fi nd from the

fi les of the former supervisor of the claims department. This information is supplemented by

feelings Greg has developed during his short time as supervisor.

Sam Jones: Sam has been with Greg’s department for only fi ve months. In fact, he

was hired just before Greg was promoted into the supervisor’s job. Sam is single and

seems to be a carefree bachelor. His job performance so far has been above average,

but Greg has received some negative comments about Sam from his coworkers. Present

salary: $44,000.

Sue Davis: Sue has been on the job for three years. Her previous performance appraisals

have indicated superior performance. However, Greg does not believe the previous

evaluations are accurate. He thinks Sue’s performance is average at best. Sue appears to be

well liked by all of her coworkers. Just last year she became widowed and is presently the

sole supporter of her fi ve-year-old child. Present salary: $46,000.

Evelyn Boyd: Evelyn has been on the job for four years. Her previous performance

appraisals were all average. In addition, she has received below-average increases for

the past two years. However, Evelyn recently approached Greg and told him she feels

she was discriminated against in the past due to both her age and her sex. Greg believes

Evelyn’s work so far has been satisfactory but not superior. Most employees do not

seem to sympathize with Evelyn’s accusations of sex and age discrimination. Present

salary: $42,000.

Jane Simond: As far as Greg can tell, Jane is one of his best employees. Her previous

performance appraisals also indicate she is a superior performer. In addition, Greg

knows Jane badly needs a substantial salary increase due to some personal problems. In

addition, all of Greg’s employees are aware of Jane’s problems. She appears to be well

respected by her coworkers. Present salary: $43,000.

Ralph Dubose: Ralph has been performing his present job for eight years. The job is

very technical, and he could be diffi cult to replace. However, as far as Greg can

discern, Ralph is not a good employee. He is irritable and hard to work with. In spite

of this, Ralph has received above-average pay increases for the past two years. Present

salary: $48,000.

Questions

1. What size raise would you give each of these employees?

2. What criteria did you use in determining the size of the raises?

3. What do you think would be the feelings of the other people in the group if they found out

what raises you recommend?

4. Do you think the employees would eventually fi nd out what raises others received? Would

it matter?

Chapter 12 The Organizational Reward System 249

Think of the most recent job you held or that you currently hold. This job could have been a sum- mer, part-time, or full-time job. Which of the two situations described below better characterizes this job?

A. Rewards (monetary and nonmonetary) were tied directly to one’s level of performance; management attempted to discriminate between the high and low performers and reward accordingly.

B. Everyone within very broad, general categories received basically the same rewards; one’s level of performance did not substantially affect the rewards received.

Depending on which situation you selected, what effect do you think it had on your level of motivation? If you selected situation A, explain basically how the system worked. If you selected situation B, what specifi c recommendations would you make to improve the performance– reward relationship? Be prepared to discuss your answers with the class.

1. Kevin Wallsten, “Targeted Rewards Have Greater Value—and Bigger Impact,” Workforce,

November 1998, pp. 66–71; “Do Incentive Awards Work?” HR Focus, October 2000, pp. 1, 14; and

Greg Pallone, “Cheap—But Highly Valued—Benefi ts,” Canadian HR Reporter, November 2, 2009,

pp. 16–17.

2. Scott Hays, “Health Benefi ts: Survey This! (and That),” Workforce, January 1999, pp. 93–94; Morley

Gunderson and Andrew Luchak, “Employee Preferences for Pension Plan Features,” Journal of

Labor Research, Fall 2001, pp. 795–808.

3. Marjaana Gunkel, Edward J. Lusk, and Birgitta Wolff, “Country-Compatible Incentive Design,”

Schmalenbach Business Review: ZFBF, July 2009, pp. 290–309.

4. Frederick S. Hills, Robert M. Madigan, K. Dow Scott, and Steven E. Markham, “Tracking the

Merit of Merit Pay,” Personnel Administrator, March 1987, p. 50; Janet Wiscombe, “Can Pay for

Performance Really Work?” Workforce, August 2001, pp. 28–34.

5. “Employees Say Tenure Tops Performance to Determine Pay,” IOMA’s Report on Salary, August

2006, p. 8; and “Pay for Performance Increases,” The Controller’s Report, January 2009, pp. 8–9.

6. “Firms Fail to Use Compensation Strategically to Drive Business Results,” IOMA’s Report on Salary

Surveys, July 2007, p. 8.

7. “The Wall Street Journal/ Hay Group 2008 CEO Compensation Study Reveals Companies Dialed

Back Pay Levels in 2008,” Business Wire, April 3, 2009.

8. Hills, Madigan, Scott, and Markham, “Tracking the Merit,” pp. 56–57, Wiscombe, “Can Pay for

Performance Really Work?”

9. “2009 Employee Job Satisfaction” (Alexandria, VA: The Society for Human Resource Management,

2009), p. 6.

10. Charles N. Greene, “The Satisfaction–Performance Controversy,” Business Horizons, October 1972,

p. 31; Shari Caudron, “Job Satisfaction May Not Be Everything,” Workforce, www.workforce.com,

February 15, 2001.

11. Greene, “The Satisfaction–Performance Controversy,” p. 32.

12. Ibid., p. 40; Shari Caudron, “The Myth of Job Happiness,” Workforce, www.workforce.com,

September 6, 2001.

13. Michelle T. Iaffaldano and Paul M. Muchinsky, “Job Satisfaction and Job Performance: A Meta-

Analysis,” Psychological Bulletin 97, no. 2 (1985), pp. 251–73, and Michelle D. Jones, “Which Is

a Better Predictor of Job Performance: Job Satisfaction or Life Satisfaction,” Journal of Behavioral

and Applied Management, September 2006, pp. 20–42.

14. Cynthia D. Fisher, “Why Do Lay People Believe That Satisfaction and Performance Are Correlated?

Possible Sources of a Commonsense Theory,” Journal of Organizational Behavioral, September

2003, p. 753.

15. Donald P. Schwab and Larry I. Cummings, “Theories of Performance and Satisfaction: A Review,”

Industrial Relations, October 1970, pp. 408–29. For a summary of the related research, see E. A.

Locke, “The Nature and Causes of Job Satisfaction,” in Handbook of Industrial and Organizational

Psychology, ed. M. D. Dunnette (Skokie, Ill.: Rand McNally, 1976), p. 1343; also see Caudron, “The

Myth of Job Happiness,” and T. L. Stanley, “The Joy of Working: A New Look at Job Satisfaction,”

Supervision, September 2001, pp. 3–6.

EXERCISE 12.1

Relating Rewards

to Performance

Notes and Additional Readings

250 Part Four Compensating Human Resources

16. Frederick A. Russ and Kevin M. McNeilly, “Links among Satisfaction, Commitment, and Turnover

Intentions: The Moderating Effect of Experience, Gender, and Performance,” Journal of Business

Research, September 1995, pp. 57–65; Ellen R. Auster, “Professional Women’s Midcareer

Satisfaction: Toward an Explanatory Framework,” Sex Roles, June 2001, pp. 719–50.

17. Michael Hickins, “Give a Little, Get a Lot,” Management Review, October 1998, p. 6; see also Susan

J. Lambert, “Added Benefi ts: The Link between Work Life Benefi ts and Organizational Citizenship

Behavior,” Academy of Management Journal, October 2000, pp. 801–15; Peggy Simonsen, “Do

Your Managers Have the Right Stuff ?” Workforce 78, no. 2 (August 1999), pp. 47–52.

18. “2009 Employee Job Satisfaction,” op. cit.

19. P. Thompson and J. Pronsky, “Secrecy or Disclosure in Management Compensation,” Business

Horizons, June 1975, pp. 67–74; John Case, “When Salaries Aren’t Secret,” Harvard Business Review,

May 2001, pp. 37–45, and Adrienne Colella, Ramona L. Paetzold, Asghar Zardkoohi, and Michael J.

Wesson, “Exposing Pay Secrecy,” Academy of Management Review, 32, no. 1, 2007, pp. 55–71.

20. Betty Southard Murphy, Wayne E. Barlow, and D. Diane Hatch, “Rule against Discussion of Salaries

Violates NLRA,” Personnel Journal, December 1992, pp. 22; Mary Williams Walsh, “The Biggest

Company Secret: Workers Challenge Employer Policies on Pay Confi dentiality,” New York Times,

July 28, 2000.

21. Walsh, “The Biggest Company Secret,” and “Gender Pay Divide Continues to Grow,” Personnel

Today, January 27, 2004, p. 43.

22. Betty Southard Murphy, Wayne E. Barlow, and D. Diane Hatch, “Comparable Worth Claims

Rejected,” Personnel Journal, January 1990, pp. 14–18; and Linda Chavez, “Comparable Worth,”

The Wall Street Journal, August 24, 2005, p. A 10.

23. Ibid., p. 18; Laura Pincis and Bill Shaw, “Comparable Worth: An Economic and Ethical Analysis,”

Journal of Business Ethics, April 1, 1998, pp. 455–70, and Linda Chavez, “Comparable Worth.”

24. E. E. Lawler III, Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-

Hill, 1971), pp. 244–47.

25. “Rewards Are Now Critical to Keep Valued Employees,” IOMA’s Report on Salary Surveys,

May 2007, pp. 1–4.

251

Chapter Thirteen

Base Wage and Salary Systems

Chapter Outline

Objective of the Base Wage and Salary

System

Conventional Job Evaluation

Job Ranking Method

Job Classifi cation Method

Point Method

Factor Comparison Method

Comparison of Job Evaluation Methods

Pricing the Job

Wage and Salary Surveys

Wage and Salary Curves

Base Wage/Salary Structure

New Approaches to the Base Wage/Salary

Structure

Broadbanding

Skill-Based Pay

Competency-Based Pay

Market-Based Pay

Total Rewards

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 13.1: Fair Pay for Pecan Workers

Incident 13.2: A Dead-End Street?

Exercise 13.1: Ranking Jobs

Exercise 13.2: Wage/Salary Survey

Notes and Additional Readings

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne base wages and salaries and

state the objective of any base wage

and salary system.

2. Defi ne job evaluation.

3. Name and briefl y discuss the four

basic conventional methods of job

evaluation.

4. Explain the concepts of key jobs and

compensable factors.

5. Differentiate between subfactors and

degrees.

6. Explain the purpose of wage and

salary surveys.

7. Discuss wage and salary curves.

8. Defi ne pay grades and pay ranges.

9. Explain the concepts of broadbanding,

skill-based pay, competency-based pay,

market-based pay, and total rewards.

Base wages and salaries are the hourly, weekly, or monthly pay that employees receive in exchange for their work. In most situations, base wages or salaries make up the largest portion

of an employee’s total compensation. In light of the facts that many organizations do not pay

incentives and many employees discount or take for granted the value of benefi ts, base wages

and salaries are often the focus of the compensation system in the eyes of employees.

Base wages and salaries form the foundation for most employees’ perceptions of the fair-

ness, or equity, of the pay system. As discussed in the previous chapter, if employees do not

perceive they are being fairly paid, many possible negative effects (tardiness, absenteeism,

base wages and salaries Hourly, weekly, and monthly

pay that employees receive for

their work.

252 Part Four Compensating Human Resources

turnover, strikes, etc.) may result. In addition, the base wage and salary system often refl ects

the atmosphere of the entire organization. If the base wage and salary system is perceived as

being fair and equitable, the organization is usually viewed in the same light. Of course, the

reverse is also true. It is therefore critical that an organization develop and maintain a sound

base wage and salary system.

OBJECTIVE OF THE BASE WAGE AND SALARY SYSTEM

The primary objective of any base wage and salary system is to establish a structure for the

equitable compensation of employees, depending on their jobs and their level of performance

in their jobs. While this objective is straightforward, successfully attaining it is not easy.

Figure 13.1 represents some of the basic policy questions that need to be addressed as a fi rst

step in establishing a base wage and salary system.

Most base wage and salary systems establish pay ranges for certain jobs based on the rela-

tive worth of the job to the organization. An employee’s performance on the job should then

determine where that employee’s pay falls within the job’s range. The key to a sound base wage

and salary system is the establishment of different pay ranges for the various jobs within the

organization. A pay range for a given job establishes a range of permissible pay, with a mini-

mum and a maximum. Establishing pay ranges involves two basic phases: (1) determining the

relative worth of the different jobs to the organization (ensuring internal equity) and (2) pricing

the different jobs (ensuring external equity). Job evaluation is the primary method for deter-

mining the relative worth of jobs to the organization. Wage surveys represent one of the most

commonly used methods for pricing jobs. Conventional job evaluations and wage surveys, as

well as some new approaches to both, are discussed in the following sections.

CONVENTIONAL JOB EVALUATION

Job evaluation is a systematic determination of the value of each job in relation to other jobs in the organization. This process is used for designing a pay structure, not for appraising

the performance of employees holding the jobs. The general idea of job evaluation is to enu-

merate the requirements of a job and the job’s contribution to the organization and then clas-

sify it according to its importance. For instance, a design engineer’s job would involve more

complex requirements and a potentially greater contribution to an organization than that of an

assembler of the designed product. Although both jobs are important, a determination must be

made concerning the relative worth of each. While the overriding purpose of job evaluation

Web site: Job Star Central’s Salary Info www.jobstar.org/tools/salary

job evaluation Systematic determination

of the value of each job in

relation to other jobs in the

organization.

FIGURE 13.1 Specifi c Policy Issues

in Developing and

Implementing a Base Wage

and Salary Structure

Source: Henderson, Richard I.,

Compensation Management: Rewarding

Performance, 2nd ed., pp. 98–102.

Pearson Education, Inc., Upper Saddle

River, New Jersey.

1. What is the lowest rate of pay that can be offered for a job that will entice the quality of employees

the organization desires to have as its members?

2. What is the rate of pay that must be offered to employees to ensure that they remain with the

organization?

3. Does the organization desire to recognize seniority and meritorious performance through the base

pay schedule?

4. Is it wise or necessary to offer more than one rate of pay to employees performing either identical

or similar work?

5. What is considered to be a suffi cient difference in base rates of pay among jobs requiring varying

levels of knowledge and skills and of responsibilities and duties?

6. Does the organization wish to recognize dangerous and distressing working conditions within the

base pay schedule?

7. Should there be a difference in base pay progression opportunities among jobs of varying worth?

8. Do employees have a signifi cant opportunity to obtain higher-level jobs? If so, what should be the

relationship between promotion to a higher job and changes in base pay?

9. Will policies and regulations permit employees to earn rates of pay higher than established

maximums and lower than established minimums? What would be the reasons for allowing such

deviations?

10. How will the pay structure accommodate across-the-board, cost-of-living, or other adjustments not

related to employee tenure, performance, or responsibility and duty changes?

253

is to establish the relative worth of jobs, it can serve several other purposes. Figure 13.2 lists

potential uses of job evaluations.

The fi rst step in a job evaluation program is to gather information on the jobs being evaluated.

Normally, information is obtained from current job descriptions. If current job descriptions do

not exist, it is usually necessary to analyze the jobs and create up-to-date descriptions.

The job evaluation process then identifi es the factor or factors to be used in determining

the worth of different jobs to the organization. Some frequently used factors are knowledge,

responsibility, and working conditions. The job evaluation process also involves developing

and implementing a plan that uses the chosen factors for evaluating the relative worth of the

different jobs to the organization. Such a plan should consistently place jobs requiring more

of the factors at a higher level in the job hierarchy than jobs requiring fewer of the factors.

HRM in Action 13.1 describes a simple job evaluation application and the benefi ts derived for

a small British organization.

After turning to new and different methods for valuing jobs and work (these are discussed

later in this chapter), there is evidence of a renewed interest in using job-focused approaches

(primarily job evaluations) to compensation.1 Most conventional job evaluation plans are vari-

ations or combinations of four basic methods: job ranking, job classifi cation, point, and factor

comparison.

Job Ranking Method Job ranking is the simplest, oldest, and least often used job evaluation technique. In the job ranking method, the evaluator ranks jobs from the simplest to the most diffi cult. Often the evaluator prepares cards with basic information about the jobs and then arranges the cards in

the order of importance of the positions. The job ranking method produces only an ordering

of jobs and does not indicate the relative degree of difference among them. For example, a job

with a ranking of four is not necessarily twice as diffi cult as a job with a ranking of two.

job ranking method Job evaluation method that

ranks jobs in order of their

diffi culty from simplest to

most complex.

• To provide a basis for a simpler, more rational wage structure.

• To provide an agreed-on means of classifying new or changed jobs.

• To provide a means of comparing jobs and pay rates with those of other organizations.

• To provide a base for employee performance measurements.

• To reduce pay grievances by reducing their scope and providing an agreed-on means of resolving

disputes.

• To provide incentives for employees to strive for higher-level jobs.

• To provide information for wage negotiations.

• To provide data on job relationships for use in internal and external selection, human resource

planning, career management, and other personnel functions.

FIGURE 13.2 Potential Uses of Job

Evaluations

Source: David W. Belcher and Thomas J.

Atchison, Compensation Administration,

2nd ed. Used by permission of Economic

Research Institute.

BENEFITS OF A JOB EVALUATION IN A SMALL ORGANIZATION The Fawcett Society is a British charity that promotes sexual

equality focusing on areas such as women’s representation

in politics and public life, equal pay, and the treatment of

women in the justice system. The society traces its roots back

to the 19th century.

Prompted by high staff turnover, partially the results

of erratic funding, the Fawcett Society decided to review

all of its HR practices including evaluating the jobs of all

10 employees. Dorothy Telfer, an HR consultant, was called

in to oversee the exercise. Telfer began by explaining the

concept of job evaluation and clearly differentiated job

evaluation from performance appraisal. The goal at this

point was to obtain “buy-in“ from the staff and to answer

questions about the process. Staff members were then

asked to write their own job description in an agreed-upon

format. A committee composed of staff and trustees then

evaluated every job. Jobs were graded according to the

skills and competencies needed to perform them. Speci-

fi cally fi ve factors were assessed: knowledge and expertise;

decision making; thinking; leadership; and responsibility for

resources.

Telfer believes the exercise enabled each staff member to

better understand what he or she needed if they were to

do their jobs well and ways in which they could improve

their skills. The society’s director, Katherine Rake, believes

the process “gave staff a clear understanding of how they

could move up and it produced a transparent framework for

evaluating new posts.“

Source: Matthew Little, “Case Study Job Evaluation,“ Third Sector, February 8, 2006, p. 18.

HRM in Action 13.1

254

Job Classifi cation Method A second type of job evaluation plan is the job classifi cation method, or job grading. Certain classes or grades of jobs are defi ned on the basis of differences in duties,

responsibilities, skills, working conditions, and other job-related factors. The relative worth

of a particular job is then determined by comparing its description with the description of

each class and assigning the job to the appropriate class. This method has the advantage of

simplicity, but is not always precise because it evaluates the job as a whole. The number

of required classes or grades depends on the range of skills, responsibilities, duties, and

other requirements among the jobs being evaluated. Normally, 5 to 15 classes will suffi ce.

Since 1949, the U.S. government has used the job classifi cation method to evaluate all civil

service jobs. HRM in Action 13.2 discusses some of the problems the city of Jacksonville,

Florida, had with its job classifi cation system.

Point Method The point method has historically been the most widely used job evaluation plan in the United States.2 It has the advantages of being relatively simple to use and reasonably

objective. When the point method is used, a quantitative point scale is developed for the jobs

being evaluated. One scale usually cannot be used to evaluate all types of jobs. For example,

different scales are normally required for clerical and production jobs. Another scale is usually

required to evaluate management and professional jobs. Usually the human resource depart-

ment decides which jobs are to be included in a specifi c evaluation scale.

Selection of Key Jobs

After deciding which jobs are to be evaluated on each specifi c scale, key (benchmark)

jobs are selected. Key jobs represent jobs that are common throughout the industry or

in the general locale under study. The content of key jobs should be commonly under-

stood. If there is any confusion about the description of a job or what its pay should be,

it should probably not be selected as a key job. The general idea is to select a limited

number (20 percent is a good guideline) of key jobs that are representative of the entire pay

structure and the major kinds of work being evaluated.3 The selection of key jobs should

adequately represent the span of responsibilities, duties, and work requirements of the jobs

being evaluated. Because key jobs usually represent only a small number of all jobs being

evaluated, they may supply only a limited amount of data. However, the commonality and

widespread acceptance of key jobs provide a basis for sound understanding and agreement.

The goal here is to select enough key jobs to represent each major internal variable in the

pay structure for all the jobs being evaluated. A full and detailed job description is neces-

sary for each key job.

job classifi cation method Job evaluation method that

determines the relative worth

of a job by comparing it to a

predetermined scale of classes

or grades of jobs.

point method Job evaluation method in which

a quantitative point scale is

used to evaluate jobs on a

factor-by-factor basis.

JACKSONVILLE UPDATES JOB CLASSIFICATIONS For years, the city code of Jacksonville, Florida generally

placed employees into two categories: civil service or exempt

from civil service. Different job classifi cations are then

listed under these two major categories. For years many

mid-management-level positions, including risk managers,

veterinarians, and budget analysts, did not clearly fi t into

any existing category and classifi cation. When one of these

jobs was fi lled, the holder was classifi ed as an Assistant

Manager Improvement Offi cer (AMIO). People placed in the

AMIO classifi cation were often appointed by the mayor and

many viewed this as an example of cronyism and waste.

In 2009 Councilwoman Glorious Johnson spoke out and

complained that the city’s roughly 200 AMIOs were being

overpaid under a job classifi cation that was too loosely

defi ned. Johnson pointed out that since she joined the

council in 2003, the number of AMIOs had nearly doubled.

She also criticized the manner in which the people classifi ed

as AMIOs were hired, arguing that the job could be used to

show favoritism.

Mayor John Peyton and his staff didn’t agree with all the

criticism about AMIOs but did agree to update the city code

and its job classifi cation system. Once the initial update has

been implemented, the plan is to review the city code and

job classifi cation system every four years.

Source: “Jacksonville Mayor Making Job Class Changes: A New Bill Will Help Control about 200 Positions,” McClatchy-Tribune Business News, November 16, 2009.

HRM in Action 13.2

Chapter 13 Base Wage and Salary Systems 255

Selecting Compensable Factors

Compensable factors are those factors or characteristics of jobs that the organization deems important to the extent that it is willing to pay for them. The degree to which a specifi c

job possesses these compensable factors determines its relative worth.

Early approaches to job evaluation proposed a set of universal factors. The belief was that

a given set of factors—usually skill, responsibility, and working conditions—should apply to

all jobs. This theory has gradually been replaced by one postulating that each organization

must tailor its compensable factors to fi t its own special requirements. Thus, complete adop-

tion of any set of universal factors is not recommended. For example, the compensable factors

selected for evaluating production jobs might include skill, effort, and working conditions,

whereas the compensable factors selected for evaluating managerial and professional jobs

might be knowledge, responsibility, and decision-making requirements. Compensable factors

selected for unionized jobs must be acceptable to both management and the union.

In the point method, job subfactors are used to describe compensable factors in more detail. For instance, the compensable factor of responsibility might include subfactors for

determining organizational policy, responsibility for the work of others, responsibility for

the development and maintenance of customer goodwill, or responsibility for organizational

assets. Degree statements, or profi le statements as they are sometimes called, describe the specifi c requirements of each subfactor. Degree statements are in the form of written

phrases. Table 13.1 presents possible degrees and subfactors for the compensable factor of

responsibility. Breaking compensable factors into subfactors and degrees allows for a more

precise defi nition of the job and facilitates the evaluation process.

Assigning Weights to Factors

Weights are assigned to each of the factors, subfactors, and degrees to refl ect their relative

importance. Naturally, the weight assigned varies from job to job. For example, skill might be

the most important factor used in evaluating a machinist’s job, whereas responsibility might

be more critical to a supervisor’s job.

While some systematic and helpful approaches exist for assigning weights, there is no

one best method. Regardless of the technique used, both past experience and judgment play

major roles in assigning weights. Generally, weights are assigned on the basis of a maximum

compensable factors Characteristics of jobs that the

organization deems important

to the extent that it is willing to

pay for them.

job subfactor Detailed breakdown of a single

compensable factor of a job.

degree statements Written statements used as a

part of the point method of

job evaluation to further break

down job subfactors.

Subfactors

First Degree

(Junior Customer

Service Representative)

Second Degree

(Customer Service

Representative)

Third Degree

(Senior Customer Service

Representative)

Fourth Degree

(Sales/Service Manager)

Determining

organizational

policy

May make suggestions to

superior as to changes,

most often minor, in

organizational policy.

Often suggests changes

in procedures applying

mostly to affairs within

departments.

May determine minor

policies of organization with

close control of supervisors;

may interpret organization

policy to subordinates.

Determines organizational

policy for large group

of employees; incorrect

execution would result

in considerable loss.

Work of others;

managerial ability

required

Responsible only for own

work, including individual

work or work of “fl ow”

nature.

Small amount of

supervision; performs

mechanical operations

and may control

some work.

Supervises many employees

or a department, organizing

and coordinating with other

supervisors.

Responsible for

coordination of groups of

departments.

Development and

maintenance of

goodwill with

customers and

public

Has very little contact with

customers or public.

Only contact with

customers and public

is checked through

communications or

occasional telephone calls.

Tact needed to avoid

possible loss of goodwill

through close contact

with customers via letters

or personal interviews.

Considerable contact

with customers, other

organizations, and public;

tact and diplomacy

needed.

Organization cash

expenditures;

judgment needed

in expenditures of

organization funds

Cash expenditures of not

more than $100 monthly.

Cash expenditures of

$101 to $500 monthly.

Cash expenditures of

$501 to $1,500 monthly.

Cash expenditures of

$1,501 to $5,000 monthly.

TABLE 13.1 Possible Subfactors and Degrees for the Compensable Factors of Responsibility, with Sample Jobs

Source: Adapted from J. L. Otis and R. H. Leukart, Job Evaluation, 2nd ed. (Englewood Cliffs, N.J.: Prentice Hall, 1959), pp. 110–11.

256 Part Four Compensating Human Resources

number of points for any job; this number is often decided arbitrarily. Points are then assigned

to the compensable factors, subfactors, and degrees on the basis of their relative importance.

Table 13.2 presents a possible point breakdown that totals 1,000 points. In this example, the

compensable factor of responsibility was deemed to be the most important factor and was

awarded 360 points. The factor of responsibility was divided into four subfactors: responsibil-

ity for organizational policy, responsibility for the work of others, responsibility for goodwill

and public relations, and responsibility for organizational cash expenditures. Each subfactor

was further divided into four degrees. Note that the sum of the points for the highest degree

for each of the subfactors totals the maximum number of points for the factor. In Table 13.2,

80 points for company policy plus 160 points for the work of others plus 80 points for good-

will and public relations plus 40 points for company cash equal 360 total points.

Assigning Points to Specifi c Jobs

After the point scale has been agreed on, point values are derived for key jobs using the fol-

lowing steps:

1. Examine the job descriptions.

2. Determine the degree statement that best describes each subfactor for each compensable factor.

3. Add the total number of points.

The point totals should present the same general relationships that the actual pay scales

show for the key jobs. That is, a rank ordering of the key jobs according to point totals should

be approximately equivalent to a rank ordering of key jobs according to pay. This serves as a

check on the appropriateness of the points that have been assigned to the degrees, subfactors,

and factors. Nonkey jobs can then be evaluated in the same manner by determining the appro-

priate points for each factor from the scale and then totaling the points. Table 13.3 illustrates

possible point totals for several banking jobs.

TABLE 13.2 Sample Point Values

Assigned Points per Degree

Compensable Maximum

Factor Points Subfactors First Second Third Fourth

Skill 260 Job knowledge 35 70 105 140

Experience 20 40 60 80

Initiative 10 20 30 40

Effort 240 Physical 20 40 60 80

Mental 40 80 120 160

Responsibility 360 For organizational policy 20 40 60 80

For work of others 40 80 120 160

For goodwill with

customers and

public 20 40 60 80

For company cash 10 20 30 40

Job conditions 140 Working conditions 20 40 60 80

Hazards 15 30 45 60

Total possible 1,000

points

Job Points

Head teller 980

Loan teller 900

Teller 870

Customer service rep. 750

Custodian 500

TABLE 13.3 Possible Point Totals

for Key Banking Jobs

Chapter 13 Base Wage and Salary Systems 257

One drawback of the point method is the amount of time required to develop the point

scale. However, once a scale has been properly formulated for the key jobs, it does not take

long to evaluate the remaining jobs. Also, efforts should always be made to keep the system

simple and easy for employees to understand.

Factor Comparison Method Eugene Benge originated the factor comparison method of job evaluation in 1926 to overcome

the inadequacies he perceived in the point method.4 The factor comparison method is similar to the point method except that it involves a monetary scale instead of a point scale.

As with the point method, key jobs are selected. It is absolutely essential that the rates of pay

of key jobs be viewed as reasonable and fair to all those making evaluations. Compensable

factors are then identifi ed, just as with the point method.

Unlike the point method, however, the factor comparison method does not break down

the compensable factors into subfactors and degrees. Another difference between the two

techniques involves ranking the compensable factors. In the factor comparison method, each

compensable factor is ranked according to its importance in each key job. This is done by as-

signing a rank to every key job on one factor at a time rather than ranking one job at a time on

all factors. For example, Table 13.4 gives a factor-by-factor ranking of key jobs within a bank.

Notice how each key job is ranked for each compensable factor. Many proponents of the factor

comparison method suggest that to validate the rankings, they should be done once or twice at

later dates without reference to the previous rankings.

After each key job has been ranked on a factor-by-factor basis, the next step is to allocate

the wage or salary for each job according to the ranking of the factors. It is important to

remember that one of the selection criteria of a key job is that evaluators must view the pay

rate as reasonable and fair. Some proponents of the factor comparison method say that the

pay should be allocated without reference to the factor rankings; others believe the evaluators

should refer to the factor rankings when apportioning the pay. Regardless, the money alloca-

tion and the factor rankings must ultimately be consistent. If discrepancies occur that cannot

be resolved, the job in question should be eliminated from the list of key jobs. Table 13.5

presents a sample pay allocation for the key jobs in Table 13.4. Notice how the fi gures for each

column in Table 13.5 are consistent with the ranking for each column in Table 13.4.

As the fi nal step in the factor comparison method, a monetary scale is prepared for each

compensable factor. Each scale not only shows the rank order of the jobs but also establishes

their relative differences in pay. Table 13.6 illustrates a monetary scale for the compensable

factor of responsibility for banking jobs.

factor comparison method Job evaluation technique that

uses a monetary scale for

evaluating jobs on a factor-by-

factor basis.

TABLE 13.4 Factor-by-Factor Ranking

of Key Banking Jobs Job

Compensable Factor

Mental

Requirements Skill Physical Responsibility

Working

Conditions

Head teller 1 4 5 1 5

Loan teller 2 1 3 2 3

Teller 3 2 2 3 2

Customer service rep. 4 3 4 4 4

Custodian 5 5 1 5 1

Job

Compensable Factor

Mental

Requirements Skill Physical Responsibility

Working

Conditions

Head teller $494.00* $153.00 $ 60.00 $294.00 $ 47.00

Loan teller $395.00 $186.00 $130.00 $234.00 $ 75.00

Teller $377.00 $177.00 $153.00 $200.00 $148.00

Customer service rep. $358.00 $172.00 $ 70.00 $117.00 $ 60.00

Custodian $182.00 $ 62.00 $278.00 $ 31.00 $106.00

* All fi gures are per week.

TABLE 13.5 Sample Allocation Pay for

Key Banking Jobs

258 Part Four Compensating Human Resources

Other jobs are evaluated by studying their respective job descriptions and locating each

job on the monetary scale for each compensable factor. The total worth of a given job is then

determined by adding the dollar amounts assigned to each compensable factor.

Comparison of Job Evaluation Methods The point and factor comparison methods are commonly referred to as quantitative plans

because a number or dollar value is ultimately assigned to each job being evaluated. Numbers

or dollars are assigned on the basis of the degree to which the job contains the predetermined

compensable factors. The job classifi cation and ranking methods, called qualitative or non-

quantitative techniques, compare whole jobs. The point system and the job classifi cation sys-

tem have a common feature in that they evaluate jobs against a predetermined scale or class,

whereas the factor comparison and job ranking methods evaluate jobs only in comparison to

the other positions in the organization. Table 13.7 summarizes the advantages and disadvan-

tages of each job evaluation method.

Major Advantages Major Disadvantages

Job ranking method 1. It is fast and easy to complete.

2. Because it can usually be done in hours, it is

relatively inexpensive.

3. It is easy to explain.

1. It is limited to smaller organizations where

employees are very familiar with various jobs.

2. This method assumes equal intervals between

the rankings, and this is usually not true.

3. The method is highly subjective.

Job classifi cation method 1. Because it has been used by federal, state,

and local governments for years, it is readily

accepted by employees.

2. It is readily adaptable to very large

organizations with many offi ces that are

geographically dispersed.

3. Because the classifi cations are broad and not

specifi c, the system can last for years without

substantial change.

1. The classifi cation descriptions are so broad

that they do not relate to specifi c jobs; this

causes employees to question the grades of

their respective jobs.

2. Because of the broad and general

classifi cations, job evaluators may abuse

the system.

Point method 1. It is detailed and specifi c—jobs are evaluated

on a component basis and compared against a

predetermined scale.

2. Employees generally accept this method

because of its mathematical nature.

3. The system is easy to keep current as jobs change.

4. Because of its quantitative nature, it is easy to

assign monetary values to jobs.

1. It is relatively time-consuming and costly to

develop.

2. It requires signifi cant interaction and decision

making by the different parties involved in

conducting the job evaluations.

Factor comparison

method

1. It is relatively detailed and specifi c—jobs are

evaluated on a component basis and compared

against other jobs.

2. It is usually easier to develop than the point

method.

3. It is tied to external market wage rates.

1. It is relatively diffi cult to explain to employees.

2. It is not easily adapted to changes in the jobs

being evaluated.

TABLE 13.7 Advantages and Disadvantages of Different Job Evaluation Methods

Monetary Value/

Week Key Job

Monetary Value/

Week Key Job

$20.00

$40.00 Custodian $180.00

$60.00 $200.00 Teller

$80.00 $220.00 Loan Teller

$100.00 $240.00

$120.00 Customer Service Rep. $260.00

$140.00 $280.00

$160.00 $300.00 Head Teller

$320.00

TABLE 13.6 Monetary Scale

for Responsibility

Requirements

in Banking Jobs

Chapter 13 Base Wage and Salary Systems 259

PRICING THE JOB

The factor comparison method of evaluation is the only conventional technique that relates the

work of jobs to a monetary scale; even then, the results are derived primarily from the wage

scale the organization currently uses. In general, job evaluation cannot be used to set the wage

rate; however, it provides the basis for this determination. To ensure that external factors such

as labor market conditions, prevailing wage rates, and living costs are recognized in the wage

scale, information about these factors must be gathered.

Wage and Salary Surveys Wage and salary surveys are used to collect comparative information on the policies, practices, and methods of wage payment from selected organizations in a given geographic

location or particular type of industry. In addition to providing knowledge of the market and

ensuring external equity, wage surveys can correct employee misconceptions about certain

jobs. They can also have a positive impact on employee motivation.5

Wage or salary survey information can be obtained in two basic ways: (1) conducting

your own survey or (2) purchasing or accessing a wage/salary survey undertaken by another

party.

Conducting a Wage/Salary Survey

To design a wage survey, the jobs, organizations, and area to be studied must be determined,

as must the method for gathering data. If the wage survey is done in conjunction with either

the point or factor comparison method or job evaluation, the key jobs selected are normally

the ones that are surveyed. A good rule of thumb is that a minimum of 30 percent of the

jobs in an organization should be surveyed to make a fair evaluation of the organization’s

pay system.6 It is also desirable to have at least 10 samples per job.7 When using the clas-

sifi cation or ranking method, the organization should apply the same guidelines followed

for selecting jobs with the point and factor comparison methods in choosing the jobs to be

surveyed.

A geographic area, an industry type, or a combination of the two may be surveyed. The size

of the geographic area, the cost-of-living index for the area, and similar factors must be con-

sidered when defi ning the scope of the survey. The organizations to be surveyed are normally

competitors or companies that employ similar types of employees. When they are willing to

cooperate, it is often desirable to survey the most important and most respected organizations

in the area.

The three traditional methods of surveying wage data are personal interviews, tel-

ephone interviews, and mailed questionnaires. The most reliable and most expensive

method is the personal interview. Mailed questionnaires should be used only to survey

jobs that have a uniform meaning throughout the industry. If there is any doubt concern-

ing the defi nition of a job, the responses to a mailed questionnaire may be unreliable.

Another potential problem with mailed questionnaires is that they can be answered by

someone who is not thoroughly familiar with the wage structure. The telephone method,

which is quick but often yields incomplete information, may be used to clarify responses

to mailed questionnaires.

The Internet represents the fastest growing and latest technology for conducting wage/

salary surveys. The benefi ts of using the Internet are that it is inexpensive and quick.

The drawbacks to using the Internet for conducting salary surveys are similar to those

encountered with a mailed questionnaire. Because the advantages of cost and speed are so

substantial, there is little doubt that the Internet is fast becoming the method of choice for

conducting salary surveys of all types. Figure 13.3 lists some topics that might be covered

in a wage/salary survey.

Purchasing or Accessing Wage/Salary Surveys

Wage survey data can be purchased or accessed from a variety of sources. Since the early

1950s, consulting fi rms such as Mercer, Watson Wyatt, and PricewaterhouseCoopers have sold

wage and salary survey Survey of selected

organizations within

a geographical area or

industry designed to provide

a comparison of reliable

information on policies,

practices, and methods of

payment.

Web site: Salary Survey Data www.wageweb.com

260 Part Four Compensating Human Resources

compensation surveys; however, these surveys are usually relatively expensive. The Bureau of

Labor Statistics of the U.S. Department of Labor, state and local governments, trade associa-

tions, and chambers of commerce are all potential sources for relatively inexpensive wage/salary

surveys. Also a number of wage/salary surveys and other survey information are available on

the Internet. Surveys available on the Internet fall into two broad categories: (1) surveys con-

ducted by the federal government, and (2) surveys conducted by private research organizations,

professional associations, employees’ associations, and consulting fi rms.8 Figure 13.4 lists a

sample of some different Web sites for obtaining wage/salary survey data. Most of the non-

government sites listed in Figure 13.4 charge for accessing their information.

Pitfalls and Guidelines

Wage and salary surveys can be quite helpful if conducted and interpreted properly. If not

done properly, they can yield very distorted and inaccurate information and can be the subject

of much criticism. Figure 13.5 summarizes specifi c problems often associated with wage and

salary surveys. Regardless of the type of survey used, the following guidelines should be fol-

lowed to avoid problems:

1. Assess the participating companies for comparability. Not only should factors such as

size and type of business be considered, but intangibles, such as prestige, security, growth

opportunity, and location, are also important.

2. Compare more than base wage or salary. The total compensation package, including

incentives and benefi ts, should be considered. For example, a company might provide few

benefi ts but compensate for this with high base wages and salaries.

3. Consider variations in job descriptions. The most widely acknowledged shortcoming of

wage and salary surveys is that it is diffi cult to fi nd jobs that are directly comparable.

Usually more information than a brief job description is needed to properly match jobs in

a survey.

4. Correlate survey data with adjustment periods. How recently wages and salaries were

adjusted before the survey affects the accuracy of the data. Some companies may have just

made adjustments, whereas others may not.9

The U.S. Department of Labor

The U.S. Department of Labor, Bureau of Labor

Statistics Home Page

World at Work (formerly The American

Compensation Association)

The AFL-CIO Executive Pay Watch

Payscale, Inc.

Salary, Inc.

Wage Web

Job Search Guide offering links to more than

150 salary surveys

Subsidiary of Career Builders.com

http://www.dol.gov

http://www.bls.gov

http://www.worldatwork.org

http://www.afl cio.org/paywatch/index.htm

http://www.payscale.com

http://www.salary.com

http://www.wageweb.com

http://www.jobstar.org/tools/salary

http://www.CBSalary.com

FIGURE 13.4 Sample of Web Sites for

Wage/Salary Survey Data

Length of workday

Normal workweek duration

Starting wage rates

Base wage rates

Pay ranges

Incentive plans

Shift differentials

Overtime pay

Vacation practices

Holiday practices

Cost-of-living clauses

Where paid

How often paid

Policy on wage garnishment

Description of union contract

FIGURE 13.3 Possible Topics in a

Wage Survey

Chapter 13 Base Wage and Salary Systems 261

Comparable worth theory, which was discussed in Chapters 3 and 12, holds that every job

should be compensated on the basis of its value to the employer and society. In this theory,

factors such as availability of qualifi ed employees and wage rates paid by other employers

should be disregarded. Under the comparable worth theory, wage surveys would have no

value. However, as discussed in Chapter 3, the Ninth Circuit Court of Appeals has ruled that

the value of a particular job to an employer is only one of many factors that should infl uence

the rate of compensation for that job.

Wage and Salary Curves Wage and salary curves graphically show the relationship between the relative worth of jobs and their wage or salary rates. In addition, these curves can be used to indicate pay classes

and ranges for the jobs. Regardless of the job evaluation method used, a wage curve plots the

jobs in ascending order of diffi culty along the abscissa (x-axis) and the wage rate along the

ordinate ( y-axis). If the point method is used for evaluation, the point totals are plotted against

their corresponding wage rates, as shown in Figure 13.6, to produce a general trend.

To ensure that the final wage structure is consistent with both the job evaluations and

the wage survey data, it is sometimes desirable to construct one wage curve based on

present wages and one based on the survey data and compare the two. Any discrepan-

cies can be quickly detected and corrected. Points of the graph that do not follow the

general trend indicate that the wage rate for that job is too low or too high or that the job

has been inaccurately evaluated. Underpaid jobs are sometimes called green-circle jobs;

when wages are overly high, the positions are known as red-circle jobs. These discrepan-

cies can be remedied by granting above- or below-average pay increases for the jobs in

question.

wage and salary curves Graphical depiction of the

relationship between the

relative worth of jobs and their

wage rates.

Job categories too broad or imprecise.

Industry categories too broad or imprecise.

Unadjusted for major benefi ts.

Salary categories too broad or imprecise.

Company type/size diffi cult to relate to own.

Out-of-date or undated data.

Samples of fi rms unrepresentative.

Samples of fi rms too small.

Survey based on unemployed and/or job seekers.

Survey too broad or imprecise in other ways.

FIGURE 13.5 Problems Encountered

When Using Salary

Survey Data

Source: Personnel by J. C. O’ Brien

American Management Association.

Reproduced with permission of

American Management Association

in the format Textbook via Copyright

Clearance Center.

W ag

e r

at e

100

8.50

$9.00

8.00

7.50

6.50

6.00

Points

200 300 400 500

7.00

5.50

5.00

FIGURE 13.6 Wage Curve Using the

Point Method

262 Part Four Compensating Human Resources

Pay Grades and Ranges

To simplify the administration of a wage structure, jobs of similar worth are often grouped

into classes, or pay grades, for pay purposes. If the point method is used for evaluating jobs, classes are normally defi ned within a certain point spread. Similarly, a money spread can be

used for defi ning grades if the factor comparison method is used. Table 13.8 illustrates how

grades might be defi ned for the jobs shown in Figure 13.6.

Usually, at the same time pay grades are established, pay ranges are determined for each grade. When this is done, each pay grade is assigned a range of permissible pay, with a mini-

mum and a maximum. The maximum of a pay grade’s range places a ceiling on the rate that

can be paid to any employee whose job is classifi ed in that grade. Similarly, the minimum of

the pay grade’s range places a fl oor on the rate that can be paid. Two general approaches for

establishing pay grades and ranges are to have a relatively large number of grades with identi-

cal rates of pay for all jobs within each grade and to have a small number of grades with a

relatively wide dollar range for each grade. Most pay structures fall somewhere between these

extremes.

Ranges within grades are set up so that distinctions can be made among employees within

grades. Ideally, the placement of employees within pay grades should be based on performance

or merit. In practice, however, the distinction is often based solely on seniority. Figure 13.7

illustrates how pay ranges might be structured for the jobs in Figure 13.6.

On reaching the top of the range for a given grade, an employee can increase his or her

pay only by moving to a higher grade. As shown in Figure 13.7, it is not unusual for the

ranges of adjacent pay grades to overlap. Under such circumstances, it is possible for an out-

standing performer in a lower grade to earn a higher salary than a below-average performer

in a higher grade.

pay grades Classes or grades of jobs that

for pay purposes are grouped

on the basis of their worth to an

organization.

pay range Range of permissible pay, with

a minimum and a maximum,

that is assigned to a given pay

grade.

Grade

Point Range

0–150

151–250

251–350

351–450

451–550

TABLE 13.8 Establishing Wage Grades

W ag

e r

at e

100

$11.00

10.25

8.00

Points

200 300 400 500

9.50

7.25

Grade 1

Grade 2

Grade 3

Grade 4

8.75

Grade 5

FIGURE 13.7 Establishment of Pay

Grades with Ranges

Chapter 13 Base Wage and Salary Systems 263

Compensation policies

Job analysis

Job descriptions

Compensation policies

Selection of job

evaluation method

Evaluation of jobs

Wage survey

Construction of wage

curves with pay

grades and ranges

Basic wage structure

Compensation policies

FIGURE 13.8 Developing the Base Wage

Salary Structure

BASE WAGE/SALARY STRUCTURE

Figure 13.8 illustrates how the various segments of the compensation process fi t together to es-

tablish the base wage or salary structure for an organization. Compensation policies are shown

on all sides of the fi gure to emphasize the fact that each step in the process is infl uenced by the

organization’s current compensation policies. Ideally, an organization’s compensation system

should produce a base wage/salary structure that is both internally and externally equitable.

The job evaluation process should ensure internal equity, while wage surveys should ensure

external equity. The performance appraisal process, discussed in Chapter 11, is then used to

position an individual employee within the established range.

NEW APPROACHES TO THE BASE WAGE/SALARY STRUCTURE

As described previously in this chapter, conventional base pay systems compensate employ-

ees based on the work required to do a specifi c job as determined by job evaluations. Mike

Guthman, a partner with Hewitt Associates (a compensation/benefi ts consulting fi rm), de-

scribes conventional base pay systems in the following manner: “In the past, everything

revolved around jobs. We grouped tasks, called it a job, evaluated it, put it in a salary grade

and the job was unchanging. People would do that job, progress and move on to another one,

but the job would stay where it was.”10 Today some people believe that even the concept of

a “job” is outmoded in certain workplaces where employees frequently redirect their ener-

gies to new tasks, using different skills.11 Following along these same lines of thought, many

264 Part Four Compensating Human Resources

people today believe that narrowly defi ned job descriptions and pay scales that worked well

in yesterday’s industrial workplace do not do as well today. Broadbanding was created to

provide additional fl exibility to conventional base pay systems. Other new models of pay that

have gained popularity are based on the capabilities of employees rather than on the charac-

teristics of their job.12 Skill-based pay and competency-based pay are specifi c examples of

pay systems based on employee capabilities. A third type of approach to base pay is based al-

most exclusively on market-pricing of jobs. Each of these new approaches to the base wage/

salary structure is discussed in the following sections.

Broadbanding Broadbanding is “a base-pay technique that reduces many different salary categories to several broad salary bands.”13 Put another way, broadbanding refers to collapsing job clusters

or tiers of positions into a few wide bands to manage career growth and deliver pay.14 In es-

sence, broadbanding results in clustering jobs into wide categories or groups of jobs. The

bands usually have minimum and maximum dollar amounts that overlap and an average width

of 130 percent of the minimum.15 For example, Band 1 may cover technicians earning $33,000

to $74,000 and Band 2 may cover those earning $60,000 to $140,000. Under broadbanding, a

company with a conventional compensation system might have 30 salary ranges, each with a

different job title. Under a banded system, these 30 ranges might be reduced to six bands with

wider salary ranges and no job titles.

Major advantages of broadbanding are that managers have more autonomy in setting pay

rates and it becomes easier to move employees around in the organization because broadband-

ing eliminates unnecessary distinctions among jobs.16 This second advantage is especially im-

portant in today’s organizations, which are fl atter and have reduced promotional opportunities.

Under conventional systems, employees are reluctant to take a lateral move or a downgrade

even if doing so would be the best thing for their careers and for the company. Broadbanding

can help overcome this reluctance. In addition, broadbanding can help improve communica-

tion teamwork by eliminating many of the frequent barriers to communication and develop-

ment, namely, level, title, and status.17 Broadbanding works especially well in organizations

that are fast moving and undergoing persistent change.18 In these situations, broadbanding

provides less formal structure and allows the organizations to react quicker. A 2008 survey by

Mercer Human Resource Consulting found that 21 percent of the respondents used some form

of broadbanding.19

Skill-Based Pay Skill-based pay is an effort to develop more versatile employees that are often required in

today’s organizations where jobs can be rapidly changing.20 Skill-based pay systems (also known as knowledge-based pay systems) compensate employees for the skills they bring

to the job. Specifi cally, these pay systems pay employees for their range of knowledge, the

number of business-related skills mastered, the level of those skills or knowledge, or some

combination of level and range.

Under a typical skill-based system, companies hire employees at below-market rates. As

employees gain skills and knowledge, their levels of base pay increase. In general, employ-

ees are expected to learn between 5 and 10 skills over a two- to fi ve-year period. Of course,

the number of skill levels and the time required vary from organization to organization. In a

conventional job-based pay system, employees must wait for a job opening before they can be

promoted. Under a skill-based pay system, employees are eligible for a pay increase when they

have learned a new skill and demonstrated they can progress another step. Table 13.9 lists the

potential benefi ts of a skill-based system.

The attractive list of potential benefi ts listed in Table 13.9 must be weighed against several

potential concerns. Increased labor costs, topped-out employees, false expectations, and un-

ion agreements are some of the more frequently mentioned potential concerns. Direct labor

and training costs do often rise. However, they are usually offset by a reduced labor force and

therefore lower total labor costs. Topped-out employees are those who have nowhere else to

broadbanding Collapsing job clusters or tiers

of positions into a few wide

bands to manage career growth

and deliver pay.

skill-based pay systems Systems that compensate

employees for the skills they

bring to the job.

Chapter 13 Base Wage and Salary Systems 265

go. The issue of topped-out employees is not new to managers and arises in most organizations

regardless of the pay system used. One option is to expose topped-out employees to broader

jobs in other departments. The problems of false expectations occur when there are no vacan-

cies in the job areas for which employees have been newly trained. The key is to be realistic

about the current or near-term future needs of the organization. Unrealistic expectations can

even lead to increased turnover as employees become disillusioned. It is generally recognized

that skill-based pay systems do not work well in unionized organizations whose pay systems

are based largely on seniority.

Skill-based pay systems present formidable problems for practitioners who want to use the

concept.21 To successfully install a skill-based plan, practitioners need management informa-

tion systems for identifying, valuing, certifying, and tracking employee skills. Neither these

systems nor market surveys that value skills have been developed to manage plans effi ciently

for large groups of employees. The end result is that practitioners are often able to apply skill-

based pay systems only for small groups of employees whose jobs are uncomplicated.

Because of the problems outlined above, most skill-based pay systems have focused on

nonexempt employees working in manufacturing environments. This is primarily because it

is relatively easy to identify and measure the skill sets needed by direct-labor employees.

However, a movement has ensued to extend the skills-based pay approach to professionals and

managers. The result of this movement is called competency-based pay.

Competency-Based Pay A competency is defi ned as “a trait or a characteristic that’s required by a job holder to perform

that job well.”22 A similar defi nition is “demonstrable characteristics of the person, including

knowledge, skills, and behaviors, that enable performance.”23

An employer interested in a competency-based pay system in a sales organization, for example, would examine the most successful salespeople in the organization and learn

what it is that those people do well.24 The identifi ed elements might be managing accounts,

conducting competitive research, or making good technical presentations. Once the elements

for predicting sales success have been identifi ed, they are categorized as competencies. All

salespeople will then be compensated based on how well they demonstrate these identifi ed

competencies.

Figure 13.9 outlines the key design choices that must be made when developing a

competency-based pay system. The process involves choosing between opposing design

dimensions in the eight key areas shown. Competency-based pay is intuitively compelling

in that it makes sense to put money behind those things the organization values.25 A major

problem with competency-based pay is that it can be diffi cult to measure when a compe-

tency has been mastered and is being demonstrated.26 Currently, competency-based pay

systems are not widely used, but some prominent compensation experts continue to support

the concept.27

competency-based pay system Rewarding employees based

on knowledge, skills, and

behaviors that result in

performance.

TABLE 13.9 Potential Benefi ts of a Skill-

Based Pay System

Source: Earl Ingram II, “The Advantages

of Knowledge-Based Pay,” Personnel

Journal, April 1990, p. 138, and

Brian Murray and Barry Gerhart, “An

Empirical Analysis of a Skill-Based

Pay Program and Plant Performance,”

Academy of Management Journal,

February 1990, pp. 68–78.

Fits workforce values

Increases staffi ng fl exibility

Builds leaner staffi ng requirements

Encourages fl atter organizational structure

Inspires higher quality and quantity productivity levels

Broadens incentives to increase knowledge and skills

Reinforces group participation

Deepens commitment when promotions are unavailable

Decreases overall labor costs

Improves understanding of operation

Greater productivity

Favorable quality outcomes

Scrap reduction

The concept of competency- based pay rewards employees on knowledge and special skills. RF/Corbis

266 Part Four Compensating Human Resources

Market-Based Pay Market-based pay systems focus on external instead of internal equity and operate with- out traditional pay grades and ranges.28 Proponents of market-based pay believe that it is un-

necessary to burden organizations with complex and time-consuming job evaluations when

the reality of the market can fairly price jobs.29 Market-based pay systems are meant to appeal

to employees and to help attract and retain them. The basic idea is to build employee commit-

ment by creating an atmosphere in which employees feel that their pay is logical and consist-

ent with what the market is paying for their skills. Market-based pay systems use the same

types of wage/salary surveys that were discussed earlier in this chapter. For market-based pay

systems to achieve their goals of perceived fairness, great care must be taken that the surveys

used be carefully selected so as to accurately represent the jobs being priced. The use of at

least three or more survey sources is often recommended.30 Some experts recommend that,

because of data unreliability and underrepresented jobs, the surveys used should focus on the

pricing of skill sets instead of jobs.31 HRM in Action 13.3 discusses some of the problems

incurred when the Government Accountability Offi ce (GAO) attempted to implement a new

market-based pay system.

Total Rewards Total rewards, also referred to as total compensation, is a concept that emerged in the early

2000s.32 WorldatWork defi nes total rewards as “all of the tools available to the employer that

may be used to attract, motivate, and retain employees. Total rewards include everything

the employee perceives to be of value resulting from the employment relationship.”33 The

basic idea of total rewards is to consider all aspects of the work experience, not just pay

and benefi ts, when developing a strategy to attract, motivate, and retain employees. Specifi -

cally, the total rewards concept calls for fi ve elements to be considered: (1) compensation,

(2) benefi ts, (3) work–life balance, (4) performance and recognition, and (5) development

and career opportunities. The intent of the total rewards approach is to place more emphasis

on lower-cost rewards (rewards other than compensation and benefi ts) and provide a fl ex-

ible and broad array of rewards. The idea is to be able to effectively engage a more diverse

workforce.

Since the total rewards concept emerged, much confusion and chaos has followed. The

concept has gone through many revisions and been defi ned differently by different users. It is

also diffi cult to quantify the adoption of the concept since many aspects of the concept have

been around for a long time. The concept has made practitioners more aware of the value of

the full spectrum of rewards.

All of the new approaches to the base wage/salary structure discussed in this section can

be effectively used in certain situations. However, none work in all situations and all can have

major execution issues if not carefully interpreted and implemented.

market-based pay systems Systems that focus on external

rather than internal equity and

operate without traditional pay

ranges.

Competency-based pay plans consist of eight key dimensions. Each of these dimensions offers two basic—and polar opposite—design choices. The choices in the lefthand column are most similar to traditional pay systems, whereas those in the right are more novel.

Narrow Existing

Bottom-up Complex, precise

Observable Enduring value

Permanent annuity Marketplace value

Generic Novel Top-down Elegant, nimble Abstract Temporary value One-time bonus Strategic value

FIGURE 13.9 Designing Competency-

Based Pay

Source: Gerald E. Ledford, Jr.,

Compensation & Benefi ts Review, p. 58,

Reprinted with permission of Sage

Publications, Inc.

Chapter 13 Base Wage and Salary Systems 267

MARKET SURVEY CAUSES PROBLEM AT GAO The Government Accountability Offi ce (GAO) concluded

that it was paying too much for some mid-career

analysts after it commissioned Watson Wyatt Worldwide

Consulting Company, which specializes in compensation

and benefi ts, to conduct a salary market survey. As a

result of the salary survey, 308 GAO employees, about

10 percent of GAO’s workforce, did not receive pay

increases in 2006. Even though these employees received

a “meets expectation” level appraisal, they did not get

a pay raise because the salary survey indicated that

they were overpaid when their salaries were compared

with market rates. The same study also concluded that

25 percent of the agency’s employees were underpaid

and they subsequently got pay raises.

One analyst, who received no pay raise as a result of

the market survey, stated that he and his colleagues, who

also did not receive a raise, “are losing ground without

the cost-of-living adjustment. Needless to say, we’re pretty

ticked off about that.” Subsequent additional complaints by

employees forced some changes in the new pay program.

Sources: Florence Olsen, “Ticked Off about Pay at GAO,” Federal Computer Week, May 15, 2006; Richard W. Walker, “Congress Watches Its Own Watchdog,” Federal Computer Week, May 28, 2007; and Howard Risher and Andrew Smallwood, “Performance- Based Pay at NGA,” Public Manager, Summer 2009, pp. 25–29.

HRM in Action 13.3

1. Defi ne base wages and salaries and state the objective of any base wage and salary system.

Base wages and salaries are the hourly, weekly, or monthly pay that employees receive in

exchange for their work. The primary objective of any base wage and salary system is to

establish a structure for the equitable payment of employees based on their jobs and their

levels of job performance.

2. Defi ne job evaluation.

Job evaluation is a systematic determination of the value of each job in relation to other

jobs in the organization.

3. Name and briefl y discuss the four basic conventional methods of job evaluation.

Most conventional job evaluation plans are variations or combinations of four basic

methods: job classifi cation, job ranking, point, and factor comparison. The job classifi cation

method defi nes certain classes or grades of jobs on the basis of differences in duties,

responsibilities, skills, working conditions, and other job-related factors. In the job ranking

method, the evaluator ranks whole jobs from the simplest to the most diffi cult. The point

method develops a quantitative point scale for the jobs being evaluated. Jobs are broken

down into certain recognizable factors, and the sum total value of these factors is compared

against the scale to determine the job’s worth. The factor comparison method is similar to

the point method except that it involves a monetary scale instead of a point scale.

4. Explain the concepts of key jobs and compensable factors.

Key jobs represent jobs that are common throughout the industry or in the general locale

under study. The idea is to select a limited number of jobs that will represent the spectrum

of jobs being evaluated with regard to responsibilities, duties, and work requirements.

Once the key jobs have been evaluated, other jobs can be compared to them. Compensable

factors are those characteristics of jobs that the organization deems important to the extent

that it is willing to pay for them. The degree to which a specifi c job possesses compensable

factors determines its relative worth.

5. Differentiate between subfactors and degrees.

Subfactors are used to describe compensable factors in more detail. Degrees are profi le

statements used to describe the specifi c requirements of each subfactor.

6. Explain the purpose of wage and salary surveys.

Wage and salary surveys are used to collect comparative information on the policies,

practices, and methods of wage payment from selected organizations in a given geographic

location or particular type of industry.

7. Discuss wage and salary curves.

Wage and salary curves graphically show the relationship between the relative worth of

jobs and their wage or salary rates. A wage curve plots the jobs in ascending levels of

diffi culty along the abscissa (x-axis) and the wage rate along the ordinate ( y-axis).

Summary of Learning Objectives

267

268 Part Four Compensating Human Resources

8. Defi ne pay grades and pay ranges.

A pay grade is a grouping of jobs of similar worth for pay purposes. A pay range is an

assigned range of permissible pay, with a minimum and a maximum for each pay grade.

9. Explain the concepts of broadbanding, skill-based pay, competency-based pay,

market-based pay, and total rewards.

Broadbanding reduces many different salary categories into several broad salary bands.

In essence, broadbanding results in clustering jobs into wide categories or groups of

jobs. Skill-based (or knowledge-based) pay systems compensate employees for the

skills they bring to the job. Specifi cally, these pay systems pay employees for their

range of knowledge, the number of business-related skills mastered, the level of those

skills or knowledge, or some combination of level and range. A competency is a trait or

a characteristic that a job holder needs to perform the job well. An employer interested

in a competency-based pay system would examine the most successful employees in

the organization and learn what those people do well. Once the elements have been

identifi ed, they are categorized as competencies, and all employees would then be

compensated based on how well they demonstrated these identifi ed competencies.

Market-based pay systems focus on external instead of internal equity and operate

without traditional pay grades and ranges. Market-based pay systems use wage/salary

surveys, almost exclusively, to price jobs. The basic idea of total rewards is to consider

all aspects of the work experience, not just pay and benefi ts, when developing a strategy

to attract, motivate, and retain employees.

base wages and salaries, 251

broadbanding, 264

compensable factors, 255

competency-based pay

system, 265

degree statements, 255

factor comparison

method, 257

job classifi cation

method, 254

job evaluation, 252

job ranking method, 253

job subfactor, 255

market-based pay

systems, 266

pay grades, 262

pay range, 262

point method, 254

skill-based pay

systems, 264

wage and salary curves, 261

wage and salary survey, 259

Key Terms

1. Define base wages and salaries.

2. What is the primary objective of any base wage and salary system?

3. Define job evaluation.

4. List the four basic conventional methods of job evaluation.

5. What are compensable factors? Subfactors? Degrees?

6. Describe wage surveys and how they might be conducted.

7. What are the two basic ways of obtaining wage or salary survey information?

8. What is the purpose of wage curves?

9. What are pay grades and ranges?

10. What are the basic arguments against the use of conventional base pay systems?

11. What is broadbanding?

12. What are the differences between skill-based pay systems and competency-based pay

systems?

13. What are market-based pay systems?

14. What is total rewards?

Review Questions

Chapter 13 Base Wage and Salary Systems 269

1. Suppose your organization’s recently completed wage survey showed that the pay rates of

several jobs were either less or more than they should be. How might you bring these jobs

into line?

2. The basic theory behind wage and salary administration is to pay people commensurately

for their contributions. What should an organization do if an employee’s contributions are

not in line with those of others in the same type of job? For example, suppose the company

accountant’s contributions are deemed to be far in excess of what is usual for someone

earning an accountant’s pay.

3. How do you think the Internet might impact the entire area of job evaluation?

4. Discuss your views on the argument that conventional job evaluations based on narrowly

defi ned job descriptions and pay scales do not work well in today’s organizations.

Incident 13.1

Fair Pay for Pecan Workers

Cloverdale Pecan Company is one of the country’s largest processors of pecans. Located in

a medium-size southern town, it employs approximately 1,350 people. Although Cloverdale

owns a few pecan orchards, the great majority of the nuts it processes are bought on the open

market. The processing involves grading the nuts for both size and quality, and shelling, pack-

aging, and shipping them to customers. Most buyers are candy manufacturers.

Cloverdale, which was started 19 years ago by the family of company president Jackson

Massie, has been continually expanding since its inception. As do most growing compa-

nies, Cloverdale has always paid whatever was necessary to fi ll a vacancy without having

a formal wage and salary system. Jackson Massie suspected that some wage inequities

had developed over the years. His speculation was supported by complaints about such

inequities from several good, long-term employees. Therefore, Massie hired a group of

respected consultants to do a complete wage and salary study of all the nonexempt jobs in

the company.

The study, which took fi ve months to complete, confi rmed Massie’s suspicion. Wages of

several jobs were found to vary from the norm. Furthermore, the situation was complicated by

several factors. First, many of the employees earning too much were being paid according to

union wage scales. Cloverdale is not unionized, but most of its competitors are. Second, many

of those in underpaid jobs were being paid at rates equal to those for similar positions in other

companies in Cloverdale’s geographic area. Third, because of a tight labor market, many new

employees had been hired at the top of the range for their respective grades. The study also

revealed that the nature of many jobs had changed so much that they needed to be completely

reclassifi ed.

Questions

1. What should Cloverdale do to correct the existing wage inequities?

2. How could the company have prevented these problems?

3. If it is recommended that some jobs be placed in a lower pay grade, how might Cloverdale

implement those adjustments?

Incident 13.2

A Dead-End Street?

Early in December, Roger Tomlin was called in for his annual salary review. Roger was a staff

engineer for Zee Engineering Company, which he had been with for just over 10 years. In the

past, Roger had usually received what he considered to be a fair pay raise. During this salary

review his manager, Ben Jackson, informed Roger that he was recommending a 10 percent

Discussion Questions

270 Part Four Compensating Human Resources

raise. Ben went on to extol the fi ne job Roger had done in the past year and to explain that

Roger should be especially proud of the above-average pay raise he would be getting. Upon

refl ection, Roger was rather proud; in 10 years, he had been promoted twice and his annual

salary had gone from $42,000 to $86,000.

Things were moving along just fi ne for Roger until he discovered a few weeks later that

Zee had hired a new engineer right out of college at a starting salary of $59,000. It really upset

Roger to think that a new, unproven engineer would be starting at a salary that high.

Roger’s fi rst move was to talk to several of his colleagues. Most were aware of the situ-

ation and didn’t like it either. Lucy Johnson, who had been an engineer with Zee for over

12 years, asked Roger if he realized he was probably making less money, in actual dollars,

than when he started at Zee. This really fl oored Roger. Roger realized infl ation had eaten

into everyone’s paycheck, but he had never even considered the possibility that he had not

kept up with infl ation. That evening, on the way home from work, Roger stopped by the

local library and looked up the consumer price index (CPI) for the past 10 years. Accord-

ing to Roger’s fi gures, if his pay had kept up exactly with infl ation, he would be making

$85,000.

After a very restless night, the fi rst thing Roger did upon arriving at work the next day was

go straight to human resource manager Joe Dixon’s offi ce. After presenting his case about

the new employee and about how infl ation had eroded his pay, Roger sat back and waited for

Joe’s reply.

Joe started out by explaining that he understood just how Roger felt. At the same time,

however, Roger had to consider the situation from the company’s standpoint. The current

supply and demand situation dictated that Zee had to pay $59,000 to get new engineers who

were any good at all. Roger explained he could understand that, but he couldn’t understand

why the company couldn’t pay him and other senior engineers more money. Joe again sym-

pathized with Roger, but then went on to explain that it was a supply and demand situation.

The fact was that senior engineers just didn’t demand that much more pay than engineers

just starting!

Questions

1. Do you think Roger is being fairly paid?

2. If you were Joe, how would you have responded to Roger?

3. Do you think a wage survey might help in this situation?

4. Should Joe establish pay grades for engineers?

Based on the eight job descriptions for the air transportation industry given in Exhibit 13.A, evaluate the relative worth of these jobs using the job ranking method. You may fi nd it helpful to prepare a 3” 5” card on each job and then arrange the cards accordingly to the rank you assign each job. Once you have completed your ranking, go to the library or on the Internet and fi nd any pertinent wage survey data relating to these jobs (see Figure 13.4 on page 260 for some possible Web sites for wage/salary survey data). After you have gathered suffi cient wage survey data, determine whether or not the data support your rankings. Be prepared to discuss your fi ndings with the class.

Visit several of the Web sites listed in Figure 13.4 and look for any information you might fi nd useful if conducting a wage/salary survey for human resource employees.

Questions

1. Did you fi nd useful information? If so, what and where?

2. Did you fi nd some of the Web sites to be easier to maneuver in than others? If so, which ones were easier?

3. Did any of the data surprise you as to the “going rate” for the different HR positions?

EXERCISE 13.1

Ranking Jobs

EXERCISE 13.2

Wage/Salary Survey

Chapter 13 Base Wage and Salary Systems 271

Air Traffi c Controllers Control air traffi c on and within vicinity of airport and movement of air traffi c

between altitude sectors and control centers according to established procedures and policies. Authorize,

regulate, and control commercial airline fl ights according to government or company regulations to

expedite and ensure fl ight safety.

Aircraft Body and Bonded Structure Repairers Repair body or structure of aircraft according to

specifi cations.

Aircraft Cargo Handling Supervisors Direct ground crew in the loading, unloading, securing, and

staging of aircraft cargo or baggage. Determine the quantity and orientation of cargo and compute

aircraft center of gravity. May accompany aircraft as member of fl ight crew and monitor and handle

cargo in fl ight, and assist and brief passengers on safety and emergency procedures.

Aircraft Engine Specialists Repair and maintain the operating condition of aircraft engines. Includes

helicopter engine mechanics.

Airline Pilots, Copilots, and Flight Engineers Pilot and navigate the fl ight of multiengine aircraft in

regularly scheduled service for the transport of passengers and cargo. Requires Federal Air Transport

rating and certifi cation in specifi c aircraft type used.

Cargo and Freight Agents Expedite and route movement of incoming and outgoing cargo and freight

shipments in airline, train, and trucking terminals, and shipping docks. Take orders from customers and

arrange pickup of freight and cargo for delivery to loading platform. Prepare and examine bills of lading

to determine shipping charges and tariffs.

Flight Attendants Provide personal services to ensure the safety and comfort of airline passengers during

fl ight. Greet passengers, verify tickets, explain use of safety equipment, and serve food or beverages.

Reservation and Transportation Ticket Agents Make and confi rm reservations for passengers and

sell tickets for transportation agencies such as airlines, bus companies, railroads, and steamship lines.

May check baggage and direct passengers to designated concourse, pier, or track.

EXHIBIT 13.A Air Transportation

Industry Job Descriptions

Source: These job descriptions are

taken from U.S. Department of

Labor, Employment and Training

Administration, O*NET® Occupational

Listings,

www.onetcenter.org/occupations.html.

1. Jose Balderrama, “Rediscovering Job Evaluation,” Workspan, June 2003, p. 8; Steve Watson, “Is

Job Evaluation Making a Comeback—Or Did It Never Go Away?” Benefits & Compensation

International, June 2005, p. 8; and John G. Kilgour, “Job Evaluation Revisited: The Point Factor

Method,” Compensation & Benefits Review, July/August 2008, p. 37.

2. Fred L. Eargle, “Job Evaluation and Wage Administration for Beginners,” Office Solutions,

November/December 2005, pp. 26–28; and Emin Kahya, “Revising the Metal Industry Job Evaluation

System for Blue Collar Jobs,” Compensation & Benefits Review, November/December 2006, p. 49.

3. Roger J. Plachy, “Compensation Management: Cases and Applications,” Compensation and

Benefits Review, July 1989, p. 26.

4. Richard I. Henderson, Compensation Management: Rewarding Performance, 4th ed. (Reston, Va.:

Reston Publishing, 1985), p. 293.

5. Joan C. O’Brien and Robert A. Zawacki, “Salary Surveys: Are They Worth the Effort?” Personnel,

October 1985, p. 72; Jill Elswick, “Online Salary Benchmark Info Mushrooms,” Employee Benefit News,

March 2001, pp. 45–46; William Dickmeyer, “How to Conduct an Effective Pay Survey,” Workforce

Online, April 2002, accessed April 9, 2004 at http://www.workforce.com.

6. Margaret Dyekman, “Take the Mystery out of Salary Survey,” Personnel Journal, June 1990, p. 104.

7. “Essentials of Good Salary Survey,” Canadian HR Reporter, June 4, 2007, p. S2.

8. Fay Hansen, “Guide to Salary Survey Data on the Web,” Compensation & Benefits Review,

March/April 1998, pp. 16–20; Susan J. Marks, “Can the Internet Help You Hit the Salary Mark?”

Workforce, January 2001, pp. 86–88; Elswick, “Online Salary Benchmark Info Mushrooms”;

Kathleen Carroll, “No Guessing How Much,” New York Times, April 7, 2002, sec. 3, p. 2; and Karen

Bankston, “Make Way for Web Surveys,” Association Management, April 2003, pp. 51–55.

9. Michael A. Conway, “Salary Surveys: Avoid the Pitfalls,” Personnel Journal, June 1985,

pp. 62–65; “What Makes a Good Salary Survey?” Workforce, January 2001, p. 88.

10. Shari Cauldron, “Master the Compensation Maze,” Personnel Journal, June 1993, p. 648.

11. David Barcellos, “The Reality and Promise of Market-Based Pay,” Employment Relations Today,

Spring 2005, p. 1.

12. Richard Long, “Paying for Knowledge: Does It Pay?” Canadian HR Reporter, March 28, 2005, pp. 12–13.

13. Bill Leonard, “New Ways to Pay Employees,” HR Magazine, February 1994, pp. 61–62.

14. Jason C. Kovac, “Broadbanding: Creating a ‘Flat’ Organization,” Workspan, November 2006, p. 67.

15. Kathryn Tyler, “Compensation Strategies Can Foster Lateral Moves and Growing in Places,”

HR Magazine, April 1998, pp. 64–71. See also Scott Hays, “Is Broadbanding Here to Stay?”

Workforce Online, September 2, 1999, accessed September 4, 2002, at http://www.workforce.com.

Notes and Additional Readings

272 Part Four Compensating Human Resources

16. Cauldron, “Master the Compensation Maze,” p. 648; Hays, “Is Broadbanding Here to Stay?”; and

Edwin W. Arnold and Clyde J. Scott, “Does Broadbanding Improve Pay System Effectiveness?”

Southern Business Review, Spring 2002, pp. 1–8.

17. Gary L. Bergel, “Choosing the Right Pay Delivery System to Fit Banding,” Compensation,

July–August 1994, pp. 34–38; Hays, “Is Broadbanding Here to Stay?”

18. Kovac, “Broadbanding: Creating a ‘Flat’ Organization,” p. 67.

19. Frank L. Giancola, “A Framework for Understanding New Concepts in Compensation

Management,” Benefits & Compensation, September 2009, p. 15.

20. Much of this section is based on Cauldron, “Master the Compensation Maze,” p. 648; see

also E. Stewart Hickman, “Pay the Person, Not the Job,” Training & Development, October

2000, pp. 52–57; and Frank L. Giancola, “A Framework for Understanding New Concepts in

Compensation Management.”

21. This section is drawn from Frank L. Giancola, “A Framework for Understanding New Concepts

in Compensation Management” and Frank Giancola, “Skill-Based Pay Issues for Consideration,”

Benefits & Compensation, May 2007, pp. 11–15.

22. Gerald E. Ledford, Jr., “Paying for the Skills, Knowledge, and Competencies of Knowledge Work,”

Compensation & Benefits Review, July–August 1995, pp. 55–58.

23. Ibid.; and Henry Jahja and Brian H. Kleiner, “Competency-Based Pay in Manufacturing and

Service Sectors,” Industrial Management, September/October 1997, pp. 24–27.

24. Gerald E. Ledford, Jr., “Paying for the Skills,” pp. 55–58.

25. Darrell J. Cira and Ellen R. Benjamin, “Competency-Based Pay: A Concept in Evolution,”

Compensation & Benefits Review, September/October 1998, pp. 21–28; see also Howard Risher,

“Compensating Today’s Technical Professional,” Research Technology Management, January/February

2000, pp. 50–56.

26. Tyler, “Compensation Strategies,” pp. 64–71.

27. Frank L. Giancola, “A Framework for Understanding New Concepts in Compensation Management,”

p. 14.

28. Kimberly Merriman, “A Fairness Approach to Market-Based Pay,” Workspan, March 2006, pp. 48–50.

29. David Barcellos, “The Reality and Promise of Market-Based Pay,” p. 2.

30. Deb Grigson, John Delaney, and Robert Jones, “Market Pricing 101: The Science and the Art,”

Workspan, October 2004, pp. 46–52.

31. David Barcellos, “The Reality and Promise of Market-Based Pay.” pp. 3–4.

32. Much of this section is drawn from Frank L. Giancola, “A Framework for Understanding New

Concepts in Compensation Management”; and Frank L. Giancola, “Is Total Rewards a Passing

Fad?” Compensation and Benefits Review, July/August 2009, pp. 29–35.

33. WorldatWork, “What Is Total Rewards?” http://www.worldatwork.org, accessed February 4, 2010.

273

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Describe the two basic requirements

of an effective incentive plan.

2. List and briefl y discuss at least three

types of individual incentives.

3. Distinguish between a bonus and a

merit pay increase.

4. Discuss the role bonuses play in

managerial compensation.

5. Differentiate between nonqualifi ed

stock options and incentive stock

options (ISOs).

6. Differentiate among the following

different types of stock option related

Chapter Fourteen

Incentive Pay Systems

plans: stock-for-stock swaps, stock

appreciation rights, phantom stock

plans, restricted stock plans, premium-

priced options, and performance-

vesting options.

7. Discuss the major issues related to the

executive pay controversy.

8. Discuss the prevalence of stock

options among nonmanagerial

personnel.

9. Describe how group incentives work.

10. Explain what a gain-sharing plan is.

11. Discuss Scanlon-type plans.

12. Explain how an employee stock

ownership plan (ESOP) works.

Chapter Outline

Requirements of Incentive Plans

Individual Incentives

Piece Rate Plans

Plans Based on Time Saved

Plans Based on Commissions

Individual Bonuses

Suggestion Systems

Incentives for Managerial Personnel

Stock Options for Nonmanagerial Personnel

Group Incentives

Gain-Sharing or Profi t-Sharing Plans

Scanlon-Type Plans

Employee Stock Ownership Plans (ESOPs)

Making Incentive Plans Work

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 14.1: Rewarding Good Performance

at a Bank

Incident 14.2: Part-Time Pool Personnel

Exercise 14.1: Implementing Incentives

Exercise 14.2: Proven Suggestion Systems

Exercise 14.3: The Status of the Corporate

and Financial Institutions Compensation

Fairness Act (CFICF)

Notes and Additional Readings

274 Part Four Compensating Human Resources

Incentive or variable pay plans attempt to relate pay directly to the performance of the individual, group, the entire organization or some combination of these. The intent of most

incentive pay is to reward above-average performance rapidly and directly. Although good

performance can be rewarded through the base wage or salary structure either by raising

an individual’s pay within the range of the job or by promoting the individual into a higher

pay grade, these rewards are often subject to delays and other restrictions. Therefore, the

recipients often do not view such rewards as being directly related to performance. Incentive

pay plans attempt to strengthen the performance–reward relationship and thus motivate the

affected employees. The idea is to have employees think of themselves as business partners

by sharing the fi nancial risks and rewards of doing business. A major advantage to employ-

ers of incentive pay is that, unlike raises in base and salary, it is not permanent and must be

earned each year. Most incentive pay programs tie pay directly to profi tability, thus allowing

companies to grow and shrink payroll expenses in response to the success of the business.

Also, many types of incentives can be rewarded several times per year such as monthly or

quarterly. This fosters a more direct link between pay and performance than if adjustments

are made only annually.

Because of minimum wage laws and labor market competition, most incentive plans include

a guaranteed hourly wage or salary. The guaranteed wage or salary is normally determined

from the base wage or salary structure. Thus, incentive plans usually function in addition to,

not in place of, the base wage/salary structure discussed in Chapter 13.

Incentive systems can be categorized on more than one basis. Probably the most popular

basis is whether the plan is applied on an individual, group, or organizational level. In addi-

tion, plans are sometimes classifi ed according to whether they apply to nonmanagerial em-

ployees or to professional and managerial employees, This chapter classifi es incentives as

individual, group, or organizational and, where appropriate, distinguishes between nonmana-

gerial and managerial employees within these categories. Some plans apply to nonmanagerial

and managerial employees alike.

While base wage/salary increases hit a modern-day low in 2009, Hewitt Associates re-

ported that incentive pay spending for 2009 was the highest on record.1 Over the last 15 years,

incentive pay as a percentage of payroll has almost doubled.

REQUIREMENTS OF INCENTIVE PLANS

There are two basic requirements for an effective incentive plan. The fi rst concerns the proce-

dures and methods used to appraise employee performance. If incentives are to be based on

performance, employees must believe their performance and the performance of others are

accurately and fairly evaluated. Naturally, performance is easier to measure in some situations

than in others. For example, the performance of a commissioned salesperson is usually easy to

measure, whereas the performance of a middle manager is often more diffi cult to evaluate. A

key issue in performance measurement is the degree of trust in management. If the employees

distrust management, it is almost impossible to establish a sound performance appraisal sys-

tem. (Performance appraisal was discussed at length in Chapter 11).

The second requirement is that the incentives (rewards) must be based on performance.

This may seem like an obvious requirement, yet it is often violated. Employees must believe

there is a relationship between what they do and what they get. As discussed in Chapter 12,

a 2006 survey of 10,000 respondents by Hudson Talent Management found that only 35 per-

cent of the respondents believed that performance was the deciding factor in determining

their pay.2 A similar 2007 study by Authoria, Inc. found that only 15 percent of respondents

believed that compensation was used to effectively align individual and corporate perform-

ance.3 Individual-based incentive plans require that employees perceive a direct relationship

between their own performances and their subsequent rewards. Group-based plans require

employees to perceive a relationship between the group’s performance and the subsequent

rewards of the group’s members. Furthermore, the group members must believe their in-

dividual performances have an impact on the group’s overall performance. Organization-

based plans have the same basic requirements group plans do. Employees must perceive a

incentive or variable pay plans Pay plans designed to relate

pay directly to performance

or productivity; often used in

conjunction with a base wage

and salary system.

Chapter 14 Incentive Pay Systems 275

relationship between the organization’s performance and their individual rewards; in addi-

tion, employees must believe their individual perfor mances affect the performance of the

organization.

INDIVIDUAL INCENTIVES

While there are many types of individual incentive plans, all are tied in some measure to the

performance of the individual. At nonmanagerial levels in an organization, individual incen-

tives are usually based on the performance of the individual as opposed to those of the group

or organization. However, at managerial levels, individual incentives are often based on the

performance of the manager’s work unit.

The primary advantage of the individual incentive system is that the employees can readily

see the relationship between what they do and what they get. With group- and organization-

based plans, this relationship is often not so clear. Because of this advantage, individual incen-

tives can also cause problems. Competition among employees can reach the point of producing

negative results. For example, salespeople may not share their ideas with one another for fear

that their peers will win a prize that is being offered to the top salesperson.

Piece Rate Plans As early as 1833, many cotton mills in England used individual piece rate incentives. Piece

rate plans are the simplest and most common type of incentive plan. Under such a plan, the

employer pays an employee a certain amount for every unit he or she produces. In other words,

an employee’s wage is fi gured by multiplying the number of units produced by the rate of pay

for each unit. The rate of pay for each unit is usually based on what a fair wage should be for an

average employee. For example, if a fair wage for an average machine operator is determined

to be $150 per day and it is also determined that the average machine operator should be able

to produce 30 units per day, the unit rate of pay would be $5 per unit.

Several variations of the straight piece rate plan have been developed. In 1895, Frederick

W. Taylor proposed his differential piece rate plan. Under Taylor’s plan, one rate is paid for all acceptable units produced up to some standard, or predetermined amount, and then

a higher rate for all units produced if the output exceeds the standard. Thus, if the standard

were 30 units per day, an employee producing 30 or fewer units might receive $4.25 per unit.

However, if the employee produced 31 units, he or she might receive $5 for all 31 units pro-

duced for a total of $155. Other plans pay a higher rate only for those units produced above

the standard.

Plans Based on Time Saved Standard hour plans are similar to piece rate plans except that a standard time is set in terms

of the time it should take to complete a particular job. Incentive plans based on time saved

give an employee a bonus for reaching a given level of production or output in less than the

standard time. For example, suppose a body shop repairperson is assigned to do a task for

which the standard time is two hours (this is how insurance companies compute the cost of re-

pairing damaged autos). If the repairperson completes the task in 1 1

_ 2 hours, she or he is paid for

two hours. If the task takes 2 1

_ 2 hours, the repairperson is paid for that amount of time. Should

the repairperson consistently take longer than the standard time, either the standard will need

to be adjusted or the productivity of the repairperson should be examined.

Plans Based on Commissions The previously discussed incentive plans are primarily applicable to production-type jobs.

However, some incentive plans apply to other types of jobs. One of the most prevalent

types is based on commission. Many salespeople work under some type of commission plan. Although a variety of such plans exist, they all reward employees, at least in part, based on sales volume. Some salespeople work on a straight commission basis: Their pay is

entirely determined by their volume of sales. Others work on a combination of salary plus

commission. Under this type of plan, a salesperson is paid a guaranteed base salary plus a

differential piece rate plan Piece rate plan devised by

Frederick W. Taylor that pays

one rate for all acceptable units

produced up to some standard

and then a higher rate for all

pieces produced if the output

exceeds the standard.

Plans based on commissions reward employees based on their sales volumes. The McGraw-Hill Companies, Inc./Christopher Kerrigan, photographer

commission plan Incentive plan that rewards

employees, at least in part,

based on their sales volume.

276 Part Four Compensating Human Resources

commission on sales. Under a third type of commission plan, salespeople are paid a monthly

draw that is later subtracted from their commissions. The purpose of the draw is to provide

salespeople with enough money on a monthly basis to cover their basic expenses. The differ-

ence between a draw plan and the guaranteed salary plus commission plan is that the draw is

really an advance against future commissions and must be repaid. The draw plan is especially

useful for salespeople whose sales tend to fl uctuate dramatically from month to month or

season to season.

A commission plan has the advantage of relating rewards directly to performance. Sales-

people on a straight commission know that if they do not produce, they will not be paid. A

major disadvantage of commission plans is that things beyond the control of an employee

can adversely affect sales. For example, a product might be displaced almost overnight by a

technological breakthrough. Other environmental factors, such as the national economy, the

weather, and consumer preferences, can also affect an employee’s sales.

Individual Bonuses A bonus is a reward offered on a one-time basis for high performance. It should not be confused with a merit increase. A merit pay increase is a reward that is based on perform- ance but is also perpetuated year after year. A bonus may be in cash or in some other form.

For example, many sales organizations periodically offer prizes, such as trips, for their top

salespeople. A positive aspect of bonuses is that they must be earned each year and the or-

ganization is not obligated over the long run. One potential problem with bonuses is that they

can become an extension of salary. This occurs when awarding the bonus becomes practically

guaranteed because the bonus is not tied to profi ts or some other measure of performance or

because profi ts have been consistently high for an extended period of time. In such circum-

stances, the recipients begin to expect the bonus. They do not view it as resulting from their

individual performances or from the profi ts of the organization. Serious dissatisfaction can

result if the expected bonus is not granted because of a decline in profi ts or any other legiti-

mate reason, such as a recession.

Suggestion Systems Most suggestion systems offer cash incentives for employee suggestions that positively affect the organization. Examples include suggestions resulting in increased profi ts, reduced

costs, or improved customer relations. In addition to the obvious organizational benefi ts, sug-

gestion plans can provide a means for making employees feel more a part of the organization

and for improving communications between management and employees. The key to hav-

ing a successful suggestion system is to clearly communicate exactly how the system works.

Employees must believe that each and every suggestion will be fairly evaluated. Modern sug-

gestion systems generally involve specifi c procedures for submitting ideas and utilize commit-

tees to review and evaluate suggestions.

The Employee Involvement Association (EIA), formerly the National Association of Sug-

gestion Systems (NASS), is a Chicago-based, not-for-profi t group that represents companies

regarding employee involvement programs, including suggestion programs. In 2008, the EIA

estimated that its member companies saved $3,128.00 for each idea implemented.4 For exam-

ple, 291 employees at the RLI Insurance Company in Peoria, Illinois came up with 1,319 new

ideas in one year.5 One of RLI’s employees came up with 49 new ideas and another employee’s

new ideas saved the company $145,000. Similarly, Maruti Suzuki Ltd. in India estimates that

it saved a net amount of over $14 million (Rs66.5 crore) during fi scal year 2007–2008 by im-

plementing employee suggestions to cut down on waste in its manufacturing processes.6 HRM

in Action 14.1 describes a new suggestion system at Xcel Energy.

Incentives for Managerial Personnel Incentives for managerial personnel generally take the form of annual bonuses, long-term

performance planning, or some type of stock option. These are discussed in the following

sections.

bonus Reward that is offered on

a one-time basis for high

performance.

merit pay increase Reward based on performance

but also perpetuated year after

year.

Web site http://www.eia.com

suggestion systems Systems that usually offer

cash incentives for employee

suggestions that result in either

increased profi ts or reduced

costs.

277

Annual Bonus

By far the most common type of incentive for managerial employees is the annual cash

bonus. Although cash bonuses have always been popular among managers, they have become

increasingly popular over time. Most plans provide a year-end bonus based on that year’s

performance, usually measured in terms of profi ts but sometimes measured by other means.

Even though managerial bonuses are usually based on organizational or group performance,

they are considered individual incentives because of the key roles managers play in the suc-

cess of an organization. Typically, a bonus is paid in cash as a lump sum soon after the end of

the performance year. It is not unusual for executives to defer receiving some portion of a cash

bonus until a later date for income tax purposes.

One survey taken by Challenger, Gray and Christmas, a Chicago consulting company,

found that 64 percent of employers planned to give an end-of-year bonus in 2009.7 In 2008

only 54 percent planned to give a year-end bonus. Table 14.1 shows how signifi cant bonuses

are for several levels of top executives including the top human resource executive.

Long-Term Performance Plans

In recent years, some companies have adopted managerial incentive plans based on the attain-

ment of certain long-term corporate fi nancial performance goals as opposed to the more com-

mon annual bonus plans. Generally known as performance share plans or unit plans, these plans usually award top executives a set number of performance units at the beginning

of a performance period. The actual value of the units is then determined by the company’s

performance over the performance period, usually from three to fi ve years.

Stock Options for Managerial Personnel

Stock option plans are generally designed to give managers an option to buy company stock at

a predetermined, fi xed price. If the price of the stock goes up, the individual exercises the op-

tion to buy the stock at the fi xed price and realizes a profi t. If the price of the stock goes down,

the stock option is said to be “underwater,” and the manager does not purchase the stock. The

performance share plan (unit plan) Incentive plan that awards

top executives a set number

of performance units at the

beginning of the performance

period; actual value of the

units is then determined by the

company’s performance over

the performance period.

HRM in Action 14.1

NEW ONLINE SUGGESTION SYSTEM AT XCEL Xcel Energy is a Fortune 500 company based in Minneapolis

that provides electricity and natural gas to eight Midwestern

and Western states. For years the company had a standard

suggestion system but few employees participated and

those that did rarely received any signifi cant recognition.

The standard suggestion system was overly bureaucratic,

slow to respond, and resulted in very few ideas being

implemented.

In order to overcome the shortcomings of the old system,

Xcel devised a new online system called Xpress Ideas. Xpress

Ideas directs suggestions to specifi c areas of need within

the business by offering greater rewards for ideas that deal

with those topics. Another advantage of Xpress Ideas is that

employees receive a rapid response to their suggestion.

Currently 74 percent of ideas are processed within 30 days, a

marked contrast to the previous system. The current system

rewards employees 30 points just for submitting an idea

and additional points if an idea is approved. A sliding scale

offers more points for ideas that relate to specifi c objectives.

Collective points are then exchangeable for catalog points

or for cash, up to $1,000.00. In 2004 alone, approximately

7,600 suggestions were submitted, resulting in a saving

of $17 million. Halfway through 2007, the company had

already received 4,600 suggestions. John Torres, Xcel’s

manager of corporate rewards and recognition, believes the

new suggestion system has led to an overall culture shift at

Xcel with employees taking more ownership in the company

and seeking ways to make improvements.

Source: A. E. Smith, “What’s the Big Idea?” Incentive, March 2008, pp. 30–34.

TABLE 14.1 Top Executive Eligible for

Bonus and/or Other Cash

Compensation Payments

Source: The 2006/2007 Survey Report

on Top Management Compensation,

Vol. 1 (Rochelle Park, N.J.: Watson

Wyatt Data Services, 2007). Reprinted

with permission.

Position Number of Executives Eligible for Award

Chief Executive Offi cer 1,326 90.0%

Chief Operating Offi cer 628 85.3

CEO/President-Subsidiary 399 95.7

Top Division Executive 346 95.4

Executive Vice President 504 89.2

Top Human Resource Executive 482 82.6

278 Part Four Compensating Human Resources

idea behind such plans is to provide an incentive for managers to work hard and increase com-

pany profi ts, thus increasing the price of the stock. However, while the use of stock options

was originally intended to align corporate executives’ interests with those of shareholders,

there is evidence that some executives have become more concerned with pumping up the

short-term value of the stock to increase their personal wealth.8 One other potentially negative

effect of stock options is that it dilutes the holdings of current shareholders.

Before the passage of the Tax Reform Act of 1976, two major forms of stock options

were available: qualifi ed and nonqualifi ed. Qualifi ed stock options were those approved by the Internal Revenue Service (IRS) for favorable tax treatment. A qualifi ed option was not

taxed until the option was exercised and, in the interim, was treated as a capital asset. Income

realized from the eventual sale of the stock was usually taxed as a long-term capital gain. To

qualify for a tax advantage, the stock option plan and the recipient had to adhere to certain

conditions prescribed by the IRS. These conditions centered primarily around the length of

time the executive was required to hold the option before purchasing and selling the stock and

the basis for establishing the price the executive paid for it. Nonqualifi ed stock options are similar to qualifi ed options, except that they are subject to a less favorable tax rate. They

are not subject to the same restrictions.

As a result of the Tax Reform Act of 1976, no new qualifi ed stock options were created

after May 20, 1976 (with a few exceptions). In addition, the act ordered that all qualifi ed op-

tions in existence prior to the passage of the act had to be exercised before May 21, 1981. It

also affected nonqualifi ed options by increasing the period over which one had to hold an exer-

cised stock option to enjoy long-term capital gains tax rates. However, with the adoption of the

Economic Recovery Tax Act of 1981, the qualifi ed stock option was resurrected under the new

name of incentive stock option (ISO). Under an ISO, a manager does not have to pay any tax until he or she sells the stock. The major drawback to ISOs is that the company granting

such options does not get tax reductions, which it does with nonqualifi ed options. Because of

tax ramifi cations, the recipients tend to prefer ISOs, whereas the granting organizations tend

to favor nonqualifi ed options.

In recent times, stock options have often represented the largest portion of an executive’s

total compensation. Table 14.2 shows the salary, bonuses, other, and stock gains for the top 10

of the country’s highest-paid executives in 2008. The stock gains represent the value realized

by exercising stock options. It is evident from Table 14.2 that top executives’ total compensa-

tion is often many times their salary and bonuses.

Stock-for-Stock Swaps A substantial proportion of companies with stock option plans pro-

vide for stock-for-stock swaps. This procedure allows options to be exercised with shares of previously purchased company stock in lieu of cash. The advantage is that this arrangement

postpones the taxation of any gain on stock already owned.

qualifi ed stock options Stock options approved by the

Internal Revenue Service for

favorable tax treatment.

nonqualifi ed stock options Similar to qualifi ed options,

except that they are subject to

a less favorable tax rate and

are not subject to the same

restrictions.

incentive stock option (ISO) Form of qualifi ed stock option

plan in which the manager does

not have to pay any tax until

the stock is sold.

stock-for-stock swap Allows options to be exercised

with shares of previously

purchased company stock in

lieu of cash; postpones the

taxation of any gain on stock

already owned.

TABLE 14.2 Top-Paid Chief Executives

Source: Adapted from www.forbes.com/lists/2009

Salary

(in million of dollars)

Bonus

(in million of dollars) Other* Stock Gains** Total

1. Lawrence J. Ellison 1.0 10.78 1.45 543.75 556.98

2. Ray R. Irani 1.3 3.63 33.32 184.39 222.64

3. John B. Hess 1.5 3.50 36.66 112.92 154.58

4. Michael D. Watford 0.60 1.75 1.10 113.48 116.93

5. Mark G. Papa .94 1.00 18.86 69.67 90.47

6. William R. Berkley 1.00 8.50 5.42 72.56 87.48

7. Matthew K. Rose 1.18 1.68 20.70 45.06 68.62

8. Paul J. Evanson 1.12 1.23 22.28 42.63 67.62

9. Hugh Grant 1.29 3.33 9.32 50.67 64.60

10. Robert W. Lane 1.44 3.59 15.24 41.04 61.30

*Other compensation such as vested restricted stock grants and other perks

**Stock gains represent the value realized by exercising stock options

Chapter 14 Incentive Pay Systems 279

Stock Appreciation Rights (SARs) Stock appreciation rights (SARs) are often used with stock option plans. Under an SAR, an executive has the right to relinquish a stock option

and receive from the company an amount equal to the appreciation in the stock price from the

date the option was granted. The gain is taxed as ordinary income at the time it is received.

The advantage of SARs is that the receiver does not have to put up any money to exercise the

option, as he or she would with a normal stock option plan. Holders of SARs may have as long

as 10 years to exercise their rights.

Phantom Stock Plans Phantom stock plans can work in several ways. In one form, the company awards stock as a part of its normal bonus plan. The receiver then defers this “phan-

tom” stock until retirement. At retirement, the holder receives the accumulated shares of stock

or the equivalent value. The second form of phantom stock is very similar to SARs. The

receiver is credited with phantom stock. After a stipulated period of time, usually three to fi ve

years, the receiver is paid, in cash or equivalent shares, an amount equal to the appreciation in

the stock. The major advantage of phantom stock plans is that the receiver does not have to put

up any money at any point in the process. Also, if the value of the stock decreases, the holder

does not lose any money.

Restricted Stock Plans Under a restricted stock plan, a company gives shares of stock, subject to certain restrictions, to participating managers. The major restriction of most plans is

that the shares are subject to forfeiture until they are “earned out” over a stipulated period of

continued employment. As with SARs and phantom stock plans, the receivers do not put up or

risk any of their own money. An advantage from the organization’s viewpoint is that restricted

stock plans provide an incentive for executives to remain with the organization.

Premium-Priced and Performance-Vesting Options Premium-priced options are similar to standard stock options except that the exercise price of the option is set signifi cantly above the

current market price of the stock (versus the usual practice of setting it at or near the current mar-

ket price). The holder realizes a gain only when the market value exceeds the exercise price.

Performance-vesting options, also called price-vesting options, are priced at the mar- ket price but only exercisable if the stock price reaches or exceeds a price goal within a defi ned

period. If the stock price does not reach the price goal within the stipulated time frame, the

option is forfeited.

The Status of Executive Compensation

As indicated in Table 14.2, it is not uncommon for CEOs to be awarded bonuses and stock

options that reach nine digits—even when the company is not doing well. In 2008, Standard &

Poor’s (S&P) 500 chief executive offi cers earned 344 times as much as their employees’ aver-

age pay.9 This is compared to a ratio of 85 to 1 in 1990 and 42 to 1 in 1980. By contrast the

ratio is 22 in Britain, 20 in Canada, and 11 in Japan.10

The main idea behind most stock options is to link pay to performance. However, when

there is a sustained bull market, tying executive reward to price may be fundamentally fl awed.11

The problem is that when most stocks are going up, stock prices often provide an inaccurate

measure of a company’s actual strength. The same could be said when the market is in a sub-

stantial bear market.

Because of the huge dollars often involved and because many executives have received

large compensation packages when the company stock is not performing well, many employ-

ees and stockholders have become outraged with what many executives are being paid (see

HRM in Action 14.2 for one example). Fuel was added to the fi re in late January 2009 when

the media revealed that bankers had awarded themselves nearly $18.4 billion in bonuses as the

economy was further deteriorating and the federal government was spending billions to bail

out fi nancial institutions. American International Group (AIG), which has received more than

$170 billion in government bailout funds, paid tens of millions in retention bonuses in 2009

and 2010. AIG chairman Edward Liddy justifi ed the bonuses by arguing that retaining key

employees was critical for the company to maintain its standing in the eyes of reinsurers and

rating agencies, and furthermore it was essential if AIG was to repay taxpayers.l2 Reacting to

these and other abuses, a new law was passed that prohibits cash bonuses and other incentives

for the fi ve most-senior offi cers and the 20 highest paid executives at companies that have

stock appreciation rights (SARs) Type of nonqualifi ed stock

option in which an executive

has the right to relinquish a

stock option and receive from

the company an amount equal

to the appreciation in the stock

price from the date the option

was granted. Under an SAR,

the option holder does not have

to put up any money, as would

be required in a normal stock

option plan.

phantom stock plan Special type of stock option

plan that protects the holder

if the value of the stock being

held decreases; does not

require the option holder to put

up any money.

restricted stock plan Plan under which a company

gives shares of stock to

participating managers, subject

to certain restrictions; the

major restriction of most plans

is that shares are subject to

forfeiture until “earned out”

over a stipulated period of

continued employment.

premium-priced options Stock options with an exercise

price signifi cantly above stock’s

current market price.

performance-vesting options Stock options priced at market

price but only exercisable if

stock price reaches or exceeds

price goal within defi ned

period.

280

received funds under the Troubled Asset Relief Program (TARP).13 The bill further stipulates

that any bonuses given out by these companies would have to be in the form of long-term

incentives, such as restricted stock, and that the incentives cannot be cashed out until all the

TARP money has been repaid.

Largely because of outraged employees, individuals, and institutional investors, more and

more organizations and boards of directors are reexamining their entire executive compensa-

tion packages. A 2009 survey by Watson Wyatt Worldwide found that 63 percent of respond-

ing directors said U.S. companies should modify executive compensation to adapt to economic

realities.14 This same survey reported that 34 percent of the respondents said their companies

had already reduced salary, bonuses, or long-term incentive awards. Surveys by Equilar (for

the New York Times), the Hay Group, and Forbes magazine all showed that executive pay fell in

2008, largely because of drops in bonuses.15 Most organizations are aware of the public furor

over executive compensation and many are making changes. One common thread in many of

these changes is to directly relate compensation to performance.

Say-on-Pay “Say-on-pay” proposals require an annual nonbinding shareholder vote regard-

ing executive compensation. Most say-on-pay proposals set up advisory boards to oversee

executive pay, express shareholder views, and vote on executive compensation. Some say-

on-pay proposals also call for shareholder approval on golden parachutes as well as executive

compensation relating to managers. The fi rst say-on-pay victory was passed by shareholders

for Blockbuster, Inc. on May 9, 2007.16 On July 31, 2009 the U.S. House of Representa-

tives passed the Corporate and Financial Institutions Compensation Fairness Act (CFICF).

Under this bill, most publicly held companies would be required to offer shareholders a volun-

tary “say-on-pay” vote and the Securities and Exchange Commission (SEC) would establish

confl ict-of-interest standards for compensation consultants and create a requirement that only

independent directors can serve on corporate board compensation committees. The bill also

includes some provisions that apply only to fi nancial companies with assets over $1 billion.

As of press time, the U.S. Senate had not acted on this bill. HRM in Action 14.3 discusses

preemptive actions taken by Afl ac to avoid many of the executive compensation problems be-

ing experienced by many companies.

The concerns discussed above plus worries about shareholder interests being diluted

by the issue of stock options and fallout from the corporate scandals of recent years have

caused many companies to abandon or reduce the use of stock options. In 2004, the Financial

ALIENATING SHAREHOLDERS AT HOME DEPOT Robert L. (Bob) Nardelli arrived as CEO of Home Depot

in 2000 after losing out in a three-way race to succeed

GE’s Iegendary Jack Welch. Almost immediately, Nardelli

embarked on an aggressive plan to centralize control and

hold executives accountable. Under Nardelli, profi ts soared

from $2.6 billion in 2000 to $5.8 billion in 2005. The number

of stores almost doubled from 1,100 stores in 2000 to

approximately 2,100 by the end of 2006. Earnings per share

increased some 150 percent from 2000 to 2005.

While Nardelli certainly produced some fi nancial

successes, he also alienated employees, customers, and

shareholders. Many thousands of full-time store workers

were replaced by part-timers. From 2001 to 2007, 98 percent

of Home Depot’s 170 executives were new to their positions

and 56 percent of the changes involved bringing in managers

from outside the company.

Staffi ng cuts led to persistent complaints by customers

that there weren’t enough workers to help customers. Over

Nardelli’s tenure, the stock price declined almost 9 percent

while Lowe’s increased 186 percent over the same period.

Nardelli infuriated shareholders in May of 2006 when he

severely limited questions from the fl oor while he presided

over a contentious 30-minute shareholders’ meeting. Shortly

after the stockholders’ meeting, the New York Times ran an

article describing Nardelli’s $245 million pay package over

his tenure as CEO. After weeks of secret negotiations, things

came to a head at a board meeting on January 2, 2007 and

Home Depot announced the next day that the company

and Nardelli had “mutually agreed” that he would resign.

However, Nardelli departed with $210 million in additional

severance pay, which further fueled his critics.

Sources: Brian Grow, with Dean Foust in Atlanta; Emily Thornton, Roben Farzad, Jena McGregor, and Susan Zegel in New York; and Eamon Javers in Washington. “Out at Home Depot,” BusinessWeek, January 15, 2007, p. 56, and “Nardelli: Highlights, Lowlights,” Home Channel News, January 15, 2007, p. 22.

HRM in Action 14.2

281

Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard

(SFAS) 123R that requires a range of equity-based compensation arrangements (such as

stock options) to be treated the same as other forms of compensation. In essence, companies

now have to expense stock options just like salaries. One result of this proposal is that com-

pany profi ts will be lowered by the value of the stock options. The International Accounting

Standards Board (IASB) also ruled that international companies had to deduct the cost of

stock options from corporate profi ts beginning in 2005.17

While the reaction to executive compensation has not been universal, there is a trend to-

ward the special types of equity grants (such as premium-priced, performance-vested options,

and restricted stock plans) that do relate executive rewards to actual company performance.

Given the current climate, there is little doubt that executive compensation will continue to

come under increasing scrutiny in the future. HRM in Action 14.3 discusses what one com-

pany has done regarding executive compensation.

Stock Options for Nonmanagerial Personnel When stock options are mentioned, most people think only about stock options for executives

and managerial personnel. Nonmanagerial personnel also widely hold stock options, however.

A public opinion survey released in 2004 reported that about 13 percent of private-sector

employees nationwide receive some type of stock options and that the vast majority, 94 per-

cent, hold jobs below the top management ranks.18 This same survey reported that at least one

in every eight employees in nongovernment jobs held stock options. This number was much

higher than previously thought. A 2008 Bureau of Labor Statistics survey reported that about

8 percent of all private sector employees had stock options.19 Overall about 9 million Ameri-

can employees were estimated to have stock options in 2009.20

If companies continue to cut back on the use of stock options, as discussed in the previous

section, many people believe that regular employees will be hurt more than executives.21 Some

people are even calling for legislation to encourage companies to expand stock option offer-

ings with rank-and-fi le employees.

GROUP INCENTIVES

Because jobs can be interdependent, it is sometimes diffi cult to isolate and evaluate individual

performance. In these instances, it is often wise to establish incentives based on group or team

performance. For example, an assembly-line operator must work at the speed of the line. Thus,

everyone working on the line is dependent on everyone else. With group incentives, all group members receive incentive pay based on the performance of the entire group. Depending on

group incentives Incentives based on group

rather than individual

performance.

AFLAC IS AHEAD IN THE EXECUTIVE COMPENSATION GAME In 2009, Congress was considering extending certain laws

that only applied to companies receiving assistance under

the Troubled Asset Relief Program (TARP). Proposals

included mandatory say-on-pay provisions for all public

corporations. These proposals would have little affect on

Afl ac, the Columbus, Georgia-based insurer, because the

board and the CEO had already taken a series of preemptive

measures to deal with these issues.

In 2006, long before the executive pay controversy

reached its crescendo, Afl ac became the fi rst U.S. company

to institute say-on-pay. In February 2007, Afl ac implemented

a lawbook policy that allowed the company to recover an

executive’s compensation under certain circumstances.

In November 2008, CEO Daniel Amos surrendered the

severance pay provisions in his contract and in February

2009, with Afl ac’s share price falling, he announced he

would forgo his 2008 bonus of $2.8 million.

Afl ac, which reported revenues of $16.6 billion for

2008, has published a proxy statement with 12 pages of

tables detailing every aspect of executive compensation.

This information is supported by an additional 12 pages of

compensation discussion and analysis prepared by its fi nance

department, its compensation committee and Mercer, its

compensation consulting fi rm.

Source: Fay Hansen, “Ahead of the Game,” Workforce Management, April 20, 2009, pp. 1–5.

HRM in Action 14.3

282 Part Four Compensating Human Resources

the specifi c situation, the group may be as large as the entire organizational workforce or as

small as three or four members of a work team. Many group incentive plans are based on such

factors as profi ts or reduction in costs of operations.

Group incentive plans are designed to encourage employees to exert peer pressure on group

members to perform. For instance, if a group member is not performing well and thus is

lowering the production of the entire group, the group will usually pressure the individual to

improve, especially if a group incentive plan is in operation. A disadvantage of group incen-

tives is that the members of the group may not perceive a direct relationship between their

individual performances and that of the group. Size and cohesiveness of the group are two

factors that affect this relationship. Usually smaller groups are more cohesive because more

employees are likely to perceive a relationship between their performances and that of the

group. Another potential disadvantage is that different groups can become overly competitive

with one another to the detriment of the entire organization.

Self-Directed Work Teams The philosophy behind any type of work team is that teams

can contribute to improved performance by identifying and solving work-related problems.

The basic idea is to motivate employees by having them participate in decisions that affect

them and their work. Self-directed work teams, also called self-managed work teams, are

teams of employees that accomplish tasks within their area of responsibility without direct

supervision. Each team makes its own job assignments, plans its own work, performs equip-

ment maintenance, keeps records, obtains supplies, and decides on new members for the

work unit.

Although self-directed work teams are well established in Europe and especially in

Scandinavia, they are relatively new in the United States.22 The past 25 years have seen

a dramatic increase in the use of self-directed work teams and they are widely used in

today’s organizations.23 Most companies that use self-directed work teams usually incor-

porate some type of group incentive pay based on the performance of the respective work

teams.

Organizationwide Incentives Organizationwide incentives reward members based on the performance of the entire organization. With such plans, the size of the reward usu-

ally depends on the salary of the individual. Most organizationwide incentive plans are

based on establishing cooperative relationships among all levels of employees. One of the

fi rst and most successful organizationwide incentive plans was the Lincoln Electric plan,

developed by James F. Lincoln. (The Lincoln Electric Company was discussed in HRM in

Action 12.1 on page 236). In addition to providing many other benefi ts, this plan calls for

a year-end bonus fund for employees based on company profi ts. Thus, the plan encourages

employees to unite with management to reduce costs and increase production so that the

bonus fund will grow.

Some of the most common organizationwide incentive plans include gain-sharing plans,

Scanlon-type plans, and employee stock ownership plans (ESOPs). These three types of plans

are discussed in the following sections.

Gain-Sharing or Profi t-Sharing Plans Different companies know gain sharing by different names, such as profi t sharing, perfor- mance sharing, or productivity incentives. These programs generally refer to incentive plans

that involve employees in a common effort to improve organizational performance and then

reward employees immediately when their performance improves.24 Gain sharing is based on

the concept that employees and the company share the resulting incremental economic gains.

While many variants of gain sharing exist, they are all based on the same principles. First, the

company must be able to measure its output; then, when employees reduce labor costs by in-

creasing productivity, they share in the savings. For example, if it is determined that 25 percent

of net production costs should be attributable to labor costs, any improvement below this tar-

get would be put into a bonus pool to be shared with employees. The division of these gains or

profi ts, which are given in addition to normal wages and salaries, is usually based on an em-

ployee’s base salary or job level. However, many variations are possible, including plans that

give all employees the same amount, plans based on seniority, and plans based on individual

organizationwide incentives Incentives that reward all

members of the organization

based on the performance of

the entire organization.

gain sharing Programs also known as profi t

sharing, performance sharing,

or productivity incentives;

generally refers to incentive

plans that involve employees

in a common effort to achieve

the company’s productivity

objectives. Based on the

concept that the resulting

incremental economic gains

are shared among employees

and the company.

283

performance. Probably the most popular type of gain-sharing or profi t-sharing plan is where

employees share in a percentage of all net profi ts after taxes over a certain, predetermined

amount.

A recent review and summation of the empirical literature concluded that the “litera-

ture to date provides support for the contention that gain-sharing plans improve organiza-

tional effectiveness. However, further empirical work is needed to prove or disprove this

contention.”25 The U.S. General Accounting Offi ce has reported that fi rms with gain-shar-

ing programs experience lower turnover and absenteeism, fewer grievances, and improved

labor–management relations. One potential drawback to gain-sharing/profi t-sharing plans

is that the average employee may not perceive a direct relationship between individual

output and the performance of the entire organization. However, it is not unusual for

executives and top managers to have a signifi cant amount of their total compensation based

on the profi ts of the company. HRM in Action 14.4 describes a new compensation plan for

directors at the Coca-Cola Company. The plan ties directors’ compensation directly to the

performance of the entire organization.

Scanlon-Type Plans The Scanlon plan was developed by Joseph Scanlon in 1927 and introduced at the LaPointe Machine Tool Company in Hudson, Massachusetts.26 The Scanlon plan provides employees

with a bonus based on tangible savings in labor costs and is designed to encourage employ-

ees to suggest changes that might increase productivity. Companies establish departmental

committees composed of management and employee representatives to discuss and evaluate

proposed labor-saving techniques. Usually the bonus paid is determined by comparing actual

productivity to a predetermined productivity norm. Companies measure actual productivity by

comparing the actual payroll to the sales value of production for the time period being meas-

ured. They place any difference between actual productivity and the norm in a bonus fund.

The employees and the company share the bonus fund. Most Scanlon plans pay 75 percent

of the bonus fund to employees and 25 percent to the company. Under the Scanlon plan, any

cost savings are paid to all employees, not just to the employees who made the suggestions.

Some companies have found that it is benefi cial to review and modify their Scanlon plans

periodically to take into account any changes that have occurred.27 Scanlon plans have been

successfully implemented in virtually every industry utilizing a variety of bonus formulas.28

Employee Stock Ownership Plans (ESOPs) An employee stock ownership plan (ESOP) is a plan for providing employee owner- ship of company stock. ESOPs are generally executed in the form of a stock bonus plan

Scanlon plan Organizationwide incentive

plan that provides employees

with a bonus based on tangible

savings in labor costs.

employee stock ownership plan (ESOP) Form of stock option plan

in which the organization

provides for employee purchase

of its stock at a set price for a

set time period based on the

employee’s length of service

and salary and the profi ts of the

organization.

COKE TIES DIRECTOR’S COMPENSATION DIRECTLY TO COMPANY PERFORMANCE In April 2006, the Coca-Cola Company adopted a new

compensation plan for its board of directors that consists

entirely of equity-based renumeration payable only if the

company meets certain performance targets. Directors

can potentially earn $175,000 per year in Coke shares, but

the stock will be granted only if the company achieves

8 percent annual earnings in growth over a three year

period (8 percent is the mid-point of the company’s long-

term performance target). If the performance goal is met

at the end of the performance period, the share units are

payable. If the performance goal is not met, all share units

and hypothetical dividends are forfeited.

“Shareowners understand that they are only rewarded

when the company performs,” said James D. Robinson, III,

chairman of the company’s Committee on Directors and

Corporate Governance. “The Coca Cola Company board will

hold itself to the same standard. As the company performs

well, directors will be appropriately compensated.”

The Coca Cola Company is the world’s largest beverage

company, with nearly 500 sparkling and still brands. Through

the world’s largest distribution system, consumers in more

than 200 countries enjoy the company’s beverages at a rate

of nearly 1.6 billion servings a day.

Sources: “The Coca Cola Company Announced New Compensation Plan for Directors; Compensation to be Entirely Based on Company’s Performance over Three-Year Periods,” PR Newswire, April 5, 2006, and “The Board of Directors of the Coca Cola Company Announces Two Offi cers Elections,” Business Wire, December 10, 2009.

HRM in Action 14.4

284 Part Four Compensating Human Resources

or a leveraged plan. With either plan, an ESOP is established when the company sets up a

trust, called an employee stock ownership trust (ESOT), to acquire a specifi ed number of

shares of its own stock for the benefi t of participating employees. With a stock bonus plan,

the company annually gives stock to the ESOT or gives cash to the ESOT for buying stock.

With a leveraged plan, the trust borrows a sum of money to purchase a specifi ed number

of shares of the company’s stock. Generally, the company guarantees the loan. Then the

company annually pays into the trust an agreed-on sum necessary to amortize and pay

the interest on the loan. Under either plan, as the trust receives the stock, it is credited to

an account established for each employee. Allocations are usually based on relative pay,

length of service, or some combination of the two. When the employee retires or leaves

the company, the stock is either given to the employee or purchased by the trust under a

buy-back arrangement.

Revised data indicates that ESOPs grew rather dramatically from the mid-1970s through

the late 1980s.29 For example, in 1990, over 8,000 companies had enrolled nearly 5 mil-

lion employees in ESOPs. This was up from 1,600 enrolled companies covering less than

250,000 employees in 1975. Growth through the mid-1990s was steady but slow. In 2006,

the National Center for Employee Ownership (NCEO) estimated that 9,225 companies had

ESOPs with 10.1 million participants.30 As of 2009, the NCEO estimated that 11,400 plans

covering 13.7 million employees existed in the United States.31

One appealing feature of ESOPs is that they have specifi c tax advantages for both the

organization and the employees. For example, the organization can use pretax dollars to pay

back the loan used to purchase the stock. The dividends a company pays on stock held by its

ESOP are treated like interest and are also deductible. An advantage that has recently emerged

is using an ESOP to rebuff an unfriendly takeover. The more stock an ESOP holds, the better

equipped the company is to fend off an unwanted tender offer. Employees benefi t by being

able to defer any capital gains until the stock is actually distributed. ESOPs can also give

employees some voice in running the company. Table 14.3 summarizes the primary benefi ts of

ESOPs for the organization, the employee, and the stockholders.

One underlying assumption of an ESOP is that having a piece of the action causes

employees to take more interest in the success of the company. Several studies have shown

that companies combining an ESOP with employee participation in decision making enjoy

sharply higher sales and earnings growth.32 Numerous surveys have also reported that most

companies’ fi nancial fi gures and other performance measures improve following the imple-

mentation of an ESOP.33 On the other hand, ESOPs can have a limited effect as incentives.

This is especially true when each employee owns only a minuscule amount of stock. Also,

as we have seen clearly in recent years, it is possible that the price of the stock will go down

rather than up. Thus, some employees view a stock option plan warily.

Table 14.4 summarizes the most frequently used incentive plans for nonmanagerial and

managerial employees.

TABLE 14.3 Major Benefi ts of Employee Stock Ownership Plans

To Organization

Allows use of pretax dollars to

fi nance debt.

Increases cash fl ow.

Provides a ready buyer for stock.

Provides protection against

unwanted tender offers.

Protects the company from estate

problems.

Can result in substantial tax savings.

Can motivate employees by giving

them a piece of the action.

To Employees

Favorable tax treatment of lump-sum

distribution, deferment of tax until

distribution, and gift and estate tax

exemptions.

Allows employees to share in the

success of the company.

Provides a source of capital gains

income for employees.

Can allow employees some voice in

running the company.

To Stockholders

Provides ready market to sell stock.

Establishes defi nite worth of shares

for estate purposes.

Maintains voting control of

company.

Protects the company from having

to come up with large sums of

money to settle an estate.

Can result in preferential

consideration for a government-

guaranteed loan.

Chapter 14 Incentive Pay Systems 285

Type of Plan

Personnel Individual Group Organizational

Nonmanagers Piece rate plans

Plans based on time saved

Commission plans

Bonuses based on individual

performance

Suggestion systems

Stock options

Bonuses based on organizational

performance (annual and long-term)

Stock option plans:

Stock appreciation rights (SARs)

Phantom stock plans

Restricted stock plans

Suggestion systems

Bonuses based on group

performance

Lincoln Electric plan

Gain-sharing/profi t-sharing

plans

Scanlon-type plans

Employee stock ownership plans

(ESOPs)

Managers Bonuses based on group

performance

Lincoln Electric plan

Gain-sharing/profi t-sharing

plans

Scanlon-type plans

Employee stock ownership plans

(ESOPs)

TABLE 14.4 Summary of Most Commonly Used Incentive Plans

MAKING INCENTIVE PLANS WORK

Incentive plans have existed in one form or another for a long time. New plans are periodi-

cally developed, often as a result of changes in tax laws. As several examples in this chapter

demonstrated, incentive compensation can make up a signifi cant portion of an individual’s

total compensation. This is especially true with executives. If an incentive plan is to function

as intended and generate higher performance among employees, it must be clearly communi-

cated to employees, must be viewed as being fair, and must be related to performance. It also

follows that the more employees understand an incentive plan, the more confi dence and trust

they will develop in the organization.

1. Describe the two basic requirements of an effective incentive plan.

For an incentive plan to be effective, employees must believe their performances and

the performances of others are accurately and fairly evaluated and that the incentives

(rewards) are based on performance.

2. List and briefl y discuss at least three types of individual incentives.

The differential piece rate plan pays employees one rate for all acceptable units produced

up to some standard and then a higher rate for all pieces produced if the output exceeds

the standard. Incentive plans based on time saved give an employee a bonus for reaching

a given level of production or output in less than the standard time. Under the commission

plan, employees are rewarded, in part for their sales volume.

3. Distinguish between a bonus and a merit pay increase.

A bonus is a reward offered on a one-time basis for high performance. A merit pay

increase is a reward also based on performance, but perpetuated year after year.

4. Discuss the role bonuses play in managerial compensation.

Bonuses are by far the most common type of incentive pay for managers. A 2002 survey

reported that bonuses made up approximately 66 percent of total salaries for CEOs and

approximately 36 percent of total salaries for all top executives.

5. Differentiate between nonqualifi ed stock options and incentive stock options (ISOs).

Stock option plans generally give managers an option to buy company stock at a predeter-

mined, fi xed price within a set period of time. Nonqualifi ed stock options do not qualify

for favorable tax treatment. Incentive stock options (ISOs) have certain tax advantages.

Under an ISO, a recipient does not have to pay any tax until he or she sells the stock.

Summary of Learning Objectives

286 Part Four Compensating Human Resources

6. Differentiate among the following different types of stock option related plans:

stock-for-stock swaps, stock appreciation rights, phantom stock plans, restricted

stock plans, premium-priced options, and performance-vesting options.

Stock-for-stock swaps allow options to be exercised with shares of previously purchased

company stock in lieu of cash. Stock appreciation rights (SARs) are often used with stock

option plans. Under an SAR, an executive has the right to relinquish a stock option and

receive from the company an amount equal to the appreciation in the stock price from the

date the option was granted. In one form of phantom stock, the company awards stock as

a part of its normal bonus plan. The receiver then defers this phantom stock until retire-

ment when he or she receives the accumulated shares of stock or its equivalent value.

With another form of phantom stock, the receiver is credited with phantom stock and

often after a stipulated period of time (usually three to fi ve years) he or she is paid, in cash

or equivalent shares, an amount equal to the appreciation in the stock. Under a restricted

stock plan, a company gives shares of stock, subject to certain restrictions. Premium

priced options are similar to standard options except that the exercise price of the stock is

set substantially above the current market price of the stock. Performance-vesting options

are priced at market price but are only exercisable if the stock price reaches or exceeds the

price goal within the defi ned period.

7. Discuss the major issues related to the executive pay controversy.

U.S. CEOs earn many, many times as much compensation as their average employee; much

more than CEOs in Britain, Canada, and Japan. The large bonuses paid by companies that

received government bailout money has infuriated many people. CEOs receiving large

bonuses and other forms of compensation when the company is not performing well have

also angered many people.

8. Discuss the prevalence of stock options among nonmanagerial personnel.

Contrary to public belief, stock options are widely held by nonmanagerial personnel. One

recent survey reported that 13 percent of private-sector employees nationwide receive

some type of stock options and that 94 percent of these hold jobs below the top manage-

ment ranks. A second recent study reported that 14.4 percent of all employees held stock

options.

9. Describe how group incentives work.

Under a group incentive plan, all members of a specifi ed group receive incentive pay

based on the performance of the entire group. Many group incentive plans are based on

factors such as profi ts or reduction in costs of operations.

10. Explain what a gain-sharing plan is.

Gain sharing is also known as profi t sharing, performance sharing, or productivity

incentives. Gain sharing plans generally refer to incentive plans that involve employees in

a common effort to achieve the company’s productivity objective. Gain sharing is based

on the concept that the incremental economic gains are shared among employees and the

company.

11. Discuss Scanlon-type plans.

Scanlon-type plans provide employees with a bonus based on tangible savings in labor costs

and are designed to encourage employees to suggest changes to increase productivity. Under

a Scanlon-type plan, any cost savings are paid to all employees, not just to employees who

made the suggestions.

12. Explain how an employee stock ownership plan (ESOP) works.

An employee stock ownership plan (ESOP) provides for employee ownership of company

stock. ESOPs are generally executed in the form of a stock bonus plan or a leveraged

plan. With either plan, an ESOP is established when the company sets up a trust, called

an employee stock ownership trust (ESOT), to acquire a specifi ed number of shares of its

own stock for the benefi t of participating employees. With a stock bonus plan, the company

annually gives stock to the ESOT or gives cash to the ESOT for buying stock. With a

leveraged plan, the trust borrows a sum of money to purchase a specifi ed number of shares

of the company’s stock.

Chapter 14 Incentive Pay Systems 287

1. What are two essential requirements of an effective incentive plan?

2. Outline the advantages and disadvantages of individual incentive plans.

3. What is a piece rate plan?

4. What is an incentive plan based on time saved?

5. Describe an incentive plan based on commission.

6. What is a suggestion plan?

7. What is a long-term performance plan?

8. Defi ne a stock option plan.

9. Defi ne each of the following stock option–related plans: stock-for-stock swaps, stock

appreciation rights, phantom stock plans, restricted stock plans, premium-priced options,

and performance-vesting options.

10. Why are many people furious about executive compensation?

11. Name the advantages and disadvantages of a group incentive plan.

12. What are self-directed work teams?

13. Describe the most common types of organizationwide incentive plans.

14. What are the benefi ts of an ESOP to employees? To the organization? To stockholders?

Review Questions

bonus, 276

commission plan, 275

differential piece rate

plan, 275

employee stock

ownership plan

(ESOP), 283

gain sharing, 282

group incentives, 281

incentive or variable pay

plans, 274

incentive stock option

(ISO), 278

merit pay increase, 276

nonqualifi ed stock

options, 278

organizationwide

incentives, 282

performance share

plan (unit plan), 277

performance-vesting

options, 279

phantom stock plan, 279

premium-priced

options, 279

qualifi ed stock options, 278

restricted stock plans, 279

Scanlon plan, 283

stock appreciation

rights (SARs), 279

stock-for-stock swap, 278

suggestion systems, 276

Key Terms

1. It has been said that incentive plans work only for a relatively short time. Do you agree or

disagree? Why?

2. If you were able to choose the type of incentive pay system your company offered, would

you choose an individual, a group, or an organizationwide incentive plan? Why?

3. If you were president of Ford Motor Company and could design and implement any type of

incentive plan, what general type would you recommend for top management? For middle

management? For supervisory management? For production employees?

4. What do you think about the way executive compensation has escalated in recent years? Do

you think it is usually justifi able? Why or why not?

Incident 14.1

Rewarding Good Performance at a Bank

The performance of a bank branch manager is often diffi cult to measure. Evaluation can in-

clude such variables as loan quality, deposit growth, employee turnover, complaint levels, or

audit results. However, many other factors that infl uence performance, such as the rate struc-

ture, changes in the market area served by the branch, and loan policy as set by senior manage-

ment, are beyond the branch manager’s control. The appraisal system presently used by First

Trust Bank is based on points. Points are factored in for a manager’s potential productivity

and for the actual quality and quantity of work. In this system, the vast majority of raises are

between 4 and 10 percent of base salary.

Discussion Questions

288 Part Four Compensating Human Resources

Sales growth is a major responsibility of a branch manager. Although many salespeople are

paid a salary plus bonuses and commissions, no commissions are paid on business brought

in by a branch manager. Therefore, one problem for the bank has been adequately rewarding

those branch managers who excel at sales.

In May 2009, First Trust Bank opened a new branch on Northside Parkway, located in a

high-income area. Three competing banks had been in the neighborhood for some 15 years. Jim

Bryan, who had grown up in the Northside Parkway area, was selected as branch manager. In

addition to Jim, the branch was staffed with fi ve qualifi ed people. Senior executives of the bank

had disagreed about the feasibility of opening this branch. However, it was Jim’s responsibility

to get the bank a share of the market, which at that time consisted of approximately $56 million

in deposits.

After one year of operation, this branch had the fastest growth of any ever opened by First

Trust Bank. In 12 months, deposits grew to $18 million, commercial loans to $9 million, and

installment loans to $2.5 million. As measured by Federal Reserve reports, the new branch

captured 50 percent of the market growth in deposits over the 12 months. The customer ser-

vice provided was extremely good, and branch goals for profi t were reached ahead of sched-

ule. Aware of the success, Jim looked forward to his next raise.

The raise amounted to 10 percent of his salary. His boss said he would have liked to have

given Jim more, but the system wouldn’t allow it.

Questions

1. Should Jim have been satisfi ed with his raise since this was the maximum raise the system

allowed?

2. Do you think the bank currently offers adequate sales incentives to its branch managers? If

not, what would you recommend?

Incident 14.2

Part-Time Pool Personnel

Crystal Clear Pool Company builds and maintains swimming pools in a large midwestern city.

Crystal Clear handles pool maintenance through a contractual arrangement with the owners

of the pools. Although individualized maintenance plans are available at a premium, the basic

contract calls for Crystal Clear to vacuum the pools and adjust their chemical balance once a

week. For 80 percent of the maintenance customers, the standard contract covers the months

of May through September. The remaining 20 percent, who have either indoor or covered

pools, require service year-round.

Because of the seasonal nature of the work, Crystal Clear hires many students during the

summer. The maintenance staff is divided into three-person crews, each assigned to service six

pools per day. In the summer, one permanent employee and two student employees comprise

a team, with the permanent employee responsible for training the students. All maintenance

crews are paid on a straight hourly basis.

The present system has been in force for several years, but it has resulted in at least two

problems that seem to be getting more serious each year. The fi rst is that the students hired for

the summer demand to be paid the same wage rates that apply to the permanent employees. The

reason is that the college students can get other summer jobs at these rates and are simply not will-

ing to work for less. Naturally, the permanent employees resent the idea of being paid the same

wages as the students. The second major problem involves the assignment of the pools, which

vary in size and geographic location. The employees claim this is unfair because of the travel time

required and differences in pool size. Some pools take three to four times as long to clean as oth-

ers. Thus, some teams must work harder than others to service the six assigned pools.

Questions

1. What suggestions do you have for Crystal Clear to help remedy their compensation

problems?

Chapter 14 Incentive Pay Systems 289

2. Can you think of any way to implement an incentive program at Crystal Clear? (Do not

ignore the scheduling problems that might be created by such a program.)

3. In general, how do you think the problem of having to pay student employees the same rate

as permanent employees could be resolved?

Assume you have been hired as a consultant to a medium-size sales organization to help it

structure an incentive system for its three basic categories of employees. The fi rst category is

the sales force, composed of 20 salespeople all working on a straight commission. The second

category is composed of seven support employees (two secretaries and fi ve packer/shippers).

All seven work on a straight hourly wage rate. The third category is made up of the two

owner/managers.

The owner/managers like the straight commission system the salespeople are on, but they

suspect that many of the salespeople tend to slack off once they have attained an acceptable

level of sales for any given month. The seven support employees appear to be steady workers,

but management believes their performance could be enhanced with the right incentive pro-

gram. The owner/managers are satisfi ed with their current salaries but would like to look for

some tax shelter for any additional profi ts.

Your job is to design an incentive plan with elements that will be attractive to each of the

three categories of employees. Be prepared to present your plan to the class.

Go to the library and/or Internet and identify one company or organization that has implemen ted

a successful suggestion system. Identify what you think are the reasons that this suggestion

system has worked. Be prepared to report your fi ndings to the class.

Go to your library or on the Internet and determine the status of the current status of the CFICF

legislation.

1. Hewitt Associates, “Variable Pay Highest on Record,” press release, August 11, 2009. http://www.

hewittassociates.com, accessed February 5, 2010.

2. “Employees Say Tenure Tops Performance to Determine Pay,” IOMA’s Report on Salary, August 2006,

p. 8.

3. “Firms Fail to Use Comp Strategically to Drive Business Results,” IOMA’s Report on Salary Surveys,

July 2007, p. 8.

4. Paula Davis, executive director EIA, telephone conversation on February 8, 2010.

5. “What Employees in Other Companies Do, Your Employees Can Do, Also,” http://www.biztrain.com/

coaching/services/greatidea.htm. Accessed February 5, 2007.

6. “Maruti Saves over Rs66 cr from Employee Suggestions,” Businessline, May 10, 2008.

7. “Despite Economy, Majority of Firms Planning Year-End Bonuses,” The Enterprise, December 14,

2009, p. 1.

8. Kathleen Johnston Jarboe, “Future Hazy for Stock Options,” Daily Record, April 9, 2004, p. 1.

9. Robert J. Grossman, “Executive Pay: Perception and Reality,” HR Magazine, April 2009, pp. 26–32.

10. Ibid.

11. Gretchen Morgenson, “Pushing the Pay Envelope Too Far,” New York Times, April 14, 2002, business

section, p. 1.

12. Phil Gusman, “AIG Defends Retention Program Payments,” National Underwriter, December 15,

2008, p. 8.

13. Jennifer Schramm, “Executive Pay: On Your Radar,” HR Magazine, April 2009, p. 108.

EXERCISE 14.1

Implementing Incentives

EXERCISE 14.2

Proven Suggestion Systems

Notes and Additional Readings

EXERCISE 14.3

The Status of the

Corporate and

Financial Institutions

Compensation

Fairness Act (CFICF)

290 Part Four Compensating Human Resources

14. Stephen Miller, “Directors: Executive Pay Programs Need to Change,” HR Magazine, July 2009, p. 12.

15. George Paulin, “Changing the Economics of Executive Compensation,” Business Week, October 14,

2009.

16. Barry B. Burr, “Proxy Season Battles Pre-empted by Peace,” Pensions & Investments, May 14, 2007,

pp. 6–7.

17. “Stock Options Update,” HR Focus, April 2004, p. 7.

18. Mark Schwanhausser, “New Survey Shows Variety of Workers Hold Stock Options,” Knight Ridder

Tribune Business News, April 4, 2004, p. 1.

19. The National Center for Employee Ownership, “A Statistical Profi le of Employee Ownership,”

February 2009, www.nceo.org, accessed February 9, 2010.

20. The National Center for Employee Ownership, “A Comprehensive Overview of Employee

Ownership,” www.nceo.org, accessed February 9, 2010.

21. Jarboe, “Future Hazy for Stock Options.”

22. Renee Beckham, “Self-Directed Work Teams: The Wave of the Future?” Hospital Material

Management Quarterly, August 1998, pp. 48–60; Thomas Capozzoli, “How to Succeed with

Self-Directed Work Teams,” Supervision, February 2002, pp. 25–26.

23. Celia Zarraga and Jaime Bonache, “The Impact of Team Atmosphere on Knowledge Outcomes in

Self-Managed Teams,” Organization Studies, 26, no. 5, 2005, pp. 661–81.

24. Kevin M. Paulsen, “Lessons Learned from Gainsharing,” HR Magazine, April 1991, p. 70.

25. Matthew H. Roy and Sanjiv S. Dugal, “Using Employee Gainsharing Plans to Improve Organizational

Effectiveness,” Benchmarking, 12, no. 3, 2005, pp. 250–59.

26. C. W. Brennan, Wage Administration, rev. ed. (Homewood, Ill.: Richard D. Irwin, 1963).

27. Valerie L. Williams, “Compensation Done the ‘Right’ Way,” Workforce, December 1999, pp. 75–78.

28. “Scanlon & Skill: Two Compensation Plans for These Diffi cult Times,” IOMA’s Pay for Performance

Report, December 2002, pp. 1–5.

29. The National Center for Employee Ownership, “A Statistical Profi le of Employee Ownership,”

December 2003, pp. 1–8 at www.nceo.org/library/eo_stat.html.

30. “A Statistical Profi le of Employee Ownership,” July 10, 2006, http://www.nceo.org/library/eo_stat.

html. Accessed February 11, 2007.

31. The National Center for Employee Ownership,” A Brief Overview of Employee Ownership in the

U.S.,” www.nceo.org. Accessed February 9, 2010.

32. Christopher Farrell, Tim Smart, and Keith Hammonds, “Suddenly, Blue Chips Are Red-Hot for

ESOPs,” BusinessWeek, March 20, 1989; Corey Rosen and Ed Carberry, “Ownership Matters!:

A Culture of ‘Doing’ Is Better Than Just ‘Being’, ” Workspan, October 2002, pp. 28–32; and The

National Center for Employee Ownership, “A Statistical Profi le of Employee Ownership.”

33. Peter Weaver, “An ESOP Can Improve a Firm’s Performance,” Nation’s Business, September 1996,

p. 63; James C. Sesil, Maya K. Kroumova, Joseph R. Blasi, and Douglas L. Kruse, “Broad-Based

Employee Stock Options in US ‘New Economy’ Firms,” British Journal of Industrial Relations,

June 2002, p. 273; and “A Statistical Profi le of Employee Ownership,” February 2009, http://www

.nceo.org. Accessed February 9, 2010.

291291

Chapter Fifteen

Employee Benefi ts

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne employee benefi ts.

2. Describe how employee benefi ts

have grown over the last several

years.

3. Summarize those benefi ts that are

legally required.

4. Differentiate between a defi ned-

benefi t pension plan and a defi ned-

contribution pension plan.

5. Discuss the attractiveness of a cash-

balance plan to employees.

6. Describe a 401(k) plan and how it

differs from a 403(b) plan.

Chapter Outline

What Are Employee Benefi ts?

Growth in Employee Benefi ts

Legally Required Benefi ts

Social Security

Unemployment Compensation

Workers’ Compensation

Retirement-Related Benefi ts

Company-Sponsored Retirement Plans

ERISA and Related Acts

Employees Not Covered by Company

Retirement Plans

Preretirement Planning

Insurance-Related Benefi ts

Health Insurance

Dental Insurance

Life Insurance

Accident and Disability Insurance

Payment for Time Not Worked

Paid Holidays and Paid Vacations

Other Benefi ts

Employee Preferences among Benefi ts

Flexible-Benefi t Plans

The Benefi t Package

Communicating the Benefi t Package

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 15.1: Who Is Eligible for Retirement

Benefi ts?

Incident 15.2: Benefi ts for Professionals

Exercise 15.1: Taking a Raise

Notes and Additional Readings

7. Explain the purposes of the Employee

Retirement Income Security Act

(ERISA) and the Retirement Equity Act.

8. Distinguish between an IRA and a

Roth IRA.

9. Describe a health maintenance

organization (HMO) and a preferred

provider organization (PPO).

10. Describe a Medical Savings Account

and a Health Savings Account.

11. Explain the concepts of a fl oating

holiday and personal days.

12. Explain the concept of a fl exible-

benefi t plan.

13. Discuss two reasons employees are

often unaware of the benefi ts their

organizations offer.

292 Part Four Compensating Human Resources

Employee benefi ts, sometimes called fringe benefi ts, are those rewards that employees receive for being members of the organization and for their positions in the organization.

Unlike wages, salaries, and incentives, benefi ts are usually not related to employee perform-

ance. Figures compiled by the U.S. Chamber of Commerce show that organizations’ pay-

ments for employee benefi ts in 2007 averaged $14,919.1 The single most expensive cost was

medical-related payments (averaging $4,595 per employee). Payments for time not worked

(vacation, holidays, and sick leave) averaged $2,851 per employee. Retirement and savings

accounted for $3,551 per employee.

The term fringe benefi ts was coined over 40 years ago by the War Labor Board. Reason-

ing that employer-provided benefi ts such as paid vacations, holidays, and pensions were

“on the fringe of wages,” the agency exempted them from pay controls.2 It has been argued

that this action, more than any single event, led to the dramatic expansion of employee

benefi ts that has since occurred. However, because of the signifi cance of benefi ts to total

compensation, many employers have dropped the word fringe for fear that it has a minimiz-

ing effect.

WHAT ARE EMPLOYEE BENEFITS?

Table 15.1 lists potential employee benefi ts. In general, these can be grouped into fi ve major

categories, which are not all mutually exclusive: (1) legally required, (2) retirement related,

(3) insurance related, (4) payment for time not worked, and (5) other. Table 15.2 categorizes

employee benefi ts (fringe benefi ts) Rewards that employees

receive for being members of

the organization and for their

positions in the organization;

usually not related to employee

performance.

TABLE 15.1 Potential Employee Benefi ts

Source: D. J. Thomsen, “Introducing Cafeteria Compensation in Your Company,” Personnel Journal, March 1977, p. 125. Adapted from Personnel Journal, Costa Mesa, CA.

Accidental death, dismemberment

insurance

Birthdays (vacation)

Bonus eligibility

Business and professional

memberships

Cash profi t sharing

Club memberships

Commissions

Company medical assistance

Company-provided automobile

Company-provided housing

Company-provided or subsidized

travel

Day care centers

Deferred bonus

Deferred compensation plan

Deferred profi t sharing

Dental and eye care insurance

Discount on company products

Educational activities (time off)

Employment contract

Executive dining room

Fitness Center

Free checking account

Free or subsidized lunches

Group automobile insurance

Group homeowners’ insurance

Group life insurance

Health maintenance organization fees

Holidays (extra)

Home health care

Home purchase assistance

Hospital-surgical-medical insurance

Incentive growth fund

Interest-free loans

Layoff pay

Legal, estate-planning, and other

professional assistance

Loans of company equipment

Long-term disability benefi t

Matching educational donations

Military leave

Nurseries

Nursing-home care

Opportunity for travel

Outside medical services

Paid attendance at business, professional,

and other outside meetings

Parking facilities

Pension/401(k) plan

Personal accident insurance

Personal counseling

Personal credit cards

Personal expense accounts

Pet insurance

Physical examinations

Political activities (time off)

Private offi ce

Professional activities

Psychiatric services

Recreation facilities

Resort facilities

Retirement gratuity

Sabbatical leaves

Salary

Savings plan

Scholarships for dependents

Severance pay

Shorter or fl exible work week

Sickness and accident insurance

Social security

Social service sabbaticals

Split-dollar life insurance

State disability plans

Stock appreciation rights

Stock bonus plan

Stock option plans

Stock purchase plan

Survivors’ benefi ts

Tax assistance

Training programs

Tuition benefi ts

Vacations

Wages

Weekly indemnity insurance

Web site: HR/Benefi ts Job Postings www.ifebp.org/jobs/

Chapter 15 Employee Benefi ts 293

many of the most common employee benefi ts. Table 15.3 shows how the payroll dollar is

allocated among the major categories. Most benefi ts apply to all employees of the organiza-

tion; however, some are reserved solely for executives. Certain benefi ts, such as health in-

surance, are often extended to include spouses. An increasing number of organizations are

extending benefi ts coverage to include unmarried heterosexual and homosexual partners of

unmarried employees. Since 2006, more than half of Fortune 500 companies have offered

health benefi ts for domestic partners. As of 2009, 57 percent (a total of 286) of the Fortune

500 companies offered domestic partner benefi ts.3 HRM in Action 15.1 discusses why IBM

began offering some benefi ts to domestic partners and changes that have been made to the

program.

GROWTH IN EMPLOYEE BENEFITS

Prior to the passage of the Social Security Act in 1935, employee benefi ts were not widespread.

Not only did the act mandate certain benefi ts, but its implementation greatly increased the gen-

eral public’s awareness of employee benefi ts. By this time, unions had grown in strength and

had begun to demand more benefi ts in their contracts. Thus, the 1930s are generally viewed as

the birth years for employee benefi ts.

As productivity continued to increase throughout and after World War II, more and more

employee benefi ts came into existence, although the categories used differ slightly from those

described earlier. The 2008 Employee Benefi ts study by the U.S. Chamber of Commerce of

265 companies reported that benefi ts averaged 29.2 percent of payroll.4 The following sections

describe many of the more popular benefi ts today’s organizations offer.

Legally Required Retirement Related Insurance Related

Payment for Time

Not Worked Other

Social security

Unemployment

compensation

Workers’

compensation

State disability

insurance

Pension funds

Annuity plans

401(k) plans

Early retirement

Disability retirement

Retirement gratuity

Medical insurance

Accident insurance

Life insurance

Disability insurance

Dental insurance

Survivor benefi ts

Vacation

Holidays

Sick leave

Military leave

Election day

Birthdays

Funerals

Personal time

Paid rest periods

Lunch periods

Wash-up time

Travel time

Company discounts

Meals furnished by

company

Moving expenses

Severance pay

Tuition refunds

Credit union

Company car

Legal services

Financial counseling

Recreation facilities

TABLE 15.2 Examples of Common Benefi ts, by Major Category

TABLE 15.3 Benefi ts Expenditures from

the Payroll Dollar, by Major

Categories

Source: Based on fi gures from U.S.

Chamber of Commerce Statistics and

Research Center, The 2006 Employee

Benefi ts Study (Washington, D.C.: U.S.

Chamber of Commerce, 2006) p. 9.

Wages 55.9¢

Medical benefi ts 14.5¢

Payment for time not worked 11.1¢

Legally required benefi ts (employer’s share only) 9.3¢

Retirement and savings 8.6¢

Other benefi ts 0.6¢

100.0¢

294294

LEGALLY REQUIRED BENEFITS

As mentioned earlier, the law mandates certain benefi ts. This section discusses three benefi ts

that fall in this category: social security, unemployment, and workers’ compensation benefi ts.

Social Security Social security is a federally administered insurance system. Under current federal laws, both employer and employee must pay into the system, and a certain percentage of the em-

ployee’s salary is paid up to a maximum limit. Table 15.4 shows how social security costs have

changed over the past several years.

With few exceptions, social security is mandatory for employees and employers. Self-

employed persons are required to contribute to social security at a rate higher than that paid

by a typical employee, but lower than the combined percentage paid by both employer and

employee. The payments distributed under social security can be grouped into three major

categories: retirement benefi ts, disability benefi ts, and health insurance.

Retirement Benefi ts under Social Security

To be eligible for periodic payments through social security, a person must have reached at

least age 62, and be fully insured under the system. To be fully insured a person must have

40 credits (people born before 1929 need fewer credits, depending on their year of birth). The

way a credit is determined has changed over the years but generally requires that a minimum

amount of money be earned ($1,000 per credit in 2007). A maximum of four credits can be

earned in a calendar year. The full periodic allotment to which the retiree is entitled begins at

age 65 for persons born before 1938. The age requirement increases slightly for persons born

during 1938 or later (up to a maximum of age 67 for those born during 1960 or later). Those

who retire as early as age 62 may receive periodic payments of a lesser amount determined by

their exact age and earnings from gainful employment. Earnings from gainful employment do

not include income from investments, pensions, or other retirement programs.

The size of the retirement benefi t varies according to the individual’s average earnings un-

der covered employment. However, there are maximum and minimum limits to what eligible

individuals and their dependents can receive. Table 15.5 lists dependents who may be eligible

for retirement benefi ts if an eligible employee dies.

social security Federally administered

insurance system designed to

provide funds upon retirement

or disability or both and to

provide hospital and medical

reimbursement to people who

have reached retirement age.

HRM in Action 15.1

DOMESTIC PARTNER BENEFITS www.ibm.com Effective January 1, 1997, IBM extended health care coverage

to the partners of gay and lesbian employees. The policy

covers all of IBM’s 110,000 employees throughout the United

States. At the time, this made IBM the largest U.S. company

to offer benefi ts to this group. According to company

offi cials, the policy covers only same-sex couples because

opposite-sex domestic partners have the option of getting

legally married. IBM offi cials said they implemented the

policy because a rapidly growing number of other high-tech

companies had and IBM didn’t want to risk losing top talent.

“It was a business decision,” said Jill Kanin-Lovers, IBM’s vice

president of human resources. “We want to be in a position

to attract and retain a broad spectrum of employees.”

Microsoft, Apple Computer, Xerox, and Hewlett-Packard are

some of the other high-tech companies to offer domestic

partner benefi ts.

When IBM introduced same-sex partner benefi ts in

1997, it did so with the provision that the policy would

end if a state in which employees resided recognized same-

sex marriages. Brad Salavich, global program manager for

workforce diversity at IBM, explained that the domestic-

partner benefi t “was an extension to equalize benefi ts

for gay and lesbian employees who were not legally able

to have their relationship recognized.” After gay marriage

became legal in Massachusetts in 2004, IBM ended domestic-

partner benefi ts for employees in Massachusetts effective

January 2006. Other well-known companies that offer

benefi ts to domestic partners include Toyota, Ford, UPS,

Lowe’s, and Home Depot.

Sources: “IBM Becomes Largest Employer to Offer Domestic Partner Benefi ts,” Business & Health, October 1996, p. 16; Kimberly Blanton, “Some Massachusetts Firms Dropping Benefi ts for Unmarried Gay Couples,” Knight Ridder Tribune Business News, December 8, 2004, p. 1; Judy Greenwald, “Advent of Gay Marriage Alters Massachusetts Partner Benefi ts,” Business Insurance, January 17, 2005, pp. 4–5; and “A Fairer System: UK Should Approve Domestic-Partner Benefi ts,” Knight Ridder Tribune Business News, January 18, 2007, p. 1.

Chapter 15 Employee Benefi ts 295

Year

Percentage Paid

by Employee

Maximum

Taxable Pay

Maximum

Tax

1980 6.13 25,900 1,588

1981 6.65 29,700 1,975

1982 6.70 32,400 2,171

1983 6.70 35,700 2,392

1984 7.00 37,800 2,646

1985 7.05 39,600 2,792

1986 7.15 42,000 3,003

1987 7.15 43,800 3,132

1988 7.51 45,000 3,380

1989 7.51 48,000 3,605

1990 7.65 51,300 3,924

1991 7.65 53,200 4,070

1992 7.65 55,500 4,246

1993 7.65 57,600 4,406

1994 7.65 60,600 4,636*

1995 7.65 61,200 4,682*

1996 7.65 62,700 4,797*

1997 7.65 65,400 5,003*

1998 7.65 68,400 5,233*

1999 7.65 72,600 5,554*

2000 7.65 76,200 5,829*

2001 7.65 80,400 6,151*

2002 7.65 84,900 6,495*

2003 7.65 87,000 6,656*

2004 7.65 87,900 6,724*

2005 7.65 90,000 6,885*

2006 7.65 94,200 7,206*

2007 7.65 97,500 7,459*

2008 7.65 102,000 7,803*

2009 7.65 106,800 8,170*

2010 7.65 106,800 8,170*

*As of 1994, 1.45% (of the total 7.65%) going to Medicare was not limited by a maximum taxable pay. In prior years, this portion had been

limited to an amount somewhat higher than the maximum taxable pay for the remaining 6.20%. See http://ssa-custhelp.ssa.gov.

TABLE 15.4 Changes in Social Security

Costs, 1980–2010

TABLE 15.5 Dependents Eligible for

Retirement Benefi ts in the

Event of Death of a Covered

Employee

• A widow or widower may be able to receive full benefi ts at age 65 if born before 1940. (The age to

receive full benefi ts is gradually increasing to age 67 for widows and widowers born in 1940 or later.)

Reduced widow or widower benefi ts can be received as early as age 60. If the surviving spouse is

disabled, benefi ts can begin as early as age 50.

• A widow or widower can receive benefi ts at any age if she or he takes care of the deceased worker’s

child who is entitled to a child’s benefi t and is younger than age 16 or disabled.

• A deceased worker’s unmarried children who are younger than age 18 (or up to age 19 if they

are attending elementary or secondary school full time) also can receive benefi ts. Children can

get benefi ts at any age if they were disabled before age 22 and remain disabled. Under certain

circumstances, benefi ts also can be paid to stepchildren, grandchildren or adopted children.

• A deceased worker’s dependent parents can receive benefi ts if they are age 62 or older. (For parents

to qualify as dependents, the deceased worker would have had to provide at least one-half of their

support.)

• A deceased worker’s former wife or husband who is age 60 or older (as early as age 50 if disabled)

can get benefi ts if the marriage lasted at least 10 years. A former spouse, however, does not have to

meet the age or length-of-marriage rule if he or she is caring for his/her child who is younger than

age 16 or who is disabled and also entitled based on the deceased worker’s work. The child must be

the deceased worker’s former spouse’s natural or legally adopted child.

296 Part Four Compensating Human Resources

Disability Benefi ts

Pensions may be granted under social security to eligible employees who have a disability that

is expected to last at least 12 months or to result in death. The number of credits needed to

qualify for disability benefi ts depends on the person’s age (the credits vary for people under

age 31), but generally 20 credits must be earned in 10 years before becoming disabled. These

benefi ts are calculated with basically the same methods used for calculating retirement benefi ts.

Health Insurance

Health insurance under social security, commonly known as Medicare, provides partial hos-

pital and medical reimbursement for persons over 65. Hospital insurance, which is known

as Part A, is fi nanced through the regular social security funds. Most inpatient hospital ex-

penses, skilled nursing care, hospice care, and other related expenses are covered by Part A

of Medicare. The medical insurance, known as Part B, helps a participant pay for a number

of different medical procedures and supplies that are completely separate from hospital

care. For example, normal outpatient visits and checkups would fall under Part B. Participa-

tion in the medical insurance program (Part B) of Medicare is voluntary and requires the

payment of a monthly fee by those wishing to receive coverage. This fee was $110.50 per

month in 2010 for individuals earning less than $85,000 per year and married couples earn-

ing less than $170,000 per year. For those earning more, the fees are substantially higher,

depending on the amount earned. Part C (Medical Advantage) plans allow the user to choose

to receive all of their health care services through a provider organization. Being under Part

C may help lower the costs of medical services and it may result in extra benefi ts for an

additional monthly fee. A person must have both Parts A and B to enroll in Part C. Part D

(prescription drug coverage) is voluntary and the costs are paid for by the monthly premi-

ums of enrollees and Medicare. Unlike Part B in which a person is automatically enrolled

and must opt out if he or she does not want it, with Part D, a person has to opt in by fi lling

out a form and enrolling in an approved plan.

Problems Facing Social Security

Almost everyone is aware of the fi nancial crisis social security faces, which stems from major

demographic changes that have taken place since the system was established. The basic prob-

lem is that fewer and fewer people are and will be working to support more and more retirees

as the “baby boom” generation reaches retirement age.

Because tax revenues plummeted so rapidly during the latest recession, it is projected that

social security could start paying out more than it takes in by 2013 and be completely bank-

rupt by 2029.5 To resolve this imbalance, Congress must cut social security benefi ts, increase

revenue to the program, or enact some combination of these options. Many experts believe that

the long-term solution to the social security program is for individuals to supplement social

security by some other type of retirement plan (other types of retirement plans are discussed

later in this chapter).

Unemployment Compensation Unemployment compensation is designed to provide funds to employees who have lost their jobs through no fault of their own and who are seeking other jobs. Title IX of the Social

Security Act of 1935 requires employers to pay taxes for unemployment compensation. How-

ever, the law was written in such a manner as to encourage individual states to establish their

own unemployment systems. If a state established its own unemployment compensation sys-

tem according to prescribed federal standards, the proceeds of the unemployment taxes paid

by an employer go to the state. By 1937, all states and the District of Columbia had adopted

acceptable unemployment compensation plans.

To receive unemployment compensation, an individual must submit an application through

the state employment offi ce and must meet three eligibility requirements: The individual must

(1) have been covered by social security for a minimum number of weeks, (2) have been laid off

(in some states, discharged employees may qualify), and (3) be willing to accept any suitable em-

ployment offered through the state’s unemployment compensation commission. Many disputes

have arisen regarding “suitable employment.” Employees fi red for misconduct are not eligible.

unemployment compensation Form of insurance designed

to provide funds to employees

who have lost their jobs and are

seeking other jobs.

Chapter 15 Employee Benefi ts 297

Generally, unemployment compensation is limited to a maximum of 26 weeks. Extended

benefi ts can continue up to an additional 13 weeks during times of high unemployment. Dur-

ing the recent recession some states extended coverage even further. The amount received,

which varies from state to state, is calculated on the basis of the individual’s wages or salary

received in the previous period of employment. The upper limit paid by most states is gener-

ally quite low when compared to the employee’s normal salary.

Unemployment compensation is usually funded through taxes paid by employers; how-

ever, in some states, employees also pay a portion of the tax. The Federal Unemployment Tax

Act (FUTA) requires all profi t-making employers to pay a tax on the fi rst $7,000 of wages

paid to each employee. The rate paid varies from employer to employer based on the number

of unemployed people an organization has drawing from the state’s unemployment fund.

Thus, the system is designed to encourage organizations to maintain stable employment.

Since the passage of the Tax Reform Act of 1986, unemployment compensation has been

fully taxable.

Workers’ Compensation Workers’ compensation is meant to protect employees from loss of income and to cover extra expenses associated with job-related injuries or illness. Table 15.6 summarizes the types

of injuries and illnesses most frequently covered by workers’ compensation laws. Since 1955,

several states have allowed workers’ compensation payments for job-related cases of anxiety,

depression, and certain mental disorders. Although some form of workers’ compensation is

available in all 50 states, specifi c requirements, payments, and procedures vary among states.

However, certain features are common to virtually all programs:

1. The laws generally provide for replacement of lost income, medical expense payments,

rehabilitation of some sort, death benefi ts to survivors, and lump-sum disability payments.

2. The employee does not have to sue the employer to get compensation; in fact, covered

employers are exempt from such lawsuits.

3. The compensation is normally paid through an insurance program fi nanced through

premiums paid by employers.

4. Workers’ compensation insurance premiums are based on the accident and illness record of

the organization. Having a large number of paid claims results in higher premiums.

5. An element of coinsurance exists in the workers’ compensation coverage. Coinsurance

is insurance under which the benefi ciary of the coverage absorbs part of the loss. In

automobile collision coverage, for example, there is often coinsurance in the amount of a

$500 deductible for each accident. In workers’ compensation coverage, there is coinsurance

in that the workers’ loss is usually not fully covered by the insurance program. For example,

most states provide for a maximum payment of only two-thirds of wages lost due to the

accident or illness.

workers’ compensation Form of insurance that protects

employees from loss of income

and extra expenses associated

with job-related injuries or

illness.

TABLE 15.6 Job-Connected Injuries

Usually Covered by

Workers’ Compensation

Source: Reprinted with permission.

Table 15.6: pp. 190–191, “Job-connected

Injuries Usually Covered by Workers’

Compensation,” from Personnel

Administration and the Law, Second

Edition, by Greenman and Schmertz;

Affairs, Inc., Washington, D.C. 20037.

For BNA Books Publications call

toll free 1-800-960-1220 or visit

www.bnabook.com.

Accidents in which the employee does not lose time from work

Accidents in which the employee loses time from work

Temporary partial disability

Permanent partial or total disability

Death

Occupational diseases

Noncrippling physical impairments, such as deafness

Impairments suffered at employer-sanctioned events, such as social events or during travel related to

organization business

Injuries or disabilities attributable to an employer’s gross negligence

298 Part Four Compensating Human Resources

6. Medical expenses, on the other hand, are usually covered in full under workers’ compensation

laws.

7. It is a no-fault system; all job-related injuries and illnesses are covered regardless of where

the fault for the disability is placed.6

Workers’ compensation coverage is compulsory in all but a few states. In these states, it is

elective for the employer. When it is elective, any employers who reject the coverage also give

up certain legal protections.

Benefi ts paid are generally provided for four types of disability: (1) permanent partial dis-

ability, (2) permanent total disability, (3) temporary partial disability, and (4) temporary total

disability. Before any workers’ compensation claim is recognized, the disability must be shown

to be work related. This usually involves an evaluation of the claimant by an occupational phy-

sician. One major criticism of workers’ compensation involves the extent of coverage different

states provide. The amounts paid, ease of collecting, and the likelihood of collecting all vary

signifi cantly from state to state.

After a decade of yearly double-digit increases in the cost of workers’ compensation, in the

early 1990s at least 35 states began to make changes in their workers’ compensation laws.7

These changes included tighter eligibility standards, benefi t cuts, improved workplace safety,

and campaigns against fraud. Data indicate that these changes paid off. The rates of increases

in the cost of workers’ compensation slowed considerably, and in 1993 the cost actually

declined.8 The cost of workers’ compensation insurance decreased through the late 1990s.9

However, according to Standard & Poor’s, after the September 11, 2001, attack on the World

Trade Center in New York, workers’ compensation premiums increased from 30 to 50 percent.

Companies that endured losses in the attack saw rate increases from 50 to 100 percent.10 In

2005 workers’ compensation premiums dropped almost 18 percent.11 This drop was attribut-

able, at least in part, to workers’ compensation reforms in major states such as California and

Florida. Workers’ compensation premiums have continued to fall in most states over the last

several years.12

RETIREMENT-RELATED BENEFITS

In addition to the benefi ts required by law under social security, many organizations provide

additional retirement benefi ts. These benefi ts are in the form of private retirement and pension

plans.

Company-Sponsored Retirement Plans Retirement and pension plans, which provide a source of income to people who have retired,

represent money paid for past services. Private plans can be funded entirely by the organi- zation or jointly by the organization and the employee during the time of employment. Plans

requiring employment contributions are called contributory plans; those that do not are called

noncontributory plans. Funded pension plans are fi nanced by money that has been set aside

previously for that specifi c purpose. Nonfunded plans make payments to recipients out of

current contributions to the fund. One popular form of pension plan is the defi ned-benefi t plan. Under a defi ned-benefi t plan, the employer pledges to provide a benefi t determined by a defi nite formula at the employee’s retirement date. The other major type of retirement plan

is the defi ned-contribution plan, which calls for a fi xed or known annual contribution instead of a known benefi t.

As of 2008, 59 percent of full-time, private-sector American workers were employed

by companies that sponsored some type of retirement plan.13 Approximately 51 percent of

private-sector workers between the ages of 25 and 64 actually participated in retirement

plans on the job.14 The 2008 Employee Benefi ts Study by the U.S. Chamber of Commerce

reported that 82 percent of the responding companies offered retirement plan benefi ts to

full-time employees.15

private plans Employee benefi t that provides

a source of income to people

who have retired; funded either

entirely by the organization or

jointly by the organization and

employee during employment.

defi ned-benefi t plan Pension plan under which an

employer pledges to provide a

benefi t determined by a defi nite

formula at the employee’s

retirement date.

defi ned-contribution plan Pension plan that calls for

a fi xed or known annual

contribution instead of a known

benefi t.

Retirees often rely on retirement-related benefi ts as well as social security. Stockbyte/PunchStock

Chapter 15 Employee Benefi ts 299

Pension Rights

An inherent promise of security in some form exists in every retirement and pension plan.

However, if the pension benefi ts are too low or the plan is seriously underfunded, this prom-

ise of security is breached, and employees who have spent most of their working lives with

companies that have pension plans do not receive an adequate pension—or any, in some

cases.

Another problem involves the vested rights of employees. Vesting refers to the rights of employees to receive the dollars paid into a pension or retirement fund by their em-

ployer if they leave the organization prior to retirement. For example, a vested employee

can receive the funds invested by the employer at some later date. If not vested, the em-

ployee cannot receive the funds paid by the employer. A frequent approach is deferred full

vesting, in which an employee, on meeting certain age and service requirements, enjoys

full vested rights. A similar approach, called deferred graded vesting, gradually gives the

employee an increasing percentage of benefi ts until the age and service requirements for

full vesting are met.

Vesting requirements historically have caused problems for both employees and employ-

ers. In many old plans, the employee who was terminated or quit before retirement age did

not receive any pension benefi ts regardless of the number of years worked under the pension

plan or how close he or she was to retirement age. Even under plans that did provide vest-

ing rights, the requirements were strict in terms of length of service. Employers often make

requirements for vesting stringent in an effort to keep employees from leaving the organiza-

tion, at least until their rights have become fully vested. On the other hand, employers have

experienced the problem of employees quitting after being vested in the pension plan to

draw out the funds credited to them. To counteract this, many employers have incorporated

provisions in their pension plans stating that funds other than those contributed by the em-

ployee will not be distributed until the employee reaches a certain age, even if he or she has

left the organization.

Defi ned-Benefi t Plans

Defi ned-benefi t plans have a specifi ed formula for calculating benefi ts. Although there are

numerous such formulas, the most popular approach has been the fi nal-average-pay plan, in

which the retirement benefi t is based on average earnings in the years, generally two or fi ve,

immediately preceding retirement. The actual benefi t sum is then computed as a function of

the person’s calculated average earnings and years of service. In another common approach,

the fl at-benefi t plan, all participants who meet the eligibility requirements receive a fi xed ben-

efi t regardless of their earnings.

Plans affecting salaried employees usually use the fi nal-average-pay plan. Plans limited to

hourly paid employees have traditionally used the fl at-benefi t plan. Where hourly and salaried

employers are both affected, a fi nal-average-pay formula may be modifi ed to provide a mini-

mum dollar benefi t for participants in the lower pay classifi cations. Many fi nal-average-pay

plans are now calculated with an offset, or deduction, for the employee’s social security ben-

efi ts. In these cases, the amount of social security a person receives is taken into account when

determining how much she or he will receive from the pension plan. Because defi ned-benefi t

plans can be costly to employers they have become less and less used by employers in recent

years.

Cash-Balance Plans The cash-balance plan is a hybrid of the traditional defi ned-benefi t

plan. The major difference is that cash-balance plans allow employees to take their cash-

balance pension money with them in the form of a lump sum when they leave the organiza-

tion. Another advantage of cash-balance plans is that participants can track the growth of

their retirement funds in current dollars through regular statements. Participants in traditional

defi ned-benefi t plans are apprised only of what they should get at retirement. Thus, cash-

balance plans are easier for the average employee to comprehend than are traditional defi ned-

benefi t plans. One drawback to cash-balance plans is that relatively junior employees can

build up sizable cash balances and, once vested, leave the organization and take the cash with

them. Traditional defi ned-benefi t plans do not offer such ease of portability and therefore

vesting Right of employees to receive

money paid into a pension

or retirement fund on their

behalf by their employer if they

leave the organization prior to

retirement.

300300

encourage employees not to leave. Cash-balance plans became somewhat controversial in

some instances where companies reduced future benefi ts as they converted from a traditional

defi ned-benefi t plan to a cash-balance plan. Cash-balance plans gained popularity in the

late 1990s and were initially seen as a compromise from traditional defi ned-benefi t plans.

Companies liked cash-balance plans because they were cheaper and easier to maintain than

traditional pensions. Employees, and especially younger employees, liked cash-balance plans

because they were portable. HRM in Action 15.2 describes Coca-Cola’s recent switch to a

cash-balance plan.

Defi ned-Contribution Plans

With defi ned-contribution plans, every employee has a separate pension account to which the

employee and the employer contribute. If only the employer contributes, it is a noncontribut-

ing plan. When both the employee and the employer contribute, it is a contributing plan. With

a defi ned-contribution plan, the contributed money is invested and projections are made as to

expected retirement income. However, the organization is not bound by these projections and

hence unfunded liability problems do not occur. The benefi ts paid are a function of the rules

of the plan and the actual value of the plan. Because the organization does not have a potential

liability problem and because they are very portable, defi ned-contribution plans have become

increasingly popular.

401(k) Plans The most popular type of defi ned-contribution plan is the 401(k) plan. These

plans were named after section 401(k) of the Internal Revenue Code, which became effective

in 1980. The advantage of a 401(k) plan is that contributions are tax deductible up to a limit.

Usually a 401(k) plan is set up to allow employees to defer a portion of their pay into the plan.

Often employers will match employee contributions to some extent. As of 2010, the maximum

tax-exempt contribution was $16,500.

In August of 2006, President Bush signed the Pension Protection Act (PPA) of 2006 into

law.16 Many people think that the PPA was the most signifi cant legislation to affect retirement

plans since the passage of the Employee Retirement Income Security Act (ERISA) in 1974

(ERISA is discussed in the next major section). The PPA makes permanent the increased

contribution limits for 401(k) plans that the Economic Growth and Tax Relief Reconciliation

Act of 2001 (EGTRRA) initially approved. The limits are also indexed to increase in $500

increments every year. Individuals over 50 years old may contribute an extra $5,500 in 2010.

A major thrust of the PPA was also to impose much stronger funding requirements on em-

ployers with traditional defi ned-benefi t pension plans. For example, previous employers were

required to fund pension plans at 90 percent of their pension liability. Under the PPA, plans

will be required to be 100 percent funded (this requirement will be phased in over a period

COCA-COLA MOVES TO CASH-BALANCE PLAN

In 2009, Coca-Cola announced plans to adopt a cash-

balance pension plan for current and future employees.

Under the cash-balance plan, employees will receive

annual age-weighted credits equal to a percentage of

pay. The percentage will initially be 3 percent. Employees’

cash-balance accounts will also be credited with a to-be-

determined interest rate formula. The plan is being offered

to most U.S. salaried and hourly employees hired as of

January 1, 2010. Current employees in Coke’s traditional $1.5

billion fi nal average pay plan will also begin earning future

benefi ts in the new plan.

Coke’s switch to a cash-balance plan comes at a time

when many major employers are phasing out their defi ned

benefi t plans in favor of defi ned contribution plans. Coke’s

executives rejected this approach. “Offering a secure and

risk-free benefi t to employees is very important to us,”

stated Sue Fleming, director of global benefi ts at Coke.

The main appeal of a cash-balance plan for today’s mobile

workplace is that retirement benefi ts, which are based

on career average pay, accrue faster than with traditional

plans, in which employees have to work many years before

accruing signifi cant retirement benefi ts.

Source: Jerry Geisel, “Coca-Cola Makes Move to Cash Balance Plan,” Business Insurance, February 23, 2009, p. 3.

HRM in Action 15.2

DUPONT CHANGES ITS RETIREMENT PLAN In August 2006 DuPont Company announced that it would

close its traditional, defi ned-benefi t pension plan to

employees hired after January 1, 2007. The announcement

also said that the company would sharply reduce

contributions to the old-style plan for current employees.

To replace the potential lost retirement income from the

traditional plan, DuPont will sweeten its 401(k) defi ned-

contribution plan. Under the new setup, all employees will

receive a base contribution in a personal 401(k) account

of 3 percent of their pay, including overtime and bonus.

In addition, the company will also match up to 6 percent

of pay that an employee contributes to his or her 401(k).

Current employees will retain their accrued traditional

defi ned-benefi t plan, but company contributions will be

reduced by two-thirds beginning in 2008.

The changes will affect DuPont’s 30,000 U.S. employees

but not its 66,000 U.S. retirees. “We have to take a look

at what is taking place in the market,” explained DuPont

spokesperson Lori Captain, “and the trend is defi nitely in

this direction.” Working through their unions, employees

in some locations have protested these changes to their

pensions.

Sources: ”DuPont Slashes Worker Pensions, But Boosts Savings Plan,” Financial Wire, August 29, 2006, p. 1; and “News from USW: Richmond DuPont Workers Rally to Protest Pension and Safety Issues at Spruance Plant,” Business Wire, May 8, 2007.

HRM in Action 15.3

of seven years for most employers). Other requirements designed to increase the security of

traditional pension plans are also included under the PPA.

Many people believe that the passage of PPA signaled a decided shift in government policy

toward defi ned-contribution retirement plans like the 401(k) plans and away from the more

traditional company-funded defi ned-benefi t plans. Recently court rulings have also lessened

companies’ fear of jettisoning both traditional and cash-balance plans in favor of 401(k) plans.

HRM in Action 15.3 describes how DuPont has shifted its retirement plan from a traditional

defi ned-benefi t plan to a 401(k) plan.

403(b) Plan The 403(b), or Tax Deferred Annuity (TDA), plans are very similar to 401(k)

plans except that they may only be used in not-for-profi t organizations. These organiza-

tions are usually religious, charitable, and educational but also include other entities such

as social clubs organized and operated for pleasure, recreation, and other nonprofi table

purposes. As of January 1, 1997, the not-for-profi t organization could also use 401(k) plans

for the fi rst time. Because the differences between the two types of plans are subtle, most

not-for-profi t plan sponsors have chosen to stay with the familiar TDA plans rather than

make changes.

Employer-Sponsored SIMPLE IRA A relatively new retirement option that is available to

employers with 100 or fewer employees receiving at least $5,000 of compensation per year is

the employer-sponsored SIMPLE IRA. Under a SIMPLE IRA an employee can elect to have

the employer make contributions to a SIMPLE IRA rather than receiving that amount in cash.

An employer that establishes a SIMPLE IRA plan must make either matching contributions

or nonelective contributions. Employers making matching contributions must generally match

employee contributions up to 3 percent of the employee’s compensation for the calendar year.

In lieu of making matching contributions, the employer may make a nonelective contribution

of 2 percent of compensation for each eligible employee making at least $5,000 in compensa-

tion during the calendar year.

If an employer establishes a SIMPLE IRA plan, all employees who received at least $5,000

in compensation from the employer during any two prior tax years and who are reasonably

expected to receive at least $5,000 during the current year must be eligible to participate in the

plan for the current year. For 2010, employee elective contributions were limited to the lesser

of (1) the employee’s compensation or (2) $11,500 ($14,000 if age 50 or older). The main ad-

vantage of SIMPLE IRA plans is that they do not have to meet the nondiscrimination require-

ments, minimum participation and minimum coverage rules, and vesting rules applicable to

other types of plans.

301

302 Part Four Compensating Human Resources

TABLE 15.7 Major Provisions of ERISA

Subject Provisions

Eligibility Prohibited plans from establishing eligibility requirements of more than one year of service, or an age greater

than 25, whichever is later.

Vesting* Established new minimum standards; employer has three choices:

a. 100 percent vesting after 10 years of service.

b. 25 percent after 5 years of service, grading up to 100 percent after 15 years.

c. 50 percent vesting when age and service (if the employee has at least 5 years of service) equal 45,

grading up to 100 percent vesting 5 years later.

Funding Required the employer to fund annually the full cost for current benefi t accruals and amortize past-service

benefi t liabilities over 30 years for new plans and 40 years for existing plans.

Plan termination

insurance

Established a government insurance fund to insure vested insurance pension benefi ts up to the lesser of $750

a month or 100 percent of the employee’s average wages during highest-paid fi ve years of employment; the

employer pays an annual premium of $1 per participant and is liable for any insurance benefi ts paid up to

30 percent of the company’s net worth.

Fiduciary

responsibility

Established the “prudent man” rule as the basic standard of fi duciary responsibility; prohibits various

transactions between fi duciaries and parties-in-interest; prohibits investment of more than 10 percent of

pension plan assets in the employer’s securities.

Portability Permitted an employee leaving a company to make a tax-free transfer of the assets behind his vested pension

benefi ts (if the employer agrees) or of his vested profi t-sharing or savings plan funds to an individual

retirement account.

Individual retirement

accounts (IRAs)

Provided a vehicle for transfers as noted above and permits employees of private or public employers that

do not have qualifi ed retirement plans to deduct 15 percent of compensation, up to $1,500, each year for

contributions to a personal retirement fund. Earnings on the fund are not taxable until distributed.

Reporting and

disclosure

Required the employer to provide employees with a comprehensive booklet describing plan provisions and to

report annually to the Secretary of Labor on various operating and fi nancial details of the plan.

Lump-sum

distributions

Changed the tax rules to provide capital gains treatment on pre-1974 amounts and to tax post-1973 amounts

as ordinary income, but as the employee’s only income and spread over 10 years.

Limits on

contributions and

benefi ts

Limited benefi ts payable from defi ned-benefi t pension plans to the lesser of $75,000 a year or 100 percent of

average annual cash compensation during the employee’s three highest paid years of service.

Limited annual additions to employee profi t-sharing accounts to the lesser of $25,000 or 25 percent of the

employees’ compensation that year.

*These requirements were changed by subsequent legislation.

ERISA and Related Acts In an effort to ensure the fair treatment of employees under pension plans, Congress passed

the Employee Retirement Income Security Act (ERISA) in 1974. This law was designed to ensure the solvency of pension plans by restricting the types of investments that could be

made with the plan’s funds and providing general guidelines for fund management. ERISA

also requires that employees have vested rights in their accrued benefi ts after certain minimum

requirements have been met. Table 15.7 summarizes the major provisions of ERISA.

The Sarbane-Oxley Act, the accounting and fi nancial reform legislation signed by President

Bush in 2002, also contains provisions that affect ERISA. Specifi cally, the act substantially

raises the criminal penalties for ERISA reporting and disclosure violations.

Since its inception, ERISA has been criticized as being overly costly. In fact, it has been

reported that several companies dropped their pension plans rather than comply with ERISA.17

Another major complaint has been that it causes an unwieldy amount of paperwork. The exist-

ence of ERISA is yet another reason why employers are moving toward 401(k) plans.

In 1984, Congress passed the Retirement Equity Act. The overall impact of this act was to liberalize the eligibility requirements, vesting provisions, maternity/paternity leaves, and

spouse survivor benefi ts of retirement plans. Table 15.8 summarizes the major provisions of

the Retirement Equity Act.

Employee Retirement Income Security Act (ERISA) Federal law passed in 1974

designed to give employees

increased security for their

retirement and pension plans and

to ensure the fair treatment of

employees under pension plans.

Retirement Equity Act Act passed in 1984 that

liberalized eligibility

requirements, vesting

provisions, maternity/paternity

leaves, and spouse survivor

benefi ts of retirement plans.

Chapter 15 Employee Benefi ts 303

The Tax Reform Act of 1986 provided for employees to become vested sooner than under

ERISA and other legislation. The provisions of the Tax Reform Act of 1986 were generally

applicable for plan years beginning after December 31, 1988. For plans beginning after this

date, the general vesting provisions must follow one of two schedules:

• Cliff vesting, under which no vesting is provided during the fi rst fi ve years of service and

the participant becomes vested after fi ve years of service.

• Graded vesting, under which the participant becomes 20 percent vested after three years of

service with an additional 20 percent vesting per year until the participant is 100 percent

vested after seven years of service.

Mandatory Retirement

An amendment to the Age Discrimination in Employment Act (ADEA) that took effect on January 1, 1987, forbade mandatory retirement at any age for companies employing 20 or

more people in the private sector (there are certain exceptions, as covered in Chapter 2) and

for federal employees.

Early Retirement

As an alternative to mandatory retirement, some organizations offer incentives to encourage

early retirement. This method of reducing the workforce is often viewed as a humanitarian

way to reduce the payroll and reward long-tenured employees. The types of incentives of-

fered vary, but often include a lump-sum payment plus the extension of other benefi ts, such as

medical insurance. Another popular incentive is to credit the employee with additional years

of service that can be used under a defi ned-benefi t plan.

Most pension plans have special allowances for voluntary early retirement. Usually an

employee’s pension is reduced by a stated amount for every month that he or she retires before

age 65. Popular early retirement ages are 55, 60, and 62. Most plans require that an individual

shall have worked a minimum number of years with the organization to be eligible for early

retirement. Early retirement has grown in popularity, partly because of the pension benefi ts

available. Presently, the earliest an employee can receive social security retirement benefi ts at

a reduced rate is at age 62.

Employees Not Covered by Company Retirement Plans In 1981, legislation was enacted to allow employees to set up individual plans called

individual retirement accounts (IRAs). Although the basic purpose of IRAs was to pro- vide an option for employees not covered by private plans, anyone who has an earned income

can invest in an IRA. For 2010, allowable contributions to an IRA can generally be made up

to the lesser of $5,000 or the individual’s compensation (wages or other earned income, plus

alimony received). Also, individuals who are at least age 50 by year end may contribute an addi-

tional $1,000 to their IRA account, for a total contribution of $6,000. For married couples, this

amount may be contributed for each person—if the combined compensation of both spouses is

at least equal to the contributed amount (assuming a joint return is fi led). While a contribution

is allowable as explained above, the deductibility of an IRA contribution is dependent upon the

participation of the individual —or individual’s spouse —in an employer-sponsored retirement

plan.

If there is no active participation in a retirement plan, the individual (and spouse) may

deduct the full amount of their contribution, subject to the compensation limits described

Amended Age Discrimination in Employment Act (ADEA) Forbids mandatory retirement

at any age for all companies

employing 20 or more people

in the private sector and in the

federal government.

individual retirement accounts (IRA) Individual pension plan for

employees not covered by

private pension plans.

TABLE 15.8 Major Provisions of the

Retirement Equity Act

Source: Stephen P. Kurash and Gene

F. Fasoldt, “An Outline of Changes

Required by the New Retirement Equity

Act,” Personnel Journal, November

1984, pp. 80–84.

• Employees must be allowed to participate in a plan that qualifi es for special tax treatment no later

than age 21 with one year of service (previously, it was age 25 with one year of service).

• Vesting credit must be awarded for years of service beginning at age 18 (previously, service before

age 22 could be ignored in most plans).

• For both vesting and participation purposes, as many as 501 hours of service must be awarded to

any employee on maternity or paternity leave.

• An election to waive spouse survivor benefi ts must be made in writing by both the participant and

spouse and witnessed by a plan representative or notary public.

304 Part Four Compensating Human Resources

above. If one or both spouses participate in an employer plan, however, the ability to de-

duct the IRA contribution may be limited, based on modifi ed adjusted gross income (AGI).

(1) If an individual participates in a plan, the deduction begins to phase out with modifi ed

AGI ranging from $55,000–$65,000 for single or head-of-household fi lers, and $89,000–

$109,000 for married couples fi ling jointly. (2) For married couples where only one is

covered under a plan, the phase-out range begins at $166,000 with no deduction allowed

after $176,000.

In a simplifi ed employee pension IRA, known as a SEP-IRA or a SEPP-IRA, the employer contributes up to 25 percent of an employee’s total salary, with a maximum of $49,000. These

plans are offered by small businesses or even sole proprietors, which usually don’t have any

other retirement program. SEP-IRAs are subject to the same rules as regular IRAs. SEP-IRA

contributions and earnings on investments are not taxable until withdrawal (presumably retire-

ment), when they become subject to normal income tax.

The Roth IRA, which was also created by the Taxpayer Relief Act of 1997, allows for nondeductible contributions of up to $5,000 annually ($10,000 married fi ling jointly), less the

total amounts contributed to any other IRAs. As with a regular IRA, a special catch-up provi-

sion has been added allowing individuals age 50 and over to contribute an additional $1,000

per year. All earnings in a Roth IRA then accumulate tax-deferred, and qualifi ed distributions

are made free of federal income tax and penalties. In order for withdrawals from a Roth IRA to

be qualifi ed as tax free, the withdrawals must have been made for at least fi ve years, after the

attainment of age 591⁄2, or due to death or disability, or for fi rst-time home buyer expenses up to

a lifetime limit of $10,000. Contributions to Roth IRAs are phased out from $105,000 through

$120,000 of income for single taxpayers and $166,000 to $176,000 for joint fi lers. The Roth

IRA is especially attractive for young employees because of the long-term growth potential

of the investment. Although it can be complicated, it is possible in many circumstances to

convert a traditional IRA to a Roth IRA.

Recent broadening of retirement provisions now enable self-employed persons to have their

own 401(k) plans following the same rules as other 401(k) plans.

Preretirement Planning A recently evolved benefi t is preretirement planning. The purpose of such a planning pro-

gram is to help employees prepare for retirement, both fi nancially and psychologically. At

the most basic level, preretirement planning provides employees with information about the

fi nancial benefi ts they will receive upon retirement. The subjects include social security, pen-

sions, employee stock ownership, and health and life insurance coverage. Other programs

go beyond fi nancial planning and cover such topics as housing, relocation, health, nutrition,

sleep, exercise, part-time work, second careers, community service, recreation, and continu-

ing education.

The rapid pace of change in today’s world, accentuated by changing federal laws and un-

certainty concerning social security, has enhanced the need for some type of preretirement

planning. This need is not expected to diminish in the near future.

INSURANCE-RELATED BENEFITS

Insurance programs of various types represent an important part of any benefi t package.

For example, the 2008 Employee Benefi ts Survey by the U.S. Chamber of Commerce re-

ported that 89 percent of the respondents provided some form of medical insurance to full-

time employees.18 At the same time, however, many employees of small companies are not

covered by company-sponsored health insurance. Company-sponsored medical insurance

programs are designed so that the employer pays either the entire premium or a portion of

it, with the employee responsible for the balance. The issue of health insurance has been

vigorously debated by the U.S. Congress over the last several years. The Obama administra-

tion has passed sweeping changes to the health care system and only time will reveal what

ultimately evolves.

SEP-IRA Retirement plan that allows

small businesses and sole

proprietors to make deductible

contributions.

Roth IRA Retirement plan that

allows individuals to make

nondeductible contributions

and tax-free withdrawals with

certain restrictions.

Chapter 15 Employee Benefi ts 305

Health Insurance In addition to normal hospitalization and outpatient doctor bills, some plans now cover prescrip-

tion drugs and dental, eye, and mental health care. Many health care plans incorporate a deduct-

ible, which requires the employee to pay a certain amount of medical expenses each year (usually

$50 to $300 per person) before the insurance becomes effective. The health insurance plan then

pays the bulk of the remaining expenses. Some plans pay the entire cost of health insurance for

both the employees and dependents, some plans require the employee to pay part of the cost for

dependents only, and some plans require the employee to pay part of the cost for both.

Over the years, two distinct health insurance plans have evolved: the base plan and the

major medical expense plan. Base plans cover expenses for specifi ed services within certain

limits established for each kind of service. Major medical plans defi ne a broad range of cov-

ered expenses, including all services that may be required for successful treatment. When used

alone, a major medical plan is referred to as a comprehensive plan. Many organizations sup-

plement a base plan with a major medical expense plan. The reason for combining the two is

usually to reduce the deductible amount for certain types of treatment. The precise coverage,

size of the deductible, and other specifi cs vary considerably among plans.

Managed Care Due to rapidly escalating health care costs, many organizations have turned

to various forms of managed care. The idea behind managed care programs is for the provider

of the health care, usually an insurance company, to organize and manage the program in a

manner that will control costs. Managed care can be provided in a variety of forms. The health

maintenance organization (HMO) and the preferred provider organization (PPO) are two of

the most popular types of managed care programs.

Health Maintenance Organizations (HMOs) The Health Maintenance Organization Act

of 1973 ushered in the concept of one-stop, prepaid medical services as an alternative to

traditional insurance programs. Under this arrangement, organizations contract with an ap-

proved health maintenance organization (HMO) to provide all the basic medical serv- ices the organization’s employees need for a fi xed price. HMOs can be structured in many

different ways. Some HMOs own their facilities and pay doctors to work for them; others

contract with a physician group to care for its patients; and still others contract either with

individual doctors or with networks of independent physicians practicing in their own of-

fi ces. Advantages of HMOs include emphasis on prevention of health problems and costs

that are usually lower than those of traditional coverage. One major disadvantage, from the

employee’s viewpoint, is that employees must use physicians employed or approved by the

HMO, and these may or may not be the doctors of their choice. A second disadvantage from

the employee’s viewpoint is that, in many instances, the HMO must preapprove certain pro-

cedures and treatments. Because of these disadvantages and the resulting general employee

discontent, the picture of HMOs is not as bright as in the past. The 2008 Employee Benefi ts

Study by the U.S. Chamber of Commerce reported that 28 percent of the respondents offered

some type of HMO.19 The 2009 Employee Benefi t Study by SHRM found that 35 percent of

the respondents offered some type of HMO.20

Preferred Provider Organizations (PPOs) Preferred provider organizations (PPOs) are another alternative that emerged during the 1980s. A PPO is formed by contracting with a

group of doctors and hospitals to provide services at a discounted or otherwise attractive price.

In exchange, these providers are designated as “preferred” providers of care. The major differ-

ence between an HMO and a PPO is that under a PPO, employees have much more freedom

to choose their own doctors. PPOs do not restrict the provision of care to their own providers.

They do, however, offer incentives, such as higher reimbursement levels, when care is received

from a PPO member. The U.S. Chamber of Commerce’s 2008 Employee Benefi ts Study re-

ported that 72 percent of respondents offered some type of PPO.21 The 2009 Employee Bene-

fi ts Study by SHRM found that 81 percent of the respondents offered some type of PPO.22

Medical Savings Accounts Medical savings accounts, also known as medical spending ac-

counts, allow employees to set aside pretax dollars through normal payroll deductions to

pay for medical bills throughout the calendar year. The major drawback to medical savings

accounts is that any money not used during the calendar year is usually forfeited. Because

of this stipulation, employees using medical spending accounts must conservatively and

health maintenance organization (HMO) Health service organization

that contracts with companies

to provide certain basic

medical services around the

clock, seven days a week, for a

fi xed cost.

preferred provider organizations (PPO) Formed by contracting

with a group of doctors and

hospitals to provide services

at a discount or otherwise

attractive price. Such providers

are designated as “preferred”

providers of care.

306306

accurately estimate their medical expenses. The major advantage of these plans is that these

expenses are tax free.

Health Savings Accounts In 2004, President Bush signed prescription drug legislation that

made drug coverage available to Medicare’s senior citizens and people with disabilities. The

new law also established health savings accounts (HSAs).23 HSAs are similar to 401(k) retire-

ment plans in that they allow a certain amount of tax-free funds to be put aside by employers

and employees. The HSA funds can then be withdrawn to pay for out-of-pocket medical ex-

penses. In general HSAs operate as follows (the fi gures are for 2010):

• Employees or employers buy regular health insurance policies with high annual deductibles of

at least $1,200 per year for individuals and $2,400 for families. These policies will cover the

most expensive illnesses, but not routine medical costs such as doctors’ visits and lab tests.

• Employees open supplemental HSAs, into which they or their employers can put up to

$3,050 per year for individuals and up to $6,150 per year for families. Contributions are tax

deductible. The funds will accumulate indefi nitely, and can be withdrawn to pay for routine

medical services, such as those now covered by traditional health plans. In addition, HSA

monies can be spent on services that are not always covered by traditional plans, such as

eye glasses, dental care, and some cosmetic procedures.

HSAs are expected to continue to grow in popularity. The SHRM 2009 Employee Benefi ts

Study reported that 32 percent of the respondents offered HSAs.24 HRM in Action 15.4 dis-

cusses why one dentist has switched his offi ce over to an HSA.

Dental Insurance Dental insurance has been one of the fastest-growing types of employee benefi ts in recent

years. Surveys conducted by the Conference Board show that the number of companies pro-

viding dental plans grew from 8 percent in 1973 to 19 percent in 1975 and 41 percent in 1981.

In the 2008 Employee Benefi ts Study of the U.S. Chamber of Commerce, 80.3 percent of

the respondent companies provided dental insurance.25 The 2009 Employee Benefi ts Study

by SHRM reported that 96 percent of the responding companies offered some type of dental

plan.26 Some major medical expense plans include dental treatment, but most dental insurance

is provided as a separate plan. The majority of dental plans specify a deductible and require the

employee to pay a portion of the cost of services.

Life Insurance Life insurance is a benefi t commonly available from organizations. When provided for all

employees, it is called group life insurance. Costs of this type of insurance, based on the char-

acteristics of the entire group covered, are typically the same per dollar of insurance for all em-

ployees. Generally, the employer provides a minimum coverage, usually $10,000 to $20,000.

Employees often have the option to purchase more insurance at their own expense. A phys-

ical examination is usually not required for coverage. Presently, employers can provide up

to a maximum of $50,000 worth of life insurance for an employee without the cost of the

policy being considered as income to the individual. The U.S. Chamber of Commerce’s 2008

HRM in Action 15.4

LOWERING HEALTH INSURANCE COSTS WITH AN HSA Boulder, Colorado, dentist Kirk Rathburn opened his fi ve-

employee practice in 1993. From the start Rathburn believed

it was a basic obligation to ensure that his employees had

access to health insurance. However, Rathburn found that

the cost of health insurance skyrocketed over the years to the

point that he thought he might have to stop offering it.

In an attempt to lower his health insurance costs, Rathburn

turned to health savings accounts (HSAs) and high deductible

insurance. Rathburn found that his cost per employee dropped

immediately from about $2,000 per month with traditional

insurance to $1,500 monthly. Rathburn has also discovered

that the premiums he and his employees pay have risen much

more slowly. To say the least Rathburn was relieved.

Today, Rathburn looks at his HSA as a type of secondary

retirement investment vehicle. With this view, Rathburn

currently pays all of his family’s routine medical expenses

out-of-pocket in order to let his HSA continue to grow.

Source: Greg Avery, “Health Savings Accounts Take Center Stage,” Knight Ridder Tribune Business News, January 27, 2007, p. 1.

Chapter 15 Employee Benefi ts 307

Employee Benefi ts Study reported that 87.3 percent of those companies surveyed provided at

least some payment for life insurance for full-time employees.27 The 2009 SHRM Employee

Benefi ts Study found that 91 percent of the respondents provided some type of life insurance.28

Accident and Disability Insurance In addition to health, dental, and life insurance, many organizations provide some form of ac-

cident or disability insurance, or both. Most accident insurance is designed to provide funds

for a limited period of time, usually up to 16 weeks. The amount of benefi t is often some

percentage of the accident victim’s weekly salary. Disability insurance is designed to pro- tect the employee who experiences a long-term or permanent disability. Normally, a one- to

six-month waiting period is required following the disability before the employee becomes

eligible for benefi ts. As with accident insurance, disability insurance benefi ts are usually cal-

culated as a percentage of salary.

PAYMENT FOR TIME NOT WORKED

It is now standard practice for organizations to pay employees for certain times when they do

not work. Rest periods, lunch breaks, and wash-up times represent times not worked that are

almost always taken for granted as part of the job. Recognized holidays, vacations, and days

missed because of sickness, jury duty, and funerals represent other compensated times that are

not worked. As mentioned earlier in this chapter, payments for time not worked represent over

one-fourth the cost of all benefi ts.

Paid Holidays and Paid Vacations Christmas Day, New Year’s Day, Thanksgiving Day, Independence Day, Labor Day, and Memo-

rial Day are currently provided as paid holidays by most companies. One relatively new concept

is the fl oating holiday, which is observed at the discretion of the employee or the employer. Another relatively new concept is referred to as personal time-off or personal days. Under this

concept, organizations give employees a certain number of days with pay to attend to personal

affairs. Normally these days can be taken at the employee’s discretion. The number of paid holi-

days provided by most companies appears to have stabilized at an average of 9 to 10 per year.

Typically, an employee must meet a certain length-of-service requirement before becoming

eligible for a paid vacation. Also, the time allowed for paid vacations generally depends on the

employee’s length of service. Unlike holiday policies that usually affect everyone in the same

manner, vacation policies may differ among categories of employees. Most organizations allow

employees to take vacation by the day or week but not in units of less than a day.

OTHER BENEFITS

In addition to the previously discussed major benefi ts, organizations may offer a wide range

of additional benefi ts, including food services, exercise facilities, health and fi rst-aid services,

fi nancial and legal advice, counseling services, educational and recreational programs, day

care services, adoption assistance, and purchase discounts. Employee assistance programs, a

type of general service related to employee well-being, are discussed in Chapter 16.

The extent and attractiveness of these benefi ts vary considerably among organizations. For ex-

ample, purchase discounts would be especially attractive to employees of a retail store or an airline.

EMPLOYEE PREFERENCES AMONG BENEFITS

If an organization expects to get the maximum return from its benefi t package in terms of

such factors as retention, motivation, satisfaction, low turnover, and good relations with un-

ions, the benefi ts should be those its employees most prefer. Ironically, however, organizations

traditionally have done little to ensure that this is the case. Historically, they have offered

uniform benefi t packages selected by the human resource department and top management.

Only on rare occasions or when demanded by a union contract are employees consulted con-

cerning their benefi t preferences.

disability insurance Designed to protect employees

who experience long-term or

permanent disability.

fl oating holiday Holiday that is observed at the

discretion of the employee or

the employer.

308 Part Four Compensating Human Resources

Organizations that provide benefi ts without input from their employees assume manage-

ment always knows what is best for the employees and that all employees need and desire the

same benefi ts. Not too many years ago, a “typical” employee was a middle-aged male who

worked full time, supported 2.5 children, and had a wife who stayed home. With the increas-

ing diversity of today’s workforce, there really is no such thing as a typical employee. Given

that the workforce is far from homogeneous, it is not surprising that studies have shown that

factors such as sex, age, marital status, number of dependents, years of service, and job title

appear to infl uence benefi t preferences.29

Flexible-Benefi t Plans Because of the differences in employee preferences, some companies began to offer fl exible-

benefi t plans in the mid-1970s. Under a fl exible-benefi t plan, individual employees have some choice as to specifi c benefi ts each will actually receive; usually employees select from

among several options how they want their direct compensation and benefi ts to be distrib-

uted. The idea is to allow employees to select benefi ts most appropriate to their individual

needs and lifestyles. For example, a middle-aged employee with several children in school

might choose to take a set of benefi ts that differs from those chosen by a young, single

employee.

Flexible plans are also called cafeteria plans because they provide a “menu,” or choice of benefi ts, from which employees select. The selection possibilities within a fl exible-benefi t

plan may vary considerably from plan to plan. Some plans limit the choices to only a few types

of coverage, such as life insurance and health insurance. Others allow employees to choose

from a wide range of options.

The number of companies offering fl exible plans is not huge, but it has been grow-

ing steadily. TRW Systems and Energy Group, Education Testing Service, American Can,

Northern States Power, and North American Van Lines (a subsidiary of PepsiCo) were some

of the fi rst companies to offer fl exible benefi ts.

Why Are Flexible Plans Attractive?

Flexible plans may be of interest to organizations for several reasons:

1. Employee benefi ts are a very signifi cant component of overall compensation.

2. Flexible benefi ts can allow employers to limit their contributions without alienating

employees, since options give employees some control over the distribution of benefi ts.

3. Lifestyles have changed in the past several years, causing employees to reevaluate the need

for certain traditional benefi ts. For example, in a family where both spouses work and

receive family medical insurance, one coverage is suffi cient.

4. Benefi ts can be useful in recruiting and retaining employees. However, when a mandatory

benefi t package is largely unresponsive to a prospective employee’s needs or to the retention

of present employees, the organization is wasting money.

5. The high cost of benefi ts is causing organizations to try to communicate effectively the real

cost to the employee. By making specifi c benefi t choices, the employee becomes highly

familiar with the costs associated with each benefi t.

6. There can be positive tax ramifi cations for employees. Also, because certain benefi ts are

taxable and others are not, different benefi t mixes can be attractive to different employees

(the tax ramifi cations of fl exible plans are discussed below).

7. A fl exible plan can have a positive impact on employee attitudes and behavior.

8. It can lower overall health care costs.30

Problems with Flexible Plans

Flexible plans are not without their diffi culties. The major problems are as follows:

1. A fl exible plan requires more effort to administer.

2. Unions often oppose fl exible plans because they are required to give up control over the

program details or face losing some of their previously negotiated benefi t improvements.

3. Employees may not choose those benefi ts that are in their own best interests.

4. Tax laws limit the amount of individual fl exibility in certain situations.31

fl exible-benefi t plan (cafeteria plan) Benefi t plan that allows

employees to select from a

wide range of options how

their direct compensation and

benefi ts will be distributed.

Chapter 15 Employee Benefi ts 309

Tax Implications of Flexible Plans

Flexible plans can have certain tax advantages by allowing employees to purchase benefi ts

on a pretax basis. Contributions made under a fl exible plan are generally not subject to social

security tax (FICA).

Flexible-spending plans that offer employees choices between taxable and nontaxable ben-

efi ts are subject to special rules under the Internal Revenue Code’s Section 125, enacted in

1978. Plans that offer choices only among nontaxable benefi ts are not subject to Section 125.

The Defi cit Reduction Act (DEFRA) of 1984 clarifi ed many of the tax questions that had

clouded fl exible benefi ts since the inception of Section 125. The following list summarizes

many of the requirements resulting from Section 125 and/or DEFRA:

• An employer cannot require an employee to complete more than three years of service

before becoming eligible under the plan.

• Flexible plans must offer a choice between only taxable and statutory nontaxable benefi ts.

Taxable benefi ts allowed include cash, group term life insurance in excess of $50,000, and

group term life insurance for dependents. Statutory nontaxable benefi ts include group term life

insurance, group legal services, accident and health benefi ts, dependent care assistance, and

certain types of deferred compensation. Vacation days are also treated as nontaxable benefi ts.

• If more than 25 percent of the total nontaxable benefi ts in the plan are provided for key

employees, as defi ned by Section 416(i)(1) of the Internal Revenue Code, the key employees

will be taxed on the value of those benefi ts.

• Employee benefi ts elections must be irrevocable and made at the beginning of the period of

coverage.

• No change in coverage is allowed except in the case of a change in family status.

• No cash-out or carryover of individual balances is allowed if the selected benefi ts are not fully

used. In other words, any monies left in an account at the end of the year must be forfeited.

Although the present laws do present some restrictions, there is still considerable oppor-

tunity for establishing effective fl exible plans, and the potential gains from fl exible plans are

large enough to merit consideration. There is evidence that fl exible plans have become in-

creasingly popular in recent years.32

THE BENEFIT PACKAGE

Unfortunately, many benefi t packages are thrown together piecemeal and are poorly balanced.

There are many reasons for this. The major problem is that companies often add or delete

new benefi ts without examining their impact on the total package. Also, they frequently add

or delete benefi ts for the wrong reasons, such as a whim of a top executive, union pressures,

or a fad. The key to any successful benefi t package is to plan the package and integrate all the

different components. Such an approach ensures that any new benefi t additions or deletions

will fi t in with the other benefi ts currently offered.

Many small companies have found they can lower the cost and keep benefi ts relatively at-

tractive by working through their professional associations. In these cases, the professional or

industry association offers different benefi t options to its members. The association often can

offer relatively attractive pricing because of the ability to group its members together.

COMMUNICATING THE BENEFIT PACKAGE

Although most organizations provide some form of benefi ts to their employees, the average

employee often has little idea of what he or she is receiving. Many surveys have shown that

employees often do not understand the benefi t programs their respective companies provide.33

Why are employees often unaware of their benefi ts? One explanation is that organizations do

not make much of an effort to communicate their employee benefi ts.

Another possible explanation is that employees cannot easily understand descriptive material

on benefi ts when it is available. One provision of the Employee Retirement Income Security Act of

1974 (ERISA) requires an employer to communicate at specifi ed intervals certain types of benefi t

310 Part Four Compensating Human Resources

Company Name

Address

Date

Employee’s Name

Address

Dear

Enclosed are your W-2 forms showing the amount of taxable income that

you received from ____________________ during the year ____. Listed below in

Section A are your gross wages and a cost breakdown of various benefit

programs that you enjoy. In addition to the money you received as wages, the

company paid benefits for you that are not included in your W-2 statement.

These are benefits that are sometimes overlooked. In an easy-to-read form,

here’s what ____________________ paid to you for the year ____.

Section A—Paid to you in your W-2 earnings:

Cost-of-living allowance

Shift premium

Service award(s)

Vacation pay

Holiday pay

Funeral pay

Jury duty pay

Military pay

Accident & sickness benefits

Regular earnings

Overtime earnings

Allowances

Gross wages

Section B—Paid for you and not included on your W-2 earnings:

Company contributed to pension plan

Company cost of your health insurance payments

Company cost of your dental insurance

Company cost of your life & accidental death insurance

Company cost for social security tax on your wages

Company cost of the premium for your workers’

compensation

Company cost for the tax on your wages for

unemployment compensation

Company cost for the tuition refund

Company cost for safety glasses

Company cost for exercise facilities

Company cost for financial planning services

Total cost of benefits not included in W-2 earnings

Total ___________________ paid for

your services for the year ____

You have earned the amount on the bottom line, but we want to give

you a clearer idea of the total cost of your services to the company, and the

protection and benefits that are being purchased for you and your family. Thank

you for your commitment and service to our company.

Sincerely,

Manager of Human Resources

FIGURE 15.1 Sample Employee Earnings

and Benefi ts Letter

Source: Adapted from J. C. Claypool and

J. P. Cargemi, “The Annual Employee

Earnings and Benefi ts Letter,” Personnel

Journal, July 1980, p. 564.

information in a manner employees can understand. Several methods can be used to evaluate the

readability of written documents. Generally, in these methods the number of words per sentence

and the percentage of diffi cult polysyllabic words in the passage are counted in a readability index

related to a school-grade reading level. The basic goal is to match the readability index of the ben-

efi t description to the educational level of the organization’s employees.

The method used to communicate the benefi t package is as important as the readability of the

document. One successful method of communication is a personalized statement sent periodi-

cally to each employee. The employee earnings and benefi ts letter shown in Figure 15.1 is an

311311

example of such a statement. For organizations that use a computerized payroll system, some

benefi t information can easily be printed on each employee’s check stub. The latest method

for communicating benefi ts is to use intranet technology. Having access restricted to quali-

fi ed users, the intranet, without any additional operating cost, can provide benefi t informa-

tion around the clock, seven days a week. With the intranet, employees can log on at work

or from any location and instantly access company information regarding most employee

benefi ts, such as medical and dental plans. With this technology, employees can even revise

benefi t forms and update their records. Other methods for communicating benefi t information

include posters and visual presentations, such as videos, slide shows, and fl ip charts. Meet-

ings and conferences can also be used to explain an organization’s benefi ts. HRM in Action

15.5 describes how one company greatly improved the way it communicates its benefi ts to its

employees.

1. Defi ne employee benefi ts.

Employee benefi ts, sometimes called fringe benefi ts, are those rewards that organizations

provide to employees for being members of the organization. In general, benefi ts can be

grouped into fi ve major categories: (1) legally required, (2) retirement related, (3) insurance

related, (4) payment for time not worked, and (5) other.

2. Describe how employee benefi ts have grown over the last several years.

Employee benefi ts have grown steadily over the past several years. Specifi cally, they grew

from approximately 15 percent of total compensation in 1951 to approximately 39 percent

of total compensation in 1994.

3. Summarize those benefi ts that are legally required.

The three primary benefi ts mandated by law are social security, unemployment

compensation, and workers’ compensation benefi ts. Social security is a federally

administered insurance system. Under current federal laws, both employer and employee

must pay into the system, and a certain percentage of the employee’s salary is paid up

to a maximum limit. The payment distributed under social security can be grouped into

three major categories: retirement benefi ts, disability benefi ts, and health insurance.

Unemployment compensation is designed to provide funds to employees who have lost

their jobs through no fault of their own and are seeking other jobs. Unemployment

compensation is usually funded through taxes paid by employers; however, in some

states employees also pay a portion of the tax. Workers’ compensation is meant to

protect employees from loss of income and extra expenses associated with job-related

Summary of Learning Objectives

IMPROVING BENEFITS COMMUNICATION WITH EMPLOYEES Dick Quinn, vice president of compensation and benefi ts

for the Public Service Enterprise Group (PSEG) in Newark,

New Jersey, had recently revamped the company’s benefi ts

package to better refl ect what employees wanted. The

changes included increased wellness incentives, better

mental health parity, and 401(k) automatic enrollment. Once

these new features were installed, Quinn wanted to be able

to effectively communicate the new choices to current and

prospective employees.

Quinn completely restructured the company’s benefi ts

section of its Web site. Gone are the laundry-list eyesores and

computer screens fi lled with lengthy benefi t descriptions.

In these places is a simple, easy-to-read page containing

16 colorful icons, each representing a different benefi t. For

example, one icon is a picture of three people riding stationary

bikes, with a subheading that reads “We’ve Got You Covered.”

A brief description of PSEG’s medical benefi ts appears when

the computer cursor touches the picture. Quinn’s goal for the

new Web site was to present the information in a less boring

and more user-friendly manner.

Quinn’s ideas must be working as the new benefi ts Web

site gets about 1,500–2,000 hits per day.

Source: Chris Silva, “Loud and Proud Approach to Benefi ts Marketing: Tired of the Same Old, PSEG Revamps Web Site to Better Market New Benefi ts,” Employee Benefi t News, February 1, 2008, p. 1.

HRM in Action 15.5

312 Part Four Compensating Human Resources

injuries or illnesses. Workers’ compensation coverage varies signifi cantly among dif-

ferent states.

4. Differentiate between a defi ned-benefi t pension plan and a defi ned-contribution

pension plan.

Under a defi ned-benefi t pension plan, the employer pledges to provide a benefi t determined

by a defi nite formula at the employee’s retirement date. A defi ned-contribution pension

plan calls for a fi xed or known annual contribution instead of a known benefi t.

5. Discuss the attractiveness of a cash-balance plan to employees.

Cash-balance plans are attractive to employees because they allow employees to take

their cash-balance pension money with them in the form of a lump sum when they leave

the organization. Cash-balance plans also allow participants to track the growth of their

retirement funds in current dollars through regular statements.

6. Describe a 401(k) plan and how it differs from a 403(b) plan.

A 401(k) plan is a defi ned-contribution pension plan named after section 401(k) of

the Internal Revenue Code. A 401(k) plan allows employees to make tax deductible

contributions up to certain limits ($15,000 per year in 2006). Often employers will match

the employee contributions to some extent. The 403(b) or Tax Deferred Annuity (TDA)

plans are very similar to 401(k) plans except that they may only be used in not-for-profi t

organizations.

7. Explain the purposes of the Employee Retirement Income Security Act (ERISA) and

the Retirement Equity Act.

Congress passed ERISA in 1974 in an effort to ensure the fair treatment of employees

under pension plans. The law was designed to ensure the solvency of pension plans

by restricting the types of investments that can be made with the plan’s funds and pro-

viding general guidelines for fund managers. The overall impact of the Retirement

Equity Act, which was passed in 1984, was to liberalize the eligibility requirements,

vesting provisions, maternity/paternity leaves, and spouse survivor benefi ts of retire-

ment plans.

8. Distinguish between an IRA and a Roth IRA.

An IRA is a type of individual pension plan that can be used to make tax deductible

contributions up to a limit of $4,000 per year per person. When withdrawals are

subsequently made from an IRA they are taxable as ordinary income. With a Roth IRA

non-tax-deductible contributions of up to $4,000 per year per person can be made. When

withdrawals are subsequently made, they are tax-free.

9. Describe a health maintenance organization (HMO) and a preferred provider

organization (PPO).

HMOs provide certain basic medical services for an organization’s employees for a fi xed

price. Advantages of HMOs include an emphasis on prevention of health problems and

generally lower costs. A major drawback is that employees must use physicians employed

or approved by the HMO. PPOs are similar to HMOs in many ways. A PPO is formed by

contracting with a group of doctors and hospitals to provide services at a discounted or

otherwise attractive price. Under a PPO, employees are free to go to any doctor or facility

on an approved list.

10. Describe a medical savings account and a Health Savings Account.

A medical savings account allows employees to set aside pretax dollars through payroll

deduction to pay for medical bills throughout the calendar year. The major drawback to

medical savings accounts is that any money not used during the calendar year is usually

forfeited. Under a Health Savings Account employees or employers can put up to $2,850

for individuals or $5,650 for families in pretax dollars into an account. These funds can

then be withdrawn to pay for medical services. These funds can accumulate indefi nitely.

In order to qualify for an HSA, employees or employers must also buy a regular health

insurance policy with an annual deductible of at least $1,100 for individuals and $2,200

for families.

Chapter 15 Employee Benefi ts 313

401(k) plans, 300

403(b) plans, 301

Amended Age

Discrimination in

Employment Act

(ADEA), 303

defi ned-benefi t

plan, 298

defi ned-contribution

plan, 298

disability insurance, 307

employee benefi ts (fringe

benefi ts), 292

Employee Retirement

Income Security Act

(ERISA), 302

employer-sponsored

SIMPLE IRAs, 301

fl exible-benefi t plan

(cafeteria plan), 308

fl oating holiday, 307

health maintenance

organization (HMO), 305

individual retirement

accounts (IRA), 303

preferred provider

organizations (PPO), 305

private plans, 298

Retirement Equity Act, 302

Roth IRA, 304

SEP-IRA, 304

social security, 294

unemployment

compensation, 296

vesting, 299

workers’ compensation, 297

Key Terms

1. What is social security? Describe the three major categories of social security.

2. Briefl y explain how unemployment compensation works.

3. What types of injuries and illnesses are covered by workers’ compensation?

4. Describe the differences between defi ned-benefi t pension plans and defi ned-contribution

pension plans.

5. What is the most popular type of defi ned-contribution plan? How does it work?

6. What is an employer-sponsored SIMPLE IRA?

7. What is a cash-blance plan?

8. State the overriding purpose of the Employee Retirement Income Security Act (ERISA).

9. What are three pension alternatives for individuals not covered by private pension

plans?

10. Discuss some of the insurance programs offered to employees by organizations.

11. What is a health maintenance organization (HMO)? A preferred provider organization

(PPO)?

12. Distinguish between medical savings accounts and Health Savings Accounts.

13. What is the fl exible approach to benefi ts? List the advantages and disadvantages of fl exible

plans.

14. Why are many employees unaware of some of the benefi ts provided by their

organization?

Review Questions

11. Explain the concepts of a fl oating holiday and personal days.

A fl oating holiday is a holiday observed at the discretion of the employee or the employer.

Personal days are paid days that employees can take, usually at their discretion, to attend

to personal matters.

12. Explain the concept of a fl exible-benefi t plan.

Under a fl exible-benefi t plan, individual employees have some choice as to the specifi c

benefi ts they will actually receive; usually employees select from among several options

how they want their direct compensation and benefi ts to be distributed. Flexible plans are

also known as cafeteria plans or benefi ts.

13. Discuss two reasons employees are often unaware of the benefi ts their organizations

offer.

One reason is that organizations often make little effort to communicate their employee

benefi ts. A second reason is that descriptive material, when provided, is often not easily

understood by employees.

314 Part Four Compensating Human Resources

1. If an average production employee were given the option to have an additional $100 per

month in salary or the equivalent of $200 per month in voluntary benefi ts, which do you

think the employee would choose? Why? What are the implications of your answer for

management?

2. Develop and discuss at least two arguments in support of social security. Compare and

contrast your arguments.

3. If your employer offered you an option to join an HMO, would you be interested? Why or

why not?

4. Many people believe employers use pension vesting requirements solely for the purpose of

retaining employees. If this is completely or even partially true, do you think such behavior

is ethical? Why or why not?

Incident 15.1

Who Is Eligible for Retirement Benefi ts?

Preston Jones, 51, had been an hourly worker in a machine shop of Armon Company for 21 years

and four months. On a Christmas holiday, he suffered a severe heart attack and was hospitalized

for three weeks. At his release, his doctor said he was to rest at home for a couple of months. Af-

ter his recuperation period, his doctor, along with Armon Company’s physicians, was to decide

whether or not Preston should be retired for disability reasons. They never got the opportunity to

make this decision; in February, Preston died of a second heart attack. He left a wife, four sons,

two daughters, and two daughters-in-law. Mrs. Jones still had four children at home.

As a part of Preston’s estate, his wife received the normal group insurance payments, the

balance of his savings plan account, and the other benefi ts due her. However, she did not re-

ceive a pension from Armon as a survivor of an eligible employee.

When Mrs. Jones and the company representatives had discussed the settlement, she had

inquired about her husband’s pension and about her right to receive it. The human resource

department had stated that since contributions to this fund were made only by the company,

no survivor’s benefi ts were provided.

Questions

1. What do you think Mrs. Jones should do at this point?

2. What does the Employment Retirement Income Security Act of 1974 have to say about this

issue?

Incident 15.2

Benefi ts for Professionals

LJT, Architects, a small architectural fi rm organized as a sole proprietorship, serves clients in

the New York metropolitan area. Anticipating a good year, Len Elmore, the principal, hopes

for a gross of between $600,000 and $800,000.

In an architectural practice, revenue is produced by providing a variety of services that

range from creating a design and generating the construction documents used by a contractor

in executing the project to visiting the site periodically to verify that construction is progress-

ing according to specifi cations. Architects are also responsible for coordinating their work

with that of the engineers and other consultants associated with projects.

Many small architectural fi rms such as LJT, Architects, have no permanent employees.

They hire workers for a particular project with the understanding that they might remain after

a particular phase of the project is completed but they might also be laid off. Employees are

usually needed for the functions of design, development, and production of construction docu-

ments, which include approximately 50 to 70 percent of the services provided under a standard

architectural agreement.

Discussion Questions

Chapter 15 Employee Benefi ts 315

Firms acquire the personnel needed for these projects in several ways. They hire personnel on

a full-time permanent or temporary basis or on a part-time basis to moonlight (i.e., as a second

job). An employee might also be borrowed from another fi rm whose contracted work has been

completed with no new work foreseen immediately. Len believes that hiring full-time temporary

or permanent employees gives him more control over the production aspect of his practice.

At this time, Len does not follow any formal personnel policies. He prefers to “work

things out” as issues and problems arise. When hiring, he will agree verbally to certain broad

terms of employment, compensation, and benefits common to local professional offices,

such as two weeks’ vacation per year. He usually insists on a two-week to one-month proba-

tionary period during which the salary paid is slightly less than normal. A spot check of

some of his colleagues leads him to believe his salary rates are comparable with those of

similar employers. Because the nature of the employment tends to be temporary, Len

suggests a contract arrangement with his employees, in which no taxes are withheld and no

government-required benefits are provided.

Len’s plans for expansion include adding employees until his staff numbers 10. For him,

this is the best staff size to provide high-quality professional services. However, the employ-

ment situation is easing for workers in architectural firms; more newspaper ads seek appli-

cants, and fewer callers contact Len for jobs. Those coming for interviews ask more than

“When do I start?” Many ask about vacations, sick leave, paid holidays, medical insurance,

and profit-sharing plans. Others want to know about the possibilities of advancement with

LJT, Architects, and about such long-range benefits as pensions and education leave.

In view of the situation, Len has decided to look into providing his employees with a

benefit package. At the same time, however, he fears his practice may be too small to begin

providing these benefits, which may prove to be extremely expensive. He has set aside

money from his own earnings to provide these extras for himself and has difficulty under-

standing why his employees cannot do the same.

Questions

1. What recommendations would you make to Len?

2. How much do you think your recommendations would cost?

Assume you are currently employed as a human resource specialist for a medium-size company. You have been in your job for a little over two years, and your current salary is $52,000 per year. Two months ago, your company announced it was going to implement a fl exible-benefi t plan in conjunction with this year’s salary raises. Your annual salary review was held last week, and you were informed that your raise would be equivalent to $3,000. For your salary level, the following options are available:

1. Take the entire raise as a monthly salary increase.

2. Take as much of the $3,000 as you desire in the form of vacation at the equivalent of $200 per day.

3. Have as much as you desire of the $3,000 put into a tax-sheltered retirement plan.

4. Purchase additional term life insurance at the cost of $250 per $100,000 of face value.

5. Purchase dental insurance at the cost of $20 per month for yourself and $10 per month for each dependent.

The company currently provides full health insurance at no cost to employees. How would you elect to take your raise? Be prepared to share your answer with the class.

1. U.S. Chamber of Commerce, 2008 Employee Benefi ts Study, p. 8.

2. R. M. McCaffery, “Employee Benefi ts: Beyond the Fringe?” Personnel Administrator, May 1981,

p. 26.

3. Christopher Cornell, “State Rep Cites Pro-Business Rationale for Bill Banning Gay Discrimination,”

Northeast Pennsylvania Business Journal, June 2009, p. 43.

EXERCISE 15.1

Taking a Raise

Notes and Additional Readings

316 Part Four Compensating Human Resources

4. U.S. Chamber of Commerce, 2008 Employee Benefi ts Study, p. 4.

5. “Financial Fiasco,” Spartanburg Herald-Journal, August 6, 2009.

6. S. Ledvinka, Federal Regulations of Personnel and Human Resource Management (Boston: Kent

Publishing, 1981), p. 144.

7. CFO, June 1995, p. 52.

8. Ibid.

9. Bill Leonard, “Study Finds Workers’ Comp Costs Have Decreased Sharply,” HR Magazine, February

1998, p. 10; and Elaine McShulskis, “Workers’ Comp Costs Drop,” HR Magazine, March 1998,

p. 28.

10. Daniel Hays, “WC Buyers Caught Between a Rock and a Hard Place,” National Underwriter/

Property & Casualty Risk & Benefi ts, February 2, 2002, pp. 5–6.

11. Sally Roberts, “Market Softened in 2005: Survey,” Business Insurance, May 29, 2006, p. 6.

12. “Workers’ Compensation: Premiums Decline 10 Percent—Plus for 19 Percent of Renewals,” The

Controller’s Report, May 2009, pp. 5–6.

13. Patrick Purcell, “Older Workers: Employment and Retirement Trends,” Pension Benefi ts, January

2010, pp. 11–12.

14. Ibid.

15. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Study, p. 7.

16. Much of this section is drawn from the following sources: Tami Luhby, “Pension Reductions Rise:

Survey Shows Fewer Companies Are Offering Them to Employees as a Retirement Choice,” Knight

Ridder Tribune Business News, September 1, 2006, p. 1; Tami Luhby, “Pensions: Going, Going:

Increasingly, Employers Are Giving Workers Responsibility for Their Own Retirement Plans,”

Knight Ridder Tribune Business News, August 20, 2006, p. 1; and William Neikirk, “Bill Would

Boost 401(k) Plans: Measure Could Make Employers Abandon Oldstyle Pensions,” Knight Ridder

Tribune Business News, August 17, 2006, p. 1.

17. P. S. Greenlaw and W. D. Biggs, Modern Personnel Management (Philadelphia: W. B. Saunders,

1979), p. 513.

18. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Study, p. 7.

19. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Study, p. 33.

20. Society for Human Resource Management, 2009 Employee Benefi ts Study (Alexandria, Va.: Society

for Human Resource Management, 2009), p. 47.

21. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Study, p. 33.

22. Society for Human Resource Management, 2009 Employee Benefi ts Study, p. 47.

23. Much of this section is drawn from “Law Creates Health Savings Accounts,” HR Focus, January

2004, p. 12

24. Society for Human Resource Management, 2009 Employee Benefi ts Study, p. 48.

25. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Survey, p. 35.

26. Society for Human Resource Management, 2009 Employee Benefi ts Study, p. 47.

27. U.S. Chamber of Commerce, The 2008 Employee Benefi ts Study, p. 35.

28. Society for Human Resource Management, 2009 Employee Benefi ts Study, p. 17.

29. Carolyn A. Baker, “Flex Your Benefi ts,” Personnel Journal, May 1988, p. 54; and Katie Lawton

and Oleksandr S. Cherniphenko, “Examining Determinants of Employee Benefi t Preferences: Joint

Effects of Personality, Work Values, and Demographics,” Asia Pacifi c Journal of Human Resources,

August 2008, p. 220.

30. Chad Daughtery, “How to Introduce Flexible Benefi ts,” People Management, January 10, 2002,

pp. 42–43.

31. Adapted from J. H. Shea, “Cautions about Cafeteria-Style Benefi t Plans,” Personnel Journal,

January 1981, pp. 37–38.

32. “Cost Sharing Is Now the Top Way to Control Costs,” HR Focus, February 2009, pp. 5–8;

Alexandra Hain-Cole, “Increase in Popularity of Flexible Benefi ts: UK,” Benefi ts & Compensation

International, November 2009, p. 30; and Paul Stephens, “Flex Gain in Popularity,” CA Magazine,

January/February 2010, p. 10.

33. For an example, see Jennifer J. Laabs, “Use Creativity to Educate Your Benefi ts Audience,” Personnel

Journal, February 1992, p. 64; and Mike Berry, “Do Benefi ts Packages Score With Staff ?” Personnel

Today, March 2004, p. 12.

Part Five

Employee Well-Being and Labor Relations 16. Employee Safety and Health

17. Employee Relations

18. The Legal Environment and Structure of Labor Unions

19. Union Organizing Campaigns and Collective Bargaining

R o

n L

e v in

e /G

e tt

y I m

a g

e s

319

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. State the purpose of the Occupational

Safety and Health Act (OSHA) and

discuss its major provisions.

2. List the three major causes of

accidents in the workplace.

3. Defi ne frequency rate and severity

rate.

4. Offer several suggestions for

promoting safety in the workplace.

5. Discuss the Hazard Communication

rule.

6. Differentiate between stress and

burnout.

Chapter Sixteen

Employee Safety and Health

7. Name several work-related

consequences of alcohol and drug

abuse.

8. Offer several guidelines for

implementing a drug-testing

program.

9. Discuss the legal requirements for

terminating an employee with

acquired immunodefi ciency syndrome

(AIDS).

10. Explain the three basic types of

employee assistance programs (EAPs).

11. Explain what work/life programs and

wellness programs are.

12. List several specifi c things an

organization can do to help reduce

violence in its workplace.

Chapter Outline

Occupational Safety and Health Act

OSHA Standards

Penalties

Reporting/Record-Keeping Requirements

The Causes of Accidents

Personal Acts

Physical Environment

Accident Proneness

How to Measure Safety

Organizational Safety Programs

Promoting Safety

Establishing a Safety Training Program

Employee Health

Occupational Health Hazards

Stress in the Workplace

Alcoholism and Drug Abuse

AIDS

Employee Assistance Programs (EAPs)

Work/Life Programs

Wellness Programs

Violence in the Workplace

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 16.1: Safety Problems at Blakely

Incident 16.2: To Fire or Not to Fire?

Exercise 16.1: Filing OSHA Reports

Exercise 16.2: Preventing Violence in

the Workplace

Notes and Additional Readings

320 Part Five Employee Well-Being and Labor Relations

Employee safety and health are important concerns in today’s organizations. The National

Safety Council estimates that 4,303 unintentional deaths and 3.2 million unintentional dis-

abling injuries resulted from occupational accidents in 2008.1 The associated total work ac-

cident cost was estimated to be $183 billion.2

As early as 1970, new cases of occupational diseases were estimated to exceed 300,000

each year.3 As these fi gures indicate, the costs associated with workplace injuries or illnesses

are high. Other indirect costs include employers’ costs for health insurance and workers’ com-

pensation (both discussed in Chapter 15). Recent fi gures show that the average U.S. employee

must produce $1,250 worth of goods and services just to offset the cost of work-related in-

juries.4 These costs vividly illustrate an incentive for organizations to reduce work-related

injuries and illnesses and to improve overall employee health.

While health costs have escalated dramatically in recent decades, occupational injuries and

illnesses have been around for a long time. For example, 35,000 occupational deaths occurred

in 1936.5 In spite of the known injuries and associated costs, for years many orga nizations

did very little to reduce the problem. Because of this, a bipartisan U.S. Congress passed the

Occupational Safety and Health Act in 1970.

OCCUPATIONAL SAFETY AND HEALTH ACT

The Occupational Safety and Health Act became effective on April 28, 1971. The act es- tablished federal regulations relating to employee safety and health. It applies to all businesses

with one or more employees. (There are certain exceptions, such as self-employed persons.)

Its original stated purpose was “to assure so far as possible every working man and woman in

the nation safe and healthful working conditions and to preserve our human resources.” The

act contains a general-duty clause to cover those situations not addressed by specifi c stand- ards. This clause states that each employer “shall furnish . . . a place of employment which is

free from recognized hazards that are causing or likely to cause death or serious physical harm

to . . . employees.” In essence, the general-duty clause requires employers to comply with the

intent of the act.

The Occupational Safety and Health Administration (OSHA) of the U.S. Department of

Labor enforces the act and is authorized to

• Encourage employers and employees to reduce workplace hazards and to implement new

safety and health management systems or improve existing programs.

• Develop mandatory job safety and health standards and enforce them through worksite

inspections, employer assistance, and, sometimes, by imposing citations, penalties, or both.

• Promote safe and healthful work environments through cooperative programs, partnerships,

and alliances.

• Establish responsibilities and rights for employers and employees to achieve better safety

and health conditions.

• Support the development of innovative ways of dealing with workplace hazards.

• Establish requirements for employers to keep records of injury and illness and to monitor

certain occupational illnesses.

• Establish training programs to increase the competence of occupational safety and health

personnel.

• Provide technical and compliance assistance and training and education to help employers

reduce worker accidents and injuries.

• Work in partnership with states that operate their own occupational safety and health

programs.

• Support the Consultation Programs offered by all 50 states, the District of Columbia,

Puerto Rico, the Virgin Islands, Guam and the Northern Mariana Islands.6

Since 1970 when OSHA was established, occupational fatality rates have been cut by 60 per-

cent and at the same time, U.S. employment has doubled and now includes nearly 115 million

Occupational Safety and Health Act Federal law enacted in 1970

to ensure safe and healthful

working conditions for every

working person.

general-duty clause Clause in the Occupational

Safety and Health Act covering

those situations not addressed by

specifi c standards; in essence,

it requires employers to comply

with the intent of the act.

Web site: Occupational Safety and Health Administration www.osha.gov

321

workers at 7.2 million sites. Occupational injury and illnesses rates have declined 40 percent.7

While OSHA cannot claim all the credit for these impressive reductions, it has certainly had

a major impact.

OSHA Standards OSHA establishes legally enforceable standards relating to employee health and safety. Usu-

ally the human resource department is responsible for being familiar with these standards and

ensuring that the organization complies with them.

Currently OSHA issues standards for a wide variety of workplace hazards including toxic

substances, harmful physical agents, electrical hazards, fall hazards, hazardous wastes, in-

fectious diseases, fi re and explosion hazards, dangerous atmospheres, and machine hazards.

Most OSHA standards and forms can be obtained online at http://www.osha.gov. The Federal Register, available online (http://www.gpoaccess.gov/fr/) and in many public and college libraries, also regularly publishes all OSHA standards and amendments.

Establishment of Standards

OSHA can initiate standards on its own or on petitions from other parties, including the U.S.

Secretary of Health and Human Services (HHS), the National Institute for Occupational

Safety and Health (NIOSH), state and local governments, and nationally recognized standards-

producing organizations, employers, labor organizations, or any other interested party. NIOSH,

which was established by the act as an agency under HHS, conducts research on various safety

and health problems. NIOSH recommends most of the standards adopted by OSHA.

Workplace Inspections

OSHA compliance offi cers (inspectors) are authorized under the act to conduct workplace in-

spections. OSHA generally conducts inspections without advance notice. However, employers

do have the right to require that OSHA obtain a search warrant before being admitted. Origi-

nally employers were not given advance notice of inspections and could not refuse to admit

OSHA inspectors. However, a 1978 Supreme Court decision, Marshall v. Barlow’s, Inc.,8 ruled that employers are not required to admit OSHA inspectors onto their premises without

a search warrant. At the same time, however, the court ruled that the probable cause needed to

obtain a search warrant would be much less than what would be required in a criminal matter.

HRM in Action 16.1 summarizes the Marshall v. Barlow’s, Inc., case.

Inspection Priorities

Because OSHA does not have the resources to inspect all workplaces covered by the act, a

system of inspection priorities has been established. The agency inspects under the following

conditions.

Imminent danger, or any condition where there is reasonable certainty that a danger exists

that can be expected to cause death or serious physical harm immediately or before the

danger can be eliminated through normal enforcement procedures.

Federal Register The offi cial daily publication

for rules, proposed rules, and

notices of federal agencies

and organizations. http://www.

gpoaccess.gov/fr/

Marshall v. Barlow’s, Inc. 1978 Supreme Court decision

that ruled that employers are

not required to admit OSHA

inspectors onto their premises

without a search warrant;

also ruled that probable cause

needed to obtain the search

warrant is much less than that

required in a criminal matter.

HRM in Action 16.1

issue an order forcing Barlow to admit the inspector. Barlow

again refused and sought an injunction to prevent what he

considered to be a warrantless search. On December 30, 1976,

a three-judge court ruled in Barlow’s favor, and Marshall

appealed. On May 23, 1978, the U.S. Supreme Court ruled

that OSHA’s searches of work areas for safety hazards and

violations were unconstitutional without a warrant.

Source: “Marshall v. Barlow’s, Inc.,” Supreme Court Reporter 98A (St. Paul, Minn.: West Publishing, 1980), pp. 1816–34.

MARSHALL v. BARLOW’S, INC. www.osha.gov Barlow’s, Inc., is an electrical and plumbing installation business

in Pocatello, Idaho. In September 1975, an OSHA inspector asked

Mr. Barlow if he could search the business for safety violations.

When Mr. Barlow asked the inspector whether complaints had

been fi led against the business, the inspector said no, that

Barlow’s had turned up as part of a routine selection procedure.

Mr. Barlow refused to allow the inspection.

Three months later, Secretary of Labor Ray Marshall

petitioned the U.S. district court for the state of Idaho to

322 Part Five Employee Well-Being and Labor Relations

Catastrophes and fatal accidents resulting in the death of any employee or the

hospitalization of three or more employees.

Employee complaints involving imminent danger or an employee violation that threatens

death or serious harm.

Referrals from other individuals, agencies, organizations, or the media.

Planned, or programmed, inspections in industries with a high number of hazards and

associated injuries.

Follow-ups to previous inspections.

Inspection Procedures

Upon the OSHA inspector’s arrival, the representatives of the employer should fi rst ask to see

the inspector’s OSHA credentials. Normally the inspector then conducts a preliminary meeting

with the top management of the organization. The manager of the human resource department

is usually present at this meeting. At this time, the inspector explains the purpose of the visit,

the scope of the inspection, and the standards that apply. The inspector then usually requests

an employer representative (often someone from the human resource department), and an em-

ployee representative (usually selected directly by the employees or the union if one is present)

to join in an inspection tour of the facility. Under no circumstances may the employer select

the employee representative. The inspector then proceeds with the inspection tour, which may

cover part or all of the facilities. Afterward the inspector meets again with the employer or the

employer representatives. During this meeting, the inspector discusses what has been found

and indicates all apparent violations for which a citation may be issued or recommended.

Citations

In some cases, the inspector has the authority to issue citations at the work site immediately

following the closing conference. This occurs only in cases where immediate protection is

necessary. Normally citations are issued by the OSHA area director and sent by certifi ed mail.

Once the citation is received, the employer is required to post a copy of the citation at or near

the place where the violation occurred for three days or until the violation is corrected, which-

ever period is longer.

Penalties Table 16.1 summarizes the fi ve major types of violations that may be cited and the respective

penalties that may be proposed. Under certain conditions some of the proposed penalties can

be adjusted downward. Additional penalties may be imposed for such things as falsifying

records and assaulting an inspector.

Reporting/Record-Keeping Requirements All employers must report to OSHA within eight hours of learning about (1) the death of any em-

ployee from a work-related incident or (2) the in-patient hospitalization of three or more employ-

ees as a result of a work-related incident. In addition, employers must report all fatal heart attacks.

Deaths from motor vehicle accidents on public streets (except those in a construction work zone)

and in accidents on commercial airplanes, trains, subways, or buses do not need to be reported.

Employers of 11 or more persons must meet certain record-keeping requirements specifi ed

by OSHA. These include

• Maintaining records in each establishment of occupational injuries and illnesses as they

occur and making those records accessible to employees.

• Keeping injury and illness records and posting from February 1 through April 30 an

annual summary of occupational injuries and illnesses for each establishment. A company

executive must certify the accuracy of the summary.

• Recording any fatality regardless of the length of time between the injury and death.

• Providing, upon request, pertinent injury and illness records for inspection and copying by

any representative of the Secretaries of Labor or HHS, or the state during any investigation,

research, or statistical compilation.

Chapter 16 Employee Safety and Health 323

• Complying with any additional record-keeping and reporting requirements in specifi c

OSHA standards.

Many OSHA standards have special record-keeping and reporting requirements, but all em-

ployers covered by the act must maintain certain forms. Currently, three record-keeping forms

are required. OSHA Form 300, Log of Work-Related Injuries and Illnesses; OSHA Form 300A, Summary of Work-Related Injures and Illnesses; and OSHA Form 301, Injury and Illness Incident Report. Form 300 requires employers to log each recordable occupational injury and illness within six working days from the time the employer learns of

it. In general this includes all occupational illnesses, regardless of severity, and all occupa-

tional injuries resulting in death, one or more lost workdays, restriction of work or motion, loss

of consciousness, transfer to another job, or medical treatment other than fi rst-aid. Form 300A

was designed to make it easier to post and calculate incident rates. Employers must post cop-

ies of the previous year’s records no later than February 1 and keep them up at least through

April 30. Form 301 includes more data about how the injury or illness occurred and must be

completed within seven calendar days from the time the employer learns of the work-related

injury or illness. These forms must be retained for fi ve years by the organization and must be

available for inspection.

THE CAUSES OF ACCIDENTS

Accidents are caused by a combination of circumstances and events, usually resulting from

unsafe work acts, an unsafe work environment, or both.

Personal Acts It has been estimated that unsafe personal acts cause as much as 80 percent of organizational

accidents. Unsafe personal acts include such things as taking unnecessary risks, horseplay, failing

to wear protective equipment, using improper tools and equipment, and taking unsafe shortcuts.

OSHA Form 300 (Log of Work-Related Injuries and Illnesses) and OSHA Form 300A (Summary of Work-Related Injuries and Illnesses) Forms for recording all

occupational injuries and

illnesses. Each occurrence must

be recorded within six working

days from the time the employer

learns of the accident or illness.

OSHA Form 301 (Injury and Illness Incident Report) Form that requires much

more detail about each injury

or illness. Form 301 must

be completed within six

working days from the time

the employer learns of an

occupational injury or illness.

Violation Defi nition Proposed Penalty

Other than serious Violation that has a direct

relationship to job safety and health

but probably would not cause

death or serious physical harm.

Up to $7,000 for each violation

(discretionary).

Serious Violation where there is substantial

probability that death or serious

physical harm could result and that

the employer knew or should have

known of the hazard.

Up to $7,000 for each violation

(mandatory).

Willful Violation that the employer

intentionally and knowingly

commits. The employer either

knows that what he or she is doing

constitutes a violation or is aware

that a hazardous condition exists

and has made no reasonable effort

to eliminate it.

Up to $70,000 for each willful

violation with a minimum

mandatory penalty of $5,000

for each violation. A violation

resulting in death of an employee

is punishable by a court-imposed

fi ne or by up to six months’

imprisonment, or both; a fi ne of

up to $250,000 for an individual or

$500,000 for a corporation may be

imposed for a criminal conviction.

Repeated Violation of any standard,

regulation, rule, or order where, on

reinspection, another violation of

the same section is found.

Up to $70,000 for each such

violation.

Failure to abate

prior violation

Failure to correct previous violation

cited by OSHA.

Civil penalty of up to $7,000 for

each day the violation continues

beyond the prescribed abatement

date.

TABLE 16.1 Types of OSHA Violations

Source: All about OSHA (Washington,

D.C.: U.S. Department of Labor, 2003)

pp. 26–27.

324 Part Five Employee Well-Being and Labor Relations

It is diffi cult to determine why employees commit unsafe personal acts. Fatigue, haste,

boredom, stress, poor eyesight, and daydreaming are all potential reasons. However, these

reasons do not totally explain why employees intentionally neglect to wear prescribed equip-

ment or do not follow procedures. Most employees think of accidents as always happening to

someone else. Such an attitude can easily lead to carelessness or a lack of respect for what can

happen. It is also true that some people get a kick out of taking chances and showing off.

Research studies have also shown that employees with positive attitudes have fewer acci-

dents than employees with negative attitudes.9 This is not surprising when one considers that

negative attitudes are likely to be related to employee carelessness.

Physical Environment Accidents can and do happen in all types of environments, such as offi ces, parking lots, and

factories. Certain work conditions, however, seem to result in more accidents. Table 16.2 lists

commonly encountered unsafe work conditions.

Accident Proneness A third reason often given for accidents is that certain people are accident prone. Some em-

ployees, due to their physical and mental makeup, are more susceptible to accidents. This

condition may result from inborn traits, but it often develops as a result of an individual’s

environment. However, this tendency should not be used to justify an accident. Given the right

set of circumstances, anyone can have an accident. For example, an employee who was up all

night with a sick child might very well be accident prone the next day.

HOW TO MEASURE SAFETY

Accident frequency and accident severity are the two most widely accepted methods for meas-

uring an organization’s safety record. A frequency rate is used to indicate how often disa- bling injuries occur. Disabling injuries cause an employee to miss one or more days of work following an accident. Disabling injuries are also known as lost-time injuries. A severity rate indicates how severe the accidents were by calculating the length of time injured employees

were out of work. Only disabling injuries are used in determining frequency and severity rates.

Figure 16.1 gives the formulas for calculating an organization’s frequency and severity rates.

Neither the frequency rate nor the severity rate means much until they are compared with

similar fi gures for other departments or divisions within the organization, for the previous

year, or for other organizations. It is through these comparisons that an organization’s safety

record can be objectively evaluated.

frequency rate Ratio that indicates the

frequency with which disabling

injuries occur.

disabling injuries Work-related injuries that cause

an employee to miss one or

more days of work.

severity rate Ratio that indicates the length

of time injured employees are

out of work.

Unguarded or improperly guarded machines (such as an unguarded belt)

Poor housekeeping (such as congested aisles, dirty or wet fl oors, loose carpeting, and improper stacking

of materials)

Defective equipment and tools

Poor lighting

Poor or improper ventilation

Improper dress (such as wearing clothes with loose and fl oppy sleeves when working on a machine that

has rotating parts)

Sharp edges

TABLE 16.2 Unsafe Conditions in the

Work Environment

*The American National Standards Institute has developed tables for determining the number of lost days for different types of accidents.

To illustrate, an accident resulting in death or permanent total disability is charged with 6,000 days (approximately 25 working years).

FIGURE 16.1 Formulas for Computing

Accident Frequency Rate

and Severity Rate

Frequency rate ⫽ Number of disabling injuries ⫻ 1 million

Total number of labor-hours worked each year

Severity rate ⫽ Days lost* due to injury ⫻ 1 million

Total number of labor-hours worked each year

Chapter 16 Employee Safety and Health 325

ORGANIZATIONAL SAFETY PROGRAMS

The heart of any organizational safety program is accident prevention. It is obviously much

better to prevent accidents than to react to them. A major objective of any safety program is

to get the employees to “think safety.” Therefore, most programs are designed to keep safety

and accident prevention on employees’ minds. Many different approaches are used to make

employees more aware of safety. However, four basic elements are present in most successful

safety programs. First, it must have the genuine (rather than casual) support of top and middle

management. If upper management takes an unenthusiastic approach to safety, employees are

quick to pick up on this. Second, it must be clearly established that safety is a responsibility

of operating managers. All operating managers should consider safety to be an integral part of

their job. Third, a positive attitude toward safety must exist and be maintained. The employees

must believe the safety program is worthwhile and produces results. Finally, one person or de-

partment should be in charge of the safety program and responsible for its operation. Often the

human resource manager or a member of the human resource staff has primary responsibility

for the safety program.

Promoting Safety Many things can be done to promote safety. Suggestions include the following:

1. Make the work interesting. Uninteresting work often leads to boredom, fatigue, and stress,

all of which can cause accidents. Often simple changes can be made to make the work more

meaningful. Attempts to make the job more interesting are usually successful if they add

responsibility, challenge, and other similar factors that increase employees’ satisfaction

with the job.

2. Establish a safety committee composed of operative employees and representatives of

management. The safety committee provides a means of getting employees directly involved

in the operation of the safety program. A rotating membership of 5 to 12 members is desirable.

Normal duties for the safety committee include inspecting, observing work practices,

investigating accidents, and making recommendations. Committee meetings should be held

at least once a month on company time, and attendance should be mandatory.

3. Feature employee safety contests. Give prizes to the work group or employee having the best

safety record for a given time period. Contests can also be held to test safety knowledge.

Prizes can be awarded periodically to employees who submit good accident prevention ideas.

4. Publicize safety statistics. Monthly accident reports should be posted and put on the

company intranet. Ideas as to how accidents can be avoided should be solicited.

5. Use bulletin boards and the company intranet. Pictures, sketches, and cartoons can be

effective if properly presented. One thing to remember when using bulletin boards and the

intranet is to change the content frequently.

6. Encourage employees, including supervisors and managers, to have high expectations for

safety. Recognize positive safety actions, and acknowledge those who contribute to safety

improvements.

7. Periodically hold safety training programs and meetings. Have employees attend and

participate in these meetings as role players or instructors. The next section discusses how

to establish a safety training program for the fi rst time.

Establishing a Safety Training Program Several basic steps should be followed when initially establishing a safety training program:10

1. Assess the training needs by examining accident and injury records and talking to

department heads about their perceived needs. Regardless of severity, try to fi nd out where

problems are located, what the potential causes might be, and what has been done in the

past to correct them.

2. Gauge the level of employees’ safety skills. Use written tests, employee interviews, and

general observations to determine the level of employee knowledge about their job.

326

3. Design a program to solve the program. Outside resources such as consultants, equipment

vendors, and even OSHA can be helpful. For best results, use a variety of teaching methods

and involve employees as much as possible.

4. Get line managers on board. Once top management has embraced a safety philosophy,

inform line managers about safety problems throughout the organization. Emphasize that

they can help set the proper tone through example and instruction.

5. Evaluate the program’s effectiveness. Try to answer two basic questions: Did the program

change employees’ behavior? Did the program impact business results in a positive manner?

6. Fine-tune the safety process. Periodically review the training program and make adjustments

to incorporate new safety standards and to account for business and industry changes.

HRM in Action 16.2 presents some key quotes from CEOs regarding safety.

EMPLOYEE HEALTH

Until recently, safety and accident prevention received far more attention than did employee

health. However, this has changed. Statistics show that occupational diseases may cost indus-

try as much or more than occupational accidents.11 Furthermore, there are many diseases and

health-related problems that are not necessarily job related but that may affect job perform-

ance. Many organizations now not only attempt to remove health hazards from the workplace

but also have invested in programs to improve health.

Occupational Health Hazards “A coal miner in West Virginia can’t breathe. A pesticide plant worker in Texas can’t walk.

A hospital anesthesiologist in Chicago suffers a miscarriage.”12 These people, along with

hundreds of other employees, are victims of occupational diseases. An occupational illness

KEY QUOTES FROM CEOs REGARDING SAFETY Each year the National Safety Council identifi es several

CEOs who “Get It” regarding safety. The following quotes

are from four CEOs selected in 2010 regarding their answers

to the following question, “How do you instill a sense of

safety in your employees on an ongoing basis?”

• Robert E. McGough, President & CEO, DynMcDermott

Petroleum Operations Company

“We have consciously created a culture where safety

permeates our business and operating systems. We

involve our employees with a 12+-year-old behavioral

safety process and active participation in OSHA’s

Voluntary Protection Programs through their leadership

of the committees that manage the operation of those

programs. Our employees have ownership in the safety

process, which has created their buy-in.”

• Jim McNerney, Chairman, President & CEO, The Boeing

Company

“Safety leadership starts at the top. Boeing’s Executive

Council, which I lead and whose members are the leaders

of our business units and functions, has set a challenging

target to improve our company’s lost workday case rate by

25 percent over five years. We hold ourselves accountable

to meet this target, and we monitor performance

regularly and closely. This goal is among those tied to our

top leaders’ annual performance evaluation.”

• Keith Nosbusch, Chairman & CEO, Rockwell Automation

Inc.

“Our commitment to safety starts with our board

of directors. Our board’s Technology and Corporate

Responsibility Committee reviews and assesses our policies

and results in several areas, including employee health and

safety. We have a comprehensive internal audit program

that I review monthly, so we are always reinforcing the

importance of safety with the management team.”

• William H. Swanson, Chairman & CEO, Raytheon

Company

“We believe the key is active, continuous engagement

with employees and, of course, being a role model

for the right behavior. For this reason, our leaders are

evaluated on how well they engage around safety in

their performance appraisals, and their success is tracked

and measured.”

HRM in Action 16.2

Chapter 16 Employee Safety and Health 327

can be defi ned as any abnormal condition or disorder (other than that resulting from an oc-

cupational injury) caused by exposure to environmental factors associated with employment.

Approximately 187,400 new cases of occupational illnesses were reported among U.S. em-

ployees in private industry during 2008.13 The U.S. Department of Labor currently uses fi ve

major categories to classify occupational illnesses: (1) occupational skin diseases or disor-

ders, (2) respiratory conditions due to toxic agents, (3) poisoning (systemic effects of toxic

materials), (4) hearing loss, and (5) all other occupational illnesses. In 2008, the overall in-

cidence rate of nonfatal occupational illnesses was 19.7 per 10,000 full-time employees in

private industry.14

Increased awareness of occupational disease was one factor that contributed to the passage

of the Occupational Safety and Health Act. In addition, the Toxic Substance Control Act of 1976 requires the pretesting of certain new chemicals marketed each year. A 1980 OSHA

rule requires organizations to measure for safety, and record employee exposure to, certain

potentially harmful substances. These medical records must be made available to employees,

their designated representatives, and OSHA. Furthermore, these records must be maintained

for 30 years, even if the employee leaves the job. Additional rules have been issued related to

specifi c hazards.

Hazard Communications

Because of the threats posed by chemicals in the workplace, OSHA issued its hazard commu-

nication rule in the early 1980s. This rule is also known as the right-to-know rule. The basic

purpose of the rule is to ensure that employers and employees know what chemical hazards

exist in their workplace and how to protect themselves against those hazards. The goal of the

rule is to reduce the incidence of illness and injuries caused by chemicals.

The Hazard Communication Standard establishes uniform requirements to ensure that the hazards of all chemicals imported into, produced in, or used in the workplace are evaluated

and that the results of these evaluations are transmitted to affected employers and exposed

employees. OSHA has developed a variety of materials to help employers and employees im-

plement effective hazard communication programs. For example, a free online course at www.

eduwhere.com is available to help educate employees and employers about chemical hazards

in the workplace.

Stress in the Workplace Stress is the mental and physical condition that results from a perceived threat of danger (physical or emotional) and the pressure to remove it.15 The potential for stress exists when an

environmental situation presents a demand threatening to exceed a person’s capabilities and

resources for meeting it.16 Stress manifests itself among employees in several ways, including

increased absenteeism, job turnover, lower productivity, and mistakes on the job. In addition,

excessive stress can result in both physical and emotional problems. Some common stress-

related disorders include tension and migraine headaches; coronary heart disease; high blood

pressure; muscle tightness in the chest, neck, and lower back; gastritis; indigestion; ulcers;

diarrhea; constipation; bronchial asthma; rheumatoid arthritis; and some menstrual and sexual

dysfunctions.17 From a psychological perspective, inordinate or prolonged stress can adversely

affect personal factors such as concentration, memory, sleep, appetite, motivation, mood, and

the ability to relate to others.18 Table 16.3 lists some of the more common sources and sug-

gested causes of job-related stress.

The National Institute for Occupational Safety and Health (NIOSH) cites the following

statistics, which come from numerous studies:19

• 40 percent of employees reported their job was very or extremely stressful.

• 25 percent view their jobs as the number one stressor in their lives.

• 75 percent of employees believe that employees have more on-the-job stress than a

generation ago.

• 29 percent of employees felt quite a bit or extremely stressed at work.

• 26 percent of employees said they were “often or very often burned out or stressed by their

work.”

Toxic Substance Control Act Federal law passed in 1976

requiring pretesting of new

chemicals marketed for safety.

Hazard Communication Standard Standard issued by OSHA in

the early 1980s that established

uniform requirements to

ensure that the hazards of

all chemicals imported into,

produced, or used in the

workplace are evaluated

and that the results of these

evaluations are transmitted

to affected employers and

exposed employees.

stress Mental and physical condition

that results from a perceived

threat of danger (physical or

emotional) and the pressure to

remove it.

Web site: American Institute of Stress www.stress.org

Stress manifests itself among employees in many ways. Ryan McVay/Getty Images

328 Part Five Employee Well-Being and Labor Relations

According to the American Institute of Stress (a nonprofi t research organization), the cost

of stress for employers is currently estimated at over $300 billion annually as assessed by acci-

dents, absenteeism, employee turnover, diminished productivity, direct medical and insurance

costs, workers’ compensation, and other legal costs.20 This same group reports that 40 percent

of job turnover is due to stress and that 60 to 80 percent of accidents on the job are stress

related. In an effort to combat this, many organizations conduct training programs designed

to help reduce employee stress. Most of these programs attempt to teach employees self-help

techniques for individually reducing their own stress.

Burnout

Burnout occurs when work is no longer meaningful to a person. Burnout can result from stress or a variety of other work-related or personal factors. Figure 16.2 illustrates the se-

quence of events that often leads to professional burnout. As burnout has become more recog-

nized, certain related myths have surfaced.21

Myth 1: Burnout is just a new-fangled notion that gives lazy people an excuse not to

work. Although burnout is a relatively recent term, the behavior has been around for

centuries. History is full of examples of people, such as writers, artists, and scientists,

who gradually or suddenly stopped producing.

Myth 2: As long as people really enjoy their work they can work as long and hard as they

want and never experience burnout. Any work that inherently includes signifi cant and

continuing frustration, confl ict, and pressure can lead to burnout.

Myth 3: Individuals know when they are burning out and, when they do, all they need to

do is take off for a few days or weeks and then they’ll be as good as new. Unfortunately,

most people do not realize that burnout is occurring until it reaches its later stages.

burnout Occurs when work is no longer

meaningful to a person; can

result from stress or a variety

of other work-related or

personal factors.

TABLE 16.3 Common Sources and

Suggested Causes of

Job-Related Stress

American Management Association.

Reproduced with permission of

American Management Association

in the Format Textbook via Copyright

Clearance Center.

Sources Suggested Causes

Threat of job loss Cutback due to recessionary period or other factors beyond the control of

employee.

Job mismatch Job demands skills or abilities that the employee does not possess ( job

incompetence).

Job does not provide opportunity for the employee to fully utilize skills or

abilities (underutilization).

Confl icting

expectations

Formal organization’s concept of expected behavior contradicts the employee’s

concept of expected behavior.

Informal group’s concept of expected behavior contradicts the employee’s

concept.

Role ambiguity Employee is uncertain or unclear about how to perform on the job.

Employee is uncertain or unclear about what is expected in the job.

Employee is unclear or uncertain about the relationship between job performance

and expected consequences (rewards, penalties, etc.).

Role overload Employee is incompetent at job.

Employee is asked to do more than time permits (time pressure).

Fear/responsibility Employee is afraid of performing poorly or failing.

Employee feels pressure for high achievement.

Employee has responsibility for other people.

Working

conditions

Job environment is unpleasant; for example, there is inadequate lighting or

improper regulation of temperature and noise.

Requirements of the job may unnecessarily produce pacing problems, social

isolation, and so forth.

Machine design and maintenance procedures create pressure.

Job involves long or erratic work hours.

Working

relationships

Individual employees have problems relating to and/or working

with superiors, peers, and/or subordinates.

Employees have problems working in groups.

Alienation There is limited social interaction.

Employees do not participate in decision making.

Chapter 16 Employee Safety and Health 329

Myth 4: Individuals who are physically and psychologically strong are unlikely to

experience burnout. Physically and psychologically strong individuals may indeed be

able to work harder than less strong people. However, without proper stress skills, an

inordinate amount of work can still cause serious damage.

Myth 5: Job burnout is always job-related. Burnout usually results from a combination of

work, family, social, and personal factors.

From the organization’s viewpoint, the fi rst step in reducing burnout is to identify those

jobs with the highest potential for burnout. Certain jobs, such as air traffi c controller and

certain computer-related jobs, are more likely to lead to burnout than others. Once those jobs

have been identifi ed, several actions are possible. Some of the possibilities include redesign-

ing the jobs, clarifying expectations, changing work schedules, improving physical working

conditions, and training the jobholders.

Alcoholism and Drug Abuse The Substance Abuse and Mental Health Services Administration estimated for the year 2008

that nearly 20.1 million people in the United States used illicit drugs, 58.1 million people were

alcohol binge drinkers, and 17.3 million people were heavy drinkers.22 The National Council on

Alcoholism and Drug Dependence estimates that alcohol and drug abuse costs the American

economy $276 billion per year in lost productivity, health care expenditures, crime, motor vehi-

cle crashes, and other conditions.23 Compared to most employees, substance abusers

• Are late 3 times more often.

• Request time off 2.2 times more often.

• Have 2.5 times as many absences of eight days or more.

• Use 3 times the normal level of sick benefi ts.

• Are 5 times more likely to fi le a workers’ compensation claim.

• Are involved in accidents 3.6 times more often.24

In addition, substance abuse results in reduced productivity, reduced work quality, damage

to property and equipment, theft, lower morale, safety violations, and poor decision making.

Alcoholism

For years, people viewed alcoholics as people lacking self-control and morals. Today alcoholism

is recognized as a disease with no single cause. Alcoholism does not strike any particular

group; it can strike employees from the janitor to the chief executive offi cer. According to the

2008 National Survey on Drug Use & Health conducted by the U.S. Department of Health and

Human Services, 79.7 percent of all adult binge and heavy drinkers are employed.25

FIGURE 16.2 The Path to Professional Burnout

State University, Atlanta. Reprinted by permission.

BURNOUT

Culminating in

Working conditions

Constant pressure

Insecurity

Competition

Paternalism

Overspecialization

Conflict

Economic problems

Health problems

Alienation

Uncertainty

Isolation

Unfulfilled

expectations

Lack of challenge

Lack of meaning

Lack of control

Limited mobility

Overwork

Poor decisions

Produce effects

Stress

Fatigue

Frustration

Helplessness

Guilt

Leading to

330 Part Five Employee Well-Being and Labor Relations

The National Council on Alcoholism and Drug Dependence has estimated that the eco-

nomic loss to the employer of an alcoholic employee amounts to 25 percent of the employee’s

wages.26 Compared to nonalcoholic employees, alcoholics incur twice the rate of absenteeism

caused by illness. Alcoholics are also two to three times more likely to be involved in a work-

related accident.27 Some people estimate that as many as 50 percent of all problem employees

in industry are actually alcoholics.28

In spite of the well-documented costs associated with alcoholism, organizations have

only recently undertaken widespread efforts to reduce employee alcoholism. A 1973 survey

reported that only 400 major U.S. companies had any type of program designed to help

overcome employee alcoholism.29 Similar surveys subsequently reported that the number

had grown to over 20,000 by 1998.30

Many organizations have established in-house alcoholic treatment programs. Most of the

available information indicates that in-house alcoholic treatment programs achieve a high

rate of success, based on both recovery rates and cost-effectiveness measures.31 For example,

the New York City Police Department, Du Pont, Consolidated Edison, Illinois Bell, Eastman

Kodak, General Motors, and Inland Steel all report recovery rates of 60 percent or above.32 The

Comprehensive Assessment Treatment Outcomes Registry Data in Ohio have documented

dramatic results from treatment, including the following:33

• Absenteeism decreased by 89 percent.

• Tardiness decreased by 92 percent.

• Problems with supervisors decreased by 56 percent.

• Mistakes in work decreased by 70 percent.

Programs for combating alcoholism are normally administered as part of an employee assist-

ance program (EAP). EAPs are discussed at length later in this chapter.

Other Drugs

Widespread use of drugs other than alcohol is a relatively new phenomenon. Other than alcohol,

drug usage usually falls into one of three categories: marijuana abuse, prescription drug abuse,

and hard-drug abuse. According to the U.S. Department of Health and Human Services, approxi-

mately 72.7 percent of all drug users are currently employed.34 Although most employees who use

drugs are young, they are not all blue-collar employees. Employees on drugs are often much more

diffi cult to detect than are drinking employees; alcohol can usually be smelled, whereas drugs

cannot. Also, it is relatively easy to pop a pill at lunch or on a break undetected. Current estimates

are that 10 percent of fulltime employees in the United States use illicit drugs.35

Drug Testing

As a result of the increased use of drugs in the workplace, many companies use some form

of drug testing for both job applicants and existing employees. The American Management

Association has reported that the percentage of employers using drug tests peaked in 1996 at

81 percent. In 1999, the percentage fell to 70 percent and to 62 percent in 2004.36 Some people

believe that workplace drug testing has increased since 2004.37 While many, if not most, large

companies do utilize drug testing, the practice is less prevalent in small businesses. Certain

legal risks are involved in drug testing, and therefore extreme caution should be exercised. An

employer can be exposed to substantial liability for defamation for making a false accusation of

drug or alcohol use ( juries have awarded amounts as high as $450,000 for such defamation). The

following guidelines are suggested for implementing a drug-testing program:

• Establish a routine, uniform, organizationwide policy for substance abuse and adhere to it

in a consistent and nondisciplinary manner.

• Assume employees are drug-free until proven otherwise.

• Make negative test scores a bona fi de occupational qualifi cation whenever possible.

• Include testing in uniform preemployment agreements and have them signed by new

employees. For existing employees, establish drug tests as a prerequisite to recalls,

promotions, and transfers.

• Train supervisors to detect and refer problem employees for testing.

Chapter 16 Employee Safety and Health 331

• Use a high-quality type of urinalysis, not just the cheapest method.

• Use monitored laboratories that employ blind testing to ensure the integrity of the testing

procedures. Blind testing requires that those performing the tests do not know the identity

of those being tested.

• Use appropriate supervision and custody arrangements to ensure that the samples tested are

valid.

• Require tested employees to list all legal over-the-counter drugs they are taking at the time

of testing.

• Develop and maintain profi les of well-employee urinalysis results that can later be used for

comparative purposes.

• Keep all results confi dential.38

One criticism of drug-testing programs in general is that they tend to focus on off-duty

conduct. Many employees view this as an invasion of privacy, which has led to morale problems

and numerous lawsuits. To avoid the potential problems associated with traditional drug test-

ing, a new form of testing, called performance or impairment testing, has emerged.39 Instead

of testing for byproducts that may or may not cause impairment, performance testing measures

physical variables such as coordination and response time to certain tasks. For example, a test

might consist of watching a CRT screen and manipulating a joystick or keyboard. The person’s

score can then be compared to a standard or to a previous score. Commercial performance tests

are relatively new in most areas of the country.

AIDS As defi ned by the U.S. Centers for Disease Control (CDC), AIDS is “a reliably diagnosed dis-

ease that is at least moderately indicative of an underlying cellular immunodefi ciency in a person

who has had no known underlying cause of cellular immunodefi ciency nor any other cause of re-

duced resistance reported to be associated with that disease.”40 The CDC estimated that through

2007, 1,009,220 adult and adolescent cases of AIDS had been diagnosed in the United States.41

The Vocational Rehabilitation Act of 1973 and numerous state laws offer certain protec-

tion to employees infected with AIDS. Under these laws, AIDS-infected employees may fi le

discrimination suits if employment opportunities are denied solely on the basis of their hav-

ing AIDS. The Vocational Rehabilitation Act of 1973 prohibited discrimination against otherwise qualifi ed handicapped individuals solely on the basis of their disability. It should

be noted, however, that the Vocational Rehabilitation Act applies only to federal contractors

who hold a contract of $2,500 or more, subcontractors to such an employer, recipients of

federal fi nancial aid, and federal agencies. Companies that do not meet the previously stated

requirements of the Vocational Rehabilitation Act are subject only to applicable state and local

statutes, which may vary considerably from state to state.

If an individual with AIDS is covered by the Vocational Rehabilitation Act, certain other is-

sues must be addressed. These issues include determining if the individual meets the defi nition

of a handicapped individual, if the handicapped individual is otherwise qualifi ed to do the job,

and if the employee’s contagiousness poses a threat to others. If the infected employee does

not meet the provision for being handicapped, is not otherwise qualifi ed, or does pose a threat

to others, he or she is not protected by the Vocational Rehabilitation Act.

However, the Vocational Rehabilitation Act does not prevent employers from terminating

an employee who can no longer perform the duties of his or her job, provided the employer

made reasonable accommodations. Reasonable accommodations are defi ned as those that do

not pose undue fi nancial or administrative burdens on the employer.

Since no cure or vaccine for AIDS presently exists, many organizations are turning to edu-

cation as the most viable means of combating both the medical and social dilemmas posed by

AIDS. In addition to developing formal policies for dealing with AIDS, companies are devel-

oping in-depth training programs to educate their workforces about AIDS. One survey by the

National Aids Fund reported that 65 percent of the survey respondents indicated they would

like HIV/AIDS education in the workplace.42 Only 22 percent of the respondents reported

that they were currently receiving HIV/AIDS education. Table 16.4 summarizes many of the

potential benefi ts of AIDS education in the workplace.

Vocational Rehabilitation Act Legislation enacted in 1973

that prohibits discrimination

against otherwise qualifi ed

handicapped individuals solely

on the basis of their disability;

applies only in certain

situations involving federal

contracts, recipients of federal

assistance, or federal agencies.

332 Part Five Employee Well-Being and Labor Relations

Employee Assistance Programs (EAPs) Many large organizations and a growing number of smaller ones are attempting to help

employees with personal problems. These problems include not only alcohol and drug abuse

but depression, anxiety, domestic trauma, fi nancial problems, and other psychiatric/medical

problems. This help is not purely altruistic; it is largely based on cost savings. The help is most

often offered in the form of employee assistance programs (EAPs).

Cost of Personal Problems

A primary result of personal problems brought to the workplace is reduced productivity. Ab-

senteeism and tardiness also tend to increase. Increased costs of insurance programs, includ-

ing sickness and accident benefi ts, are a direct result of personal problems brought to the

workplace. Lower morale, more friction among employees, more friction between supervisors

and employees, and more grievances also result from troubled employees. Permanent loss of

trained employees due to disability, retirement, and death is also associated with troubled em-

ployees. Diffi cult to measure, but a very real cost associated with troubled employees, is the

loss of business and a damaged public image.

Organization Involvement

Until recently, organizations attempted to avoid employees’ problems that were not job related.

Although aware of the existence of these problems, most managers did not believe they should

interfere with employees’ personal lives. In the past, organizations tended to get rid of troubled

employees. In recent years, however, cost considerations, unions, and government legislation

altered this approach. The accepted viewpoint now is that employees’ personal problems are

private until they begin affecting their job performance. When and if that happens, personal

problems become a matter of concern for the organization.

Studies have shown that absenteeism can be signifi cantly reduced by employee assistance

programs. It has also been found that EAPs help reduce on-the-job accidents and grievances.

Workers’ compensation premiums, sickness and accident benefi ts, and trips to the infi rmary

also tend to decrease with an EAP. The 2009 survey by the Society for Human Resource

Management (SHRM) found that 75 percent of the responding companies offered an EAP.43

Human resource experts estimate that 62 million Americans currently have access to EAPs.44

Types of EAPs

Organizations may offer employee assistance to varying degrees. For example, some organi-

zations may offer only an education program while others may provide a complete diagnosis

and treatment program. The most common type of EAP employs a coordinator who evaluates

the employee’s problem only suffi ciently to make a referral to the proper agency or clinic for

diagnosis. Sometimes the coordinator serves only as a consultant to the organization and is not

a full-time employee. This type of program is especially popular with smaller employers and

branch operations of large employers. In a second type of program, the orga nization hires a

qualifi ed person to diagnose the employee’s problem; then the employee is referred to the

proper agency or clinic for treatment. Under a third type of program, diagnosis and treatment

are provided in-house directly by the organization. Because of the complexities of maintaining

a full-service facility and hiring appropriate professional staff, most companies do not fi nd

this approach to be cost-effective.

employee assistance programs (EAPs) Company-sponsored programs

designed to help employees

with personal problems such

as alcohol and drug abuse,

depression, anxiety, domestic

trauma, fi nancial problems,

and other psychiatric/medical

problems.

TABLE 16.4 Potential Benefi t of AIDS

Education in the Workplace

• Prevent new infections among employees by helping everyone understand how HIV is and is not

transmitted.

• Alert managers and supervisors to the legal issues raised by HIV infection in the workplace. The

overwhelming majority of AIDS-related lawsuits related to the workplace involve discrimination and

violation of confi dentiality. Good training can prevent those problems.

• Prevent discrimination against people living with HIV or AIDS.

• Prepare managers and supervisors to consider reasonable accommodation requests from people

disabled by HIV infection.

• Raise morale. It is not unusual for companies to report positive effects on morale after employee HIV

training.

333

Features of a Successful EAP

For an EAP to succeed, it must fi rst be accepted by the employees; they must not be afraid

to use it. Experience has shown that certain elements are critical to the success of an EAP.

Table 16.5 summarizes several of the most important characteristics of an EAP.

A U.S. Department of Labor study found that for every dollar an employer invests in an

EAP, it saves $14.45 John Maynard, CEO of the Employee Assistance Professionals Asso-

ciation, believes that “EAPs can reduce absenteeism and tardiness by 10 percent and poten-

tially boost productivity by as much as 25 percent.”46 Because of the obvious benefi ts to both

employees and employers, EAPs are expected to continue to grow in popularity. There is evi-

dence that EAPs are also growing in popularity in other countries and specifi cally in Canada,

England, and China.47 HRM in Action 16.3 describes the EAP at Wegmans Food Markets.

Work/Life Programs A work/life program is any employer-sponsored benefi t or working situation that helps

employees balance work and nonwork demands. Generally these programs include such things

as fl exible work schedules, job sharing, telecommuting (all of which were discussed in Chap-

ter 4), fl exible benefi ts (discussed in Chapter 15), wellness programs, child-care and elder-care

assistance, and sick-leave policies. The prevalence of both single-parent families and dual-

career couples with children has had a signifi cant impact on the need for work/life programs.

TABLE 16.5 Ten Critical Elements

of an EAP

Source: Reprinted with permission of

Personnel Administrator, published

by the Society for Human Resource

Management, Alexandria, VA.

Element Signifi cance

Management

backing

Without this at the highest level, key ingredients and overall effect are seriously

limited.

Labor support The EAP cannot be meaningful if it is not backed by the employees’ labor unit.

Confi dentiality Anonymity and trust are crucial if employees are to use an EAP.

Easy access For maximum use and benefi t.

Supervisor training Crucial to employees needing understanding and support during receipt of

assistance.

Union steward

training

A critical variable is employees’ contact with the union—the steward.

Insurance

involvement

Occasionally, assistance alternatives are costly, and insurance support is a must.

Breadth of services

component

Availability of assistance for a wide variety of problems (e.g., alcohol, family,

personal, fi nancial, grief, medical).

Professional

leadership

A skilled professional with expertise in helping, who must

have credibility in the eyes of the employee.

Follow-up and

evaluation

To measure program effectiveness and overall improvement.

HRM in Action 16.3

household members can use the EAP. “We feel that as long

as an employee is connected with a counselor and getting

help and support that they need, and as long as they’re

benefi ting from it, we’re willing to support it as long as they

need it,” explains Wright.

Wegmans is known for its employee loyalty with

11 percent of its employees having been with the company

for at least 15 years. In January 2010, Wegmans was named

by Fortune magazine as the third best company in the

United States to work for, up from fi fth in 2009.

Sources: Shelia Livadas, “Employee Assistance Programs Evolve, Broaden Scope,” Rochester Business Journal, May 23, 2008, p. 28, and James Haggerty, “Edward Jones, Wegmans Named Best Companies to Work for by Fortune Magazine,” McClatchy-Tribune Business News, January 22, 2010.

WEGMANS’ EMPLOYEE ASSISTANCE PROGRAM Wegmans Food Markets Inc. is a Rochester, New York–based

grocery chain that also operates in Dickson City and Wilkes-Barre,

Pennsylvania. Wegmans has approximately 13,700 employ-

ees in Rochester and 37,400 nationally.

Wegmans began offering an employee assistance

program (EAP) to its employees in 1985. At that time,

Wegmans’ EAP was undertaken with a contract with Park

Ridge Hospital in Rochester. Since 1990, the company has

maintained an internal EAP offi ce staffed by Wegmans

employees. EAP manager Vikki Wright says their on-site

EAP addresses many issues from stress management, to

parenting concerns, to different forms of addiction. Her

offi ce makes outside referrals when the need arises. The

Wegmans’ EAP does not limit how often employees or their

334

While many companies may not choose to relate dollar values to their work/life programs,

there is substantial evidence, in both “hard” numbers and “soft” benefi ts, that these programs

pay off.48 Many people believe that retention, morale, and productivity can be improved from

work/life programs. A 2006 survey reported that almost 50 percent of the responding compa-

nies had increased, over the past two years, the number of work/life programs they offer. 49 There

is also evidence that a growing number of employers are integrating work/life and employee

assistance programs.50 Employers, consultants, and providers say that by combining these pro-

grams, companies can offer a “one-stop” option that effectively helps employees while at the

same time cutting costs and eliminating administrative duplication.

Wellness Programs As a type of work/life program, many companies have begun programs designed to prevent

illness and enhance employee wellness. These programs are referred to as wellness programs

and include such things as periodic medical exams, stop-smoking clinics, improved dietary

practices, hypertension detection and control, weight control, exercise and fi tness, stress man-

agement, accident-risk reduction, immunizations, and cardiopulmonary resuscitation training

(CPR). Some of the documented results of wellness programs include fewer sick days, reduced

coronary heart disease, and lower major medical costs. Many also believe employee produc-

tivity increases for employees participating in exercise and fi tness programs. Numerous stud-

ies have reported that most types of wellness programs yield an average return on investments

of $1 to almost $6 for every dollar invested.51 Table 16.6 summarizes actual benefi ts obtained

from wellness programs by specifi c companies. Experts in the wellness fi eld report that even

small companies can offer wellness programs and that they do not have to be expensive.

The 2008 Benefi ts Study by the Society of Human Resource Management (SHRM) found

that 59 percent of respondents’ organizations provided some type of wellness programs.52

The 2008 National Compensation Survey reported that access to wellness programs for both

public and private sector employees increased dramatically from 1998 to 2008.53 In light of the

continual rise in health care costs, it is predicted that company-sponsored wellness programs

will continue to grow in the future. HRM in Action 16.4 describes a new approach to wellness

being promoted by Premera Alaska.

HRM in Action 16.4

diseases, like diabetes and heart disease, which are heavily

infl uenced by choices people make, primarily smoking,

poor diet, and lack of exercise,” said Davis. Premera has

worked on wellness programs for some time with its

larger insured groups but only recently began offering the

wellness programs with the possibility of discounts to small

companies (two to 199 employees). As of early 2010, about

44 percent of employees covered in its Alaska small groups

plans were enrolled in wellness programs. Davis’ goal is to

get more than 50 percent enrolled and active.

Source: Tim Bradner, “Employee Wellness Programs Help Bottom Line.” Alaska Journal of Commerce, February 7, 2010, p. 1.

WELLNESS PROGRAMS PUSHED BY PREMERA Health insurers like Premera/Blue Cross are now pushing

“wellness” programs for their customers because these

programs have been shown to lower costs. According to Jeff

Davis, president of Premera Alaska, Premera offers discounts

on health insurance premiums to get employers to sign their

employees up for wellness programs. While the discount can

work out to a 5 percent premium reduction, the real payoff

is in a more productive workforce and a dampening of the

rise in medical costs.

“It’s been shown that 25 percent of all health care

spending is a result of lifestyle choices people make, and

75 percent of all health care spending results from chronic

TABLE 16.6 Specifi c Company Benefi ts

of Wellness Programs

Source: Nancy Hatch Woodward,

“Exercise Options, HR Magazine, June

2005, pp. 78–83.

• DuPont Corporation reported absences from illness unrelated to the job declined 14 percent at

41 individual sites where the company offered a wellness program. This compared to a 5.8 percent

decline at the 19 sites where a wellness program was not offered.

• Pacifi c Bell found that absentee days decreased by 0.8 percent after its FitWorks program was put in

place. This resulted in a $2 million savings in one year. Employees who participated in the program

spent 3.3 fewer days on short-term disability, saving the company an additional $4.7 million.

• The Coca-Cola Company reported an annual reduction in health care claims for each employee who

participated in its Health Works fi tness program.

Chapter 16 Employee Safety and Health 335

VIOLENCE IN THE WORKPLACE

Workplace violence includes homicides, physical attacks, rapes, aggravated and other assaults,

all forms of harassment, and any other act that creates a hostile environment.54 The FBI esti-

mates that each year 1 million people in the United States are exposed to some form of work-

place violence.55 According to the U.S. Department of Labor, nearly 5 percent of U.S. private

businesses experienced a violent incident within the 12 months prior to completing the most

recent Bureau of Labor Statistics (BLS) survey on workplace violence.56 Of those responding

to the survey, 21 percent of the organizations reported that the incident affected their employ-

ees’ fear level and an equal percentage said employee morale was affected by the incident.

A 2004 survey by the American Society of Safety Engineers (ASSE) found that only

1 percent of the responding companies have written policies on workplace violences.57 Only

50 percent of these same respondents said they have procedures in place for employees to

follow to discreetly report signs of impending violence. The latest Bureau of Labor Statistics

survey on workplace violence reported that over 70 percent of U.S. workplaces had no formal

program or policy for addressing workplace violence.58

Given the signifi cance of violence in the workplace, what can organizations do to protect

their employees and physical resources? It is important that companies concentrate on avoid-

ing or heading off violence rather than simply dealing with it after it occurs.59 Most companies

can do several things to avoid falling victim to violent incidents:

• Hire carefully, but realistically. Screen out potential employees whose histories show a

propensity to violence. A full background check can be done in many states for $50 or less.

• Draw up a plan and involve employees in it. Develop a plan for preventing violence and

for dealing with it if it does occur. Reporting requirements for both violence and threats of

violence should be an integral part of the plan. The plan should also be shaped by employee

participation. Encourage employees to report any suspicions they may have and require

supervisors to take action when a suspicion is reported to them.

• As part of the plan, adopt a “zero tolerance” policy. “Zero tolerance” does not necessarily

mean dismissal; rather, it means the perpetrator of the violence will face consequences of

some kind. When discipline is called for, its purpose should be to teach, not to punish.

• Enlist the aid of professionals—with an eye on the cost. Go to external resources when

necessary to get help if a problem or a potential problem reveals itself. A few hours with a

psychologist or a legal professional can defuse a simmering situation. It might even be

necessary to hire a security fi rm temporarily in some instances.

While all of the above measures should help a company avoid violence in the workplace,

the best protection may lie in developing a corporate culture that makes violence all but un-

thinkable. Violence is much less likely to take place in an environment where employees feel

appreciated and believe they are treated with respect.

1. State the purpose of the Occupational Safety and Health Act and discuss its major

provisions.

The stated purpose of the act is “to assure so far as possible every working man and

woman in the nation safe and healthful working conditions.” The act established the

Occupational Safety and Health Administration (OSHA) to set up standards and to

conduct workplace inspections. Many OSHA standards have special record-keeping and

reporting requirements that companies must adhere to.

2. List the three major causes of accidents in the workplace.

The three major causes of work-related accidents are unsafe personal acts, an unsafe

physical environment, and accident proneness.

3. Defi ne frequency rate and severity rate.

A frequency rate indicates how often disabling injuries occur. A severity rate indicates

how severe accidents were by calculating the average length of time injured employees

were unable to work.

Summary of Learning Objectives

336 Part Five Employee Well-Being and Labor Relations

4. Offer several suggestions for promoting safety in the workplace.

Many things can be done to promote safety in the workplace. Some suggestions include

these: (1) make the work interesting; (2) establish a safety committee; (3) feature

employee safety contests; (4) publicize safety statistics; (5) hold periodic safety meetings;

and (6) post safety-related pictures, cartoons, and sketches on bulletin boards.

5. Discuss the Hazard Communication rule.

The Hazard Communication rule, also known as the right-to-know rule, is intended to

ensure that employers and employees know what chemical hazards exist in the workplace

and how to protect themselves against these hazards. The rule requires that certain

chemicals be evaluated for danger and that the results be communicated to affected

employers and exposed employees.

6. Differentiate between stress and burnout.

Stress is the mental and physical condition that results from a perceived threat of danger

(physical or emotional) and the pressure to remove it. Burnout occurs when work is no

longer meaningful to a person. Burnout can result from stress or from a variety of other

work-related or personal factors.

7. Name several work-related consequences of alcohol and drug abuse.

Possible work-related consequences of alcohol and drug abuse include absenteeism,

tardiness, reduced productivity, poor decision making, equipment damage, safety violations,

lower morale, and even outright theft to pay for drugs.

8. Offer several guidelines for implementing a drug-testing program.

Suggested guidelines for implementing a drug-testing program include these: (1) establish

a routine, uniform, organizationwide policy for substance abuse and adhere to it in a

consistent manner; (2) assume employees are drug-free until proven otherwise; (3) make

negative drug testing scores a bona fi de occupational qualifi cation whenever possible;

(4) include drug testing as a part of a preemployment agreement; (5) train supervisors

to detect and refer problem employees for testing; (6) use a high-quality type of test;

(7) use monitored laboratories to process and interpret the test results; (8) use appropriate

supervision and custody arrangements to ensure that the samples tested are valid; (9) require

tested employees to list all legal drugs they are taking; (10) develop and maintain profi les

of well-employee urinalysis results that can later be used for comparative purposes; and

(11) keep all results confi dential.

9. Discuss the legal requirements for terminating an employee with acquired immuno-

defi ciency syndrome (AIDS).

First, it must be determined if the employee is covered by the Vocational Rehabilitation

Act of 1973. If the employee is not covered by this act, the company is subject only to

applicable state and local statutes, which vary considerably from state to state. If the

individual is covered by the Vocational Rehabilitation Act, it must be determined if he

or she meets the provisions of a handicapped individual or is otherwise qualifi ed, and

whether his or her contagiousness poses a threat to others. If the infected employee does

not meet the provisions for being handicapped, is not otherwise qualifi ed, or poses a threat

to others, she or he is not protected by the act. The act does not prevent employers from

terminating employees who can no longer perform their job duties, provided the company

made reasonable accommodations.

10. Explain the three basic types of employee assistance programs (EAPs).

The most common type of EAP employs a coordinator who evaluates the employee’s

problem suffi ciently to make a referral to the proper agency or clinic for diagnosis. In a

second type, the organization hires a qualifi ed person to diagnose the employee’s problem

and then refers the employee to a proper agency or clinic for treatment. Under a third type

of EAP, diagnosis and treatment of the problem are provided directly by the organization.

11. Explain what work/life programs and wellness programs are.

A work/life program is any employer-sponsored benefi t or working situation that helps

employees balance work and nonwork demands. A wellness program is a program designed

and implemented by an employer to prevent illness and enhance employee wellness.

Chapter 16 Employee Safety and Health 337

12. List several specifi c things an organization can do to help reduce violence in its workplace.

Most companies can do several things to avoid incidents. These include (1) hiring

carefully, (2) drawing up a plan and involving employees in its development, (3) adopting

a “zero tolerance” policy, and (4) enlisting the aid of professionals when necessary.

Review Questions

1. What is the Occupational Safety and Health Administration (OSHA) authorized to do?

2. What is the general-duty clause as it relates to OSHA?

3. List the inspection priorities established by OSHA.

4. What is the usual inspection procedure followed by OSHA?

5. Name and discuss the three primary causes of accidents.

6. How do organizations measure their safety records?

7. What four basic elements are present in most successful safety programs?

8. What can be done to promote safety in organizations?

9. What does the Toxic Substance Control Act of 1976 require?

10. Distinguish between stress and burnout.

11. List several guidelines that should be followed when implementing a drug-testing program.

12. Defi ne performance testing and describe how it differs from normal drug testing.

13. How does the Vocational Rehabilitation Act of 1973 affect the dismissal of employees

with AIDS?

14. Describe the three general types of employee assistance programs (EAPs).

15. What is a work/life program?

16. List four things an organization might do to avoid violent incidents in the workplace.

1. Express your personal philosophy regarding the responsibilities of management, especially

human resource managers, for the well-being of employees.

2. On July 1, 1985, the president, plant manager, and foreman of Film Recovery Systems, Inc.,

were sentenced to 25 years in the Illinois state prison and fined $10,000 each after being

found guilty of murder in the 1983 death of an employee exposed to cyanide in a silver-

recovery process.* The court found that the three executives were “totally knowledgeable

of the hazards of cyanide” and failed to communicate those hazards to employees, who

were mostly undocumented Polish and Mexican immigrants. What is your reaction to what

were the first work-related homicide convictions in the United States?

3. Do you think an organization has any responsibility to help employees with health problems

totally unrelated to their work environment?

4. Why do you think that the overwhelming majority of organizations do not have written

policies relating to violence in the workplace? Additionally, why do you think that most

organizations do not change or try to improve their workplace violence policies or programs

following an incident?

*See Betty S. Murphy, Wayne E. Barlow, and D. Diane Hatch, “Murder in the Workplace,” Personnel Journal,

October 1985, p. 27.

Discussion Questions

Key Terms burnout, 328 disabling injuries, 324

employee assistance

programs (EAPs), 332

Federal Register, 321

frequency rate, 324

general-duty clause,

320

Hazard Communication

Standard, 327

Marshall v. Barlow’s,

Inc., 321

Occupational Safety

and Health Act, 320

OSHA Form 300 (Log of

Work-Related Injuries

and Illnesses) and OSHA

Form 300A (Summary of

Work-Related Injuries

and Illnesses), 323

OSHA Form 301

(Injury and Illness

Incident Report), 323

severity rate, 324

stress, 327

Toxic Substance

Control Act, 327

Vocational

Rehabilitation Act, 331

wellness programs, 334

338 Part Five Employee Well-Being and Labor Relations

Incident 16.1

Safety Problems at Blakely

Several severe accidents have recently occurred in the 12-employee assembly department

of Blakely Company, which has a total workforce of 65 employees. The supervisor of this

department, Joe Benson, is quite perturbed and, in response to questions by the general

manager and owner of the company, claimed the employees do not listen to him. He has

warned them about not taking safety precautions, he explained, but he can’t police their every

move. The general manager countered, “Accidents cost us money for repairs, lost time, medi-

cal expenses, human suffering, and what not. It’s important that you stop it. Your department

has a bad safety record—the worst in the company. You are going to have to correct it.”

Joe believed he had taken the necessary precautions but was not getting satisfactory

results. He also believed there were more possibilities of accidents occurring in his depart-

ment than in any other department of the company. He decided to talk it over with the human

resource manager, Fay Thomas. Fay suggested scheduling a 10-minute safety talk by a dif-

ferent employee each week. The fi rst subject would be “using machine guards.” Joe thought

that “good housekeeping and safety” and “no smoking” would also be good subsequent

subjects.

Fay suggested that Joe schedule part of his time to review his department periodically.

Furthermore, she suggested that any unsafe act he discovered should result in an immediate

two-day suspension for the offender. “You have to get tough when it comes to safety. Your

people are taking safety much too lightly. Of course, you start by making an announcement of

what you are going to do. Put a notice to that effect on the bulletin board. Then enforce it to

the letter.”

Joe believed that simply talking personally to each of his employees and urging them to

work safely might get better results. However, he was convinced that some type of incentive

was needed. As a result, he devised a plan in which the employee with the fewest safety viola-

tions over the next three months would be given a day off with pay. Joe’s plan was approved by

his boss.

Questions

1. What is Joe’s problem?

2. In your opinion, how did this problem develop? What were its main causes? Discuss.

3. What actions do you recommend Joe take? Why?

Incident 16.2

To Fire or Not to Fire?*

David Butler is a former drug user who has spent time in jail. For the past three years he has

been straight, as far as everyone knows. Currently David operates a forklift for Adams, Inc.,

a small construction company. Lately David has begun having seizures, or “fl ashbacks,” as a

result of his earlier use of the drug PCP. David has been carefully evaluated by EAP profes-

sionals and found to be clean of current drug use. The professionals say that fl ashbacks of

this nature are quite common in ex-addicts. Mishandling of David’s machine could be po-

tentially dangerous to him and his coworkers. David has already had some fl ashbacks while

at the controls, and in every case the seizure merely caused him to release the handle, which

simply stopped the machine automatically. This is the only job David is qualifi ed to do within

the company.

Questions

1. Should David be allowed to continue on the job?

2. Are there any options other than leaving David alone or fi ring him?

*This case is adapted from an actual situation reported in Management Review, August 1991, p. 23.

Chapter 16 Employee Safety and Health 339

Assume you are the director of human resources for your company and that one of your responsibilities is to handle all contact with OSHA. Three days ago, on Monday, two injuries occurred in the plant. In the fi rst case, a machine operator got careless and smashed his thumb. The operator received fi rst aid on the fl oor, went home early, and was back on the job the next morning. In the second case, an offi ce worker slipped while going down some steps and broke her arm. She is expected to report back to work at the start of the next week.

Questions

1. What OSHA forms should be fi led in each of these cases? When should the forms be fi led?

2. Go online (www.osha.gov) or to your library or a local OSHA offi ce and get copies of the OSHA forms needed for each of the cases described above. Complete the forms. Make any reasonable assumptions about the accidents that you deem necessary.

Go online or to the library and identify a specifi c and recent incidence of violence in a work- place. As best you can, try to identify the circumstances surrounding the incident. Do you think the organization’s management could have done anything to help prevent the violence from occurring?

1. Injury Facts, 2010 ed. (Itasca, Ill.: National Safety Council, 2010), p. 52.

2. Ibid.

3. All About OSHA (Washington, D.C.: U.S. Department of Labor, 2003), p. 2.

4. Injury Facts, p. 55.

5. David S. Thelan, Donna Ledgerwood, and Charles F. Walters, “Health and Safety in the Workplace:

A New Challenge for Business Schools,” Personnel Administrator, October 1985, p. 37.

6. All About OSHA (Washington, D.C.: U.S. Department of Labor, 2006), pp. 5–6.

7. Ibid., p. 4.

8. Marshall v. Barlow’s, Inc. 76-1143 (1978).

9. John D. Jordan and Rabbi D. Simons, “It’s No Accident: What You Think Is What You Do,” Personnel

Journal, April 1984, pp. 16–20; and Russ Tarbell, “Gaining More Safety Success,” Professional

Safety, February 1997, p. 42.

10. “Developing a Safety Training Program,” HR Focus, September 1996, p. 10; see also George

Robotham, “Safety Training That Works,” Professional Safety, May 2001, pp. 33–37.

11. Craig S. Weaver, “Understanding Occupational Disease,” Personnel Journal, June 1989, pp. 86–94.

12. “Is Your Job Dangerous to Your Health?” U.S. News & World Report, February 5, 1979, p. 41; see

also Michelle Conlin and John Carey, “Is Your Offi ce Killing You?” BusinessWeek, June 5, 2000,

pp. 114–22.

13. http://www.bls.gov/iif/home.htm. Accessed February 18, 2010.

14. Ibid.

15. Genevieva La Greca, “The Stress You Make,” Personnel Journal, September 1985, p. 43.

16. J. E. McGrath, “Stress and Behavior in Organizations,” in Handbook of Industrial and Organizational

Psychology, ed. M. D. Dunnette (Skokie, Ill.: Rand McNally, 1976), pp. 1, 352.

17. Michael E. Cavanagh, “What You Don’t Know About Stress,” Personnel Journal, July 1988, p. 55;

“The Warning Signs of Stress,” Restaurant Business, March 1, 1991, p. 140.

18. Cavanagh, “What You Don’t Know,” p. 55.

19. National Institute for Occupational Safety and Health, “Stress at Work,” http://www.cdc.gov/niosh.

Accessed February 17, 2010.

20. http://www.stress.org/job.htm. Accessed February 17, 2010.

21. These myths are adapted from Cavanagh, “What You Don’t Know,” pp. 56–57.

22. Substance Abuse and Mental Health Services Administration (SAMHSA), “Highlights from the

2008 National Survey on Drug Use and Health,” http://www.oas.samhsa.gov/nhsda.htm. Accessed

February 17, 2010.

EXERCISE 16.1

Filing OSHA

Reports

EXERCISE 16.2

Preventing Violence

in the Workplace

Notes and Additional Readings

340 Part Five Employee Well-Being and Labor Relations

23. The National Council on Alcoholism and Drug Dependence, “Alcohol and Drug Dependence

Are America’s Number One Health Problem,” http://www.ncadd.org/facts/numberoneprob.html.

Accessed February 17, 2010.

24. Rhoda Cooke, “Hotline for Help,” Credit Union Management, March 1997, pp. 23–24; Clyde E.

Witt, “Just Say Yes: Drug Testing in the Workplace,” Material Handling Management, May 2006,

pp. 36–39; and Janet Rorholm, “Worker Put to Test,” McClatchy-Tribune Business News, October 14,

2008.

25. Results from the 2008 National Survey on Drug Use and Health: National Findings, Department of

Health and Human Services, Substance Abuse and Mental Health Services Administration. http://

www.oas.samhsa.gov/nsduh.

26. Steven H. Appelbaum and Barbara T. Shapiro, “The ABCs of EAPs,” Personnel, July 1989, p. 40.

27. Ibid.

28. Gopal C. Pati and John I. Adkins, Jr., “The Employer’s Role in Alcoholism Assistance,” Personnel

Journal, July 1983, p. 69.

29. “Battling Employee Alcoholism,” Dun’s Business Monthly, June 1982, p. 48.

30. Ibid.; Leslie Stackel, “EAPs in the Work Place,” Employee Relations Today, Autumn 1987, p. 289; and

Roberta Reynes, “Programs That Aid Troubled Workers,” Nation’s Business, June 1998, pp. 73–74.

31. Pati and Adkins, “The Employer’s Role,” p. 69.

32. Ibid.

33. The National Council on Alcoholism and Drug Dependence, “Alcohol and Drug Dependence Are

America’s Number One Health Problem,” pp. 2–3.

34. Results from the 2008 National Survey on Drug Use and Health: National Findings. Department of

Health and Human Services, Substance Abuse and Mental Health Services Administration http://

www.oas.samhsa.gov/nsduh/2k8nsduh/2k8Results.pdf., p. 27.

35. Witt, “Just Say Yes: Drug Testing in the Workplace.”

36. Evelyn Beck, “Is the Time Right for Impairment Testing?” Workforce, February 2001, pp. 69–71;

Sharon Linstedt, “More Employers Test Applicants for Drugs,” Knight Ridder Tribune Business

News, January 13, 2003, p. 1; and Dana Knight, “Employers’ Use of Drug Screening Is Tapering

Off,” Knight Ridder Tribune Business News, January 31, 2005, p. 1.

37. Gene Stowe, “More Companies Are Using Drug Testing,” Tribune Business Weekly, September 15,

2008.

38. These guidelines are adapted from Ian A. Miners, Nick Nykadyn, and Diane Traband, “Put Drug

Detection to the Test,” Personnel Journal, August 1987, p. 97.

39. Beck, “Is the Time Right for Impairment Testing?”

40. David L. Wing, “AIDS: The Legal Debate,” Personnel Journal, August 1986, p. 114.

41. Basic Statistics, Department of Health and Human Services, Centers for Disease Control and

Prevention, http://www.cdc.gov/hiv/topics/surveillance/basic.htm. Accessed February 17, 2010.

42. National AIDS Fund, “National AIDS Fund Survey Finds Worker Concern for HIV Positive

Employees,” http://www.aidsfund.org. Accessed May 6, 2004.

43. The Society for Human Resource Management, The 2009 Employee Benefi ts Study (Alexandria, VA:

2009), p. 10.

44. Sheila Liradas, “Employee Assistance Programs Evolve, Broader Scope,” Rochester Business

Journal, May 23, 2008, p. 28.

45. Fonda Phillips, “Employee Assistance Programs: A New Way to Control Health Care Costs,”

Employee Benefi t Plan Review, August 2003, pp. 22–24.

46. Gina Rutz, “Expanded EAPs Lend a Hand to Employers’ Bottom Line,” Workforce Management,

January 16, 2006, pp. 46–47.

47. Rick Csiernik, “EAPs in Numbers,” Canadian HR Reporter, April 24, 2006, pp. 22–23; Cecilia Lui,

“Corporate Wellness Programs Help Those Who Help Themselves,” China Staff, September 2006,

pp. 14–17, and “EAPS: Dial EAP for Help,” Employee Benefi ts, July 12, 2006, p. 36.

48. Elayne Robertson Demby, “Do Your Family-Friendly Programs Make Cents?” HR Magazine,

January 2004, p. 74.

49. “Work–Life Programs on the Rise,” Non-Profi t World, March/April 2006, p. 7.

50. Judy Greenwald, “Joint EAP, Work/Life Programs Cut Costs,” Business Insurance, March 29, 2004,

pp. T3–T6, and Karen Pallarito, “Wellness Features Fused with Work/Life Programs,” Business

Insurance, June 19, 2006, pp. 11–13.

Chapter 16 Employee Safety and Health 341

51. “A Measurable Difference,” Best’s Review, April 2006, p. 54; “Employee Wellness Programs

Demonstrate Positive Return on Investment for Business,” PR Newswire, July 23, 2009; and Stephen

Miller, “Wellness Incentives Grow in Size and Scope,” HR Magazine, January 2010, p. 23.

52. Stephen Miller, “Firms Spend Now to Curtail Costs Later,” HR Magazine, August 2006, p. 34.

53. Eli R. Stolzfus, “Access to Wellness and Employee Assistance Programs in the United States,”

April 22, 2009, www.bls.gov/opub/cwc/cm20090416ar01p1.htm.

54. “Employers Ignoring Workplace Violence,” Safety Now, October 2006, p. 3.

55. Chuck Mannila, “How to Avoid Becoming a Workplace Violence Statistic,” T&D, July 2008,

pp. 60–66.

56. “Most Employers Don’t Change Policies after Workplace Violence Occurs,” HR Focus, January

2007, p. 9.

57. Paul Viollis, “Most Workplace Violence Avoidable,” Business Insurance, April 11, 2005, p. 10.

58. “Workplace Violence: Where Are The Preventive Programs?” ISHN, May 2008, p. 12.

59. Much of this section is drawn from Michael Barrier, “The Enemy Within,” Nation’s Business,

February 1995, pp. 18–21.

343

Chapter Seventeen

Employee Relations

Chapter Outline

Employment at Will

Causes of Disciplinary Actions

Administering Discipline

Prediscipline Recommendations

Guidelines for Administering Discipline

Legal Restrictions

Grievance Procedures

Just Cause

Due Process

Duty of Fair Representation

Time Delays

Grievance Arbitration

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 17.1: Tardy Tom

Incident 17.2: Keys to the Drug Cabinet

Exercise 17.1: Mock Arbitration

Notes and Additional Readings

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Explain employment at will.

2. Explain employment arbitration

programs.

3. Explain the causes of disciplinary

actions.

4. Describe progressive discipline.

5. Defi ne grievance procedures.

6. Defi ne just cause.

7. Explain due process.

8. Describe the duty of fair

representation.

9. Defi ne grievance arbitration.

Employee relations are concerned with the administration of discipline and grievance-

handling procedures. When a manager must take action against an employee for violating an

organizational work rule, the manager uses the organization’s disciplinary procedure. When

an employee has a complaint against the organization or its management, the employee nor-

mally uses the grievance procedure to resolve the problem. Some organizations have very

formal discipline and grievance procedures, others are less formal, and some organizations

have no set procedures at all.

EMPLOYMENT AT WILL

Until recently, management decisions on discipline or discharge in nonunionized organizations

have been relatively free of judicial review. Courts intervened only in those cases violating leg-

islation concerning equal employment opportunity. Generally, the concept of employment at

will has applied. Employment at will allows either the employer or employee to terminate their employment relationship at any time for virtually any reason or for no reason at all.1

employment at will Allows either the employer or

employee to terminate his or

her employment relationship

at any time for virtually any

reason or for no reason at all.

344 Part Five Employee Well-Being and Labor Relations

The situation has been gradually changing as the courts have begun to hear discharge cases

involving allegations of capricious or unfair treatment in nonunionized organizations. In some

cases, the courts have ruled in favor of the discharged employees when the employee had

not been guaranteed due process under company procedures. In light of these developments,

many organizations have established appeal procedures for disciplinary actions taken by

management. The most common type of appeal procedure is an open-door policy that allows

employees to bring appeals to successively higher levels of management. An open-door policy

gives an employee the right to appeal a disciplinary action taken against him or her to the

manager’s superior.

Another appeal procedure is for the employer to establish an employment arbitration program. Employment arbitration is a dispute resolution program for employees in nonun- ionized organizations. Under this program a new employee must sign an arbitration agreement

as a condition of employment. Two issues are of signifi cant importance in these programs.

First, who will administer the program? If an employment arbitration program is administered

internally, there is always a question of fairness. Most programs provide for arbitration of

disputes and program administration under the rules of an organization such as the American

Arbitration Association (AAA). A second consideration is whether the program will be im-

posed only on new hires or also on current employees. The legality of imposing an arbitration

program on existing employees is questionable so most employers start the program with new

hires only.2

CAUSES OF DISCIPLINARY ACTIONS

Organizational discipline is action taken against an employee who has violated an organi- zational rule or whose performance has deteriorated to the point where corrective action is

needed. Sixty years ago, a manager who objected to an employee’s performance or behav-

ior could simply say, “You’re fi red!” and that was it. Justifi cation often played little, if any,

part in the decision. At that time, managers had the fi nal authority to administer discipline

at will.

In applying organizational discipline, the primary question should be, “Why are employees

disciplined?” Too many managers, when faced with a discipline problem in their organization,

immediately think of what and how much: What should the penalty be? How severely should

the employee be punished? The ultimate form of discipline is discharge, or organizational

capital punishment as it is sometimes called. Organizations should use discharge in the case of

repeated offenses or when the act committed is such that discharge is believed to be the only

reasonable alternative.

Generally disciplinary actions are taken against employees for two types of conduct:

1. Poor job performance or conduct that negatively affects an employee’s job performance.

Absenteeism, insubordination, and negligence are examples of behaviors that can lead to

discipline.

2. Actions that indicate poor citizenship. Examples include fi ghting on the job or theft of

company property.

Table 17.1 lists the reasons that often lead to disciplinary actions against or the discharge of

employees.

ADMINISTERING DISCIPLINE

The fi rst step in the disciplinary process is the establishment of performance requirements

and work rules. Performance requirements are normally established through the performance

appraisal process, discussed in Chapter 11. Work rules should be relevant to successful

performance of the job. Because implementation of work rules partially depends on the

employee’s willingness to accept them, periodic review of their applicability is essential.

In addition, it is often desirable to solicit employee input either directly or indirectly when

employment arbitration program A dispute resolution program

for employees in nonunionized

organizations that requires a

signed arbitration agreement as

a condition of employment.

discipline Action taken against an

employee who has violated an

organizational rule or whose

performance has deteriorated

to the point where corrective

action is needed.

Chapter 17 Employee Relations 345

establishing work rules. Work rules are more easily enforced when employees perceive them

as being fair and relevant to the job.

The second step in the process is to communicate the performance requirements and work

rules to employees. This is normally handled through orientation and performance appraisal.

Work rules are communicated in a variety of ways. Generally, an individual who is hired

receives a manual that describes the work rules and policies of the organization. The human

resource department or the new employee’s supervisor explains these work rules and policies

to the new employee during orientation. Furthermore, new employees may be required to sign

a document indicating they have received and read the manual. In unionized organizations,

work rules and the corresponding disciplinary actions for infractions are frequently part of the

labor contract. Bulletin boards, company newsletters, and memos are also commonly used to

communicate work rules. In any case, management bears the responsibility for clearly com-

municating all work rules to employees.

The fi nal step in the disciplinary process is the application of corrective action (discipline)

when necessary. Corrective action is needed when an employee’s work performance is below

expectations or when violations of work rules have occurred.

Prediscipline Recommendations Before an employee is disciplined, management can take several steps to ensure that the ac-

tion will be constructive and will not likely be rescinded by higher levels of management.

Adequate records are of utmost importance in discipline cases. Written records often have a

signifi cant infl uence on decisions to overturn or uphold a disciplinary action. Past rule infrac-

tions and overall performance should be recorded.

Another key responsibility of management is the investigation. Things that appear obvi-

ous on the surface are sometimes completely discredited after investigation. Accusations

against an employee must be supported by facts. Many decisions to discipline employees

have been overturned due to an improper or less than thorough investigation. Undue haste

in taking disciplinary action, taking the action when the manager is angry, and improper and

incomplete investigations frequently cause disciplinary actions to be rescinded. An employ-

ee’s work record should also be considered a part of the investigation. Good performance

and long tenure with the organization are considerations that should infl uence the severity

of a disciplinary action. Naturally, the investigation must take place before any discipline is

administered. A manager should not discipline an employee and then look for evidence to

support the decision.

TABLE 17.1 Reasons for Discipline or

Discharge of Employees

Source: Reprinted with permission.

Table 17.1: pp. 671–707, “Reasons for

Discipline or Discharge of Employees,”

from How Arbitration Works, Fourth

Edition, by Elkouri & Elkouri. Copyright

Affairs, Inc., Washington, D.C. 20037.

For BNA Books Publications call toll

free 1-800-960-1220 or visit www.

bnabooks.com.

Absenteeism

Tardiness

Loafi ng

Absence from work

Leaving place of work (includes early

quitting)

Sleeping on job

Assault and fi ghting among employees

Horseplay

Insubordination

Sexual harassment

Racial slur

Threat to or assault of management representative

Abusive language to supervisor

Profane or abusive language

Falsifying company records (including time

records, production records)

Falsifying employment application

Dishonesty

Theft

Disloyalty to employer (includes

competing with employer, confl ict of interest)

Moonlighting

Negligence

Damage to or loss of machinery or materials

Unsatisfactory performance

Refusal to accept job assignment

Refusal to work overtime

Participation in prohibited strike

Misconduct during strike

Slowdown

Possession or use of drugs

Possession or use of intoxicants

Distribution of drugs

Obscene or immoral conduct

Attachment or garnishment of wages

Gambling

Abusing customers

An employee must be advised of an infraction if it is to be considered a warning. Ryan McVay/Getty Images

346 Part Five Employee Well-Being and Labor Relations

A typical fi rst step in the investigation of the facts is for management to discuss the situa-

tion with the employee. Providing the employee with an opportunity to present his or her side

of the situation is essential if a disciplinary system is to be viewed positively by employees.

Employees represented by a union are allowed to have a union representative present dur-

ing any disciplinary interview. This right is protected by the National Labor Relations Board

(NLRB).3 The most signifi cant NLRB policy in this area was supported by a Supreme Court

decision in 1975. In NLRB v. Weingarten, an employee was investigated for allegedly un- derpaying for food purchased from the employer. The employee requested and was denied

union representation at an interview held after the employee was charged with the underpay-

ments. The union fi led unfair labor practice charges against the company with the NLRB. The

NLRB ruled that the employee had a right to refuse to submit to an interview without union

representation but also ruled that this right was available only if the employee requested union

representation and applied only when disciplinary actions might reasonably be expected as

a result of the interview. However, in Baton Rouge Water Works, the NLRB ruled that an

employee does not have the right to union representation when management meets with the

employee simply to inform him or her of discipline that has been previously determined.

Thus, as the law presently stands, management must be prepared to allow the presence of a

union representative in any investigatory meeting. This means management must not only deal

with the employee and the problem but also must do so in the presence of a union representa-

tive, who normally acts in the role of an employee advocate.

Besides being involved in the investigation, the union should be kept informed on matters

of discipline. Some organizations give unions advance notice of their intention to discipline

an employee. Also, copies of warnings are sometimes sent to the union.

Guidelines for Administering Discipline Key points in administering discipline are immediacy, advance warning, and consistency.

Immediacy refers to the length of time between the misconduct and the discipline. For dis-

cipline to be most effective, it must be taken as soon as possible but without involving an

emotional, irrational decision. Notation of rules infractions in an employee’s record does not

constitute advance warning and is not suffi cient to support disciplinary action. An employee

must be advised of the infraction for it to be considered a warning. Noting that the employee

was warned about the infraction and having the employee sign a form acknowledging the

warning are both good practices. Failure to warn an employee of the consequences of repeated

violations of a rule is one reason often cited for overturning a disciplinary action.

Another element in administering discipline is consistency. Inconsistency lowers morale,

diminishes respect for management, and leads to grievances. Striving for consistency does

not mean that past infractions, length of service, work record, and other mitigating factors

should not be considered when applying discipline. However, an employee should believe

that any other employee under essentially the same circumstances would receive the same

penalty. Similarly, management should take steps to ensure that personalities are not a factor

when applying discipline. The employee should understand that the disciplinary action is a

consequence of what was done and not caused by his or her personality. A manager should

avoid arguing with the employee and should administer the discipline in a straightforward,

calm manner. Administering discipline without anger or apology and then resuming a pleasant

relationship aids in reducing the negative effects of discipline. A manager should also admin-

ister discipline in private. The only exception would be in the case of gross insubordination or

fl agrant and serious rule violations, where a public reprimand would help the manager regain

control of the situation. Even in this type of situation, the objective should be to gain control

and not to embarrass the employee.

Lower-level managers should be very reluctant to impose disciplinary suspensions and

discharges. Usually discipline of this degree is reserved for higher levels of management.

Even a lower-level manager who does not have the power to administer disciplinary sus-

pensions or discharges, however, is nearly always the one who must recommend the action

to higher management. Since discipline of this nature is more likely to be reviewed, more

costly to the organization, and more likely to be refl ected in overall morale and productiv-

ity, it is very important for lower-level managers to know when it should be recommended.

NLRB v. Weingarten Supreme Court decision in

1975 holding that an employee

has the right to refuse to submit

to a disciplinary interview

without union representation.

Chapter 17 Employee Relations 347

Immediancy, advance warning, and consistency are essential for administering suspensions

and discharges.

Management is expected to use corrective, or progressive, discipline whenever pos- sible. Progressive, or corrective, discipline means the normal sequence of actions taken by

management in disciplining an employee would be oral warning, written warning, suspension,

and discharge. Some offenses, however, may justify discharge, such as stealing, striking a

coworker or member of management, and gross insubordination. Management must be able to

show, generally through the preponderance of evidence, that the offense was committed. At-

tention to the points covered regarding prediscipline recommendations is especially important

in supporting a decision to discharge an employee.

As in any lesser discipline, but even more essential in suspension and discharge, the

employee has the right to a careful and impartial investigation. This involves allowing the

employee to state his or her side of the case, gather evidence to support that side, and, usually,

question the accuser. In the case of very serious offenses, the employee may be suspended

pending a full investigation.

The suggestions outlined in the preceding paragraphs are designed to assist managers in

applying discipline in a positive manner and with minimal application of the harsher forms

of discipline. In the disciplinary procedure, observing these suggestions should reduce the

chance of a grievance or, if a grievance is fi led, the chance of having the disciplinary action

overruled. Table 17.2 provides a checklist of rules to observe when applying discipline.

Legal Restrictions The Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967 as

amended in 1978 changed an employer’s authority in making decisions and taking actions

involving employment conditions. Specifi cally, Title VII of the Civil Rights Act prohibits the

use of race, color, religion, sex, or national origin as the basis of any employment condition.

The Age Discrimination in Employment Act makes similar prohibitions involving persons

over 40 years of age. Discipline is, of course, a condition of employment and is subject to

these laws. Under these laws, employees have the right to appeal to the Equal Employment

Opportunity Commission (EEOC) and to the courts any disciplinary action they consider

discriminatory.

The landmark case guaranteeing employees this right was decided in 1974 by the Supreme

Court in Alexander v. Gardner-Denver. In that case, the Supreme Court ruled that using

corrective (progressive) discipline The normal sequence of

actions taken by management

in disciplining an employee:

oral warning, written warning,

suspension, and fi nally

discharge.

Alexander v. Gardner- Denver Supreme Court decision in

1974 that ruled that using the

fi nal and binding grievance

procedure in an organization

does not preclude an aggrieved

employee from seeking redress

through court action.

TABLE 17.2 Considerations in

Disciplining or

Discharging Employees

1. Avoid hasty decisions.

2. Document all actions and enter the evidence in the personnel fi le.

3. Thoroughly and fully investigate the circumstances and facts of the alleged offense.

a. Notify the employee of the nature of the offense.

b. Obtain the employee’s version of the circumstances, reasons for the actions, and the names of any

witnesses.

c. If suspension is required until the investigation is completed, inform the employee:

(1) To return 24 to 72 hours later to receive the decision.

(2) That there will be reinstatement with pay if the decision is in the employee’s favor.

(3) Of the discipline to be imposed if it is not in the employee’s favor.

d. Interview all witnesses to the alleged misconduct. Obtain signed statements if necessary.

e. Check all alternative possible causes (e.g., broken machinery).

f. Decide whether the employee committed the alleged offense.

4. Determine the appropriate discipline. Consider:

a. Personnel record: length of service, past performance, past disciplinary record. Has corrective

discipline ever been applied?

b. Nature of the offense.

c. Past disciplinary action for other employees in similar situations.

d. Existing rules and disciplinary policies.

e. Provisions in the labor contract if one exists.

5. Advise the employee of the nature of the offense, the results of the investigation, the discipline to be

imposed, and the rationale behind the discipline.

348 Part Five Employee Well-Being and Labor Relations

the grievance procedure in an organization did not preclude the aggrieved employee from

seeking redress through court action. Basically, the Court decided that the Civil Rights Act

guaranteed individuals the right to pursue remedies of illegal discrimination regardless of

prior rejections in another forum.

Table 17.3 gives a sample of rules for discipline from a typical union contract.

GRIEVANCE PROCEDURES

Grievance procedures outline the steps to be taken by employees in appealing any man- agement action they believe violates the union contract and/or corporate procedures. Griev-

ance procedures are used not only to appeal disciplinary actions but also to resolve matters

concerning contract interpretation.

Generally, in unionized organizations the grievance process is initiated by an employee

who has a complaint regarding some action perceived to be inconsistent with the terms of the

union contract. While it is highly unlikely that the organization would initiate a grievance, it

can do so. Initially, the grievant (aggrieved employee) contacts the union representative (usu-

ally called a union steward), and they discuss the events causing the grievance. The grievant

and the union steward then meet with the grievant’s supervisor. If a mutually agreeable set-

tlement cannot be reached at this meeting, the grievance is then put into writing. Generally,

in the next step, the union steward discusses the grievance with the department manager or

another appropriate management representative. Management then presents a reaction, usu-

ally in writing. If the grievance is not resolved at this point, the next step usually involves the

human resource or labor relations manager and higher offi cials of the union, such as the busi-

ness agent or international representative. After fully investigating and discussing the griev-

ance, the human resource department usually issues the fi nal company decision. In the event

the grievance is still unresolved, the party initiating the grievance can request arbitration.

Grievance arbitration (discussed later in this chapter) is a process whereby the employer and

union agree to settle a dispute through an independent third party. Because of the expense to

both the union and management, every attempt should be made to resolve grievances in the

stages before arbitration. Figure 17.1 illustrates the steps normally involved in a grievance

procedure.

Just Cause Grievance procedures for nonunionized organizations are similar to those in unionized organiza-

tions. Both types of procedures have appeals to higher levels of management leading ultimately

to employment or grievance arbitration. Generally, both unionized and nonunionized employees

recognize the right of management to discipline or discharge employees for just cause. In fact,

in most discipline or discharge cases, the basic issue is whether or not management acted with

grievance procedures Outline of the steps to be taken

by employees in appealing any

management action they believe

violates the union contract for

corporate procedures agreed to

in negotiations.

Offense Discipline

Minor:

Absence without notifi cation as per

existing absentee and lateness policy

Horseplay

Major:

Possession of, drinking, smoking, or

being under the infl uence of, intoxicants

or narcotics on company property

Sleeping on the job

Gambling on company property

Intolerable:

Stealing company or personal property

Fighting on company property

First offense—written warning

Second offense—one-day suspension

Third offense—two-day suspension

First offense—written warning that may

result in suspension of up to three days

without pay

Second offense treated as an

intolerable offense

First offense—subject to discharge

TABLE 17.3 Discipline Rules in Typical

Labor Contracts

Chapter 17 Employee Relations 349

just cause. In general, just cause concerns the burden and degree of proof of wrongdoing and the severity of punishment.4

It is generally agreed that the burden of proof in matters of discipline and discharge lies

with the company. However, once the company has established the case, the burden of proof

shifts to the union to disprove or discredit the company’s contention.

Once an organization proves that an employee was guilty of wrongdoing, the second area of

concern in determining just cause relates to the severity of the punishment. Just cause results

when the severity of the punishment coincides with the seriousness of the wrongdoing. The

just cause Requires that management

initially bear the burden

of proof of wrongdoing in

discipline cases and that the

severity of the punishment

must coincide with the

seriousness of the offense.

Arbitration

Yes

Action taken by management

Employee perceives the action to be

inconsistent with the contract

Employee discusses the situation with

union steward

Employee and union steward discuss the

grievance with employee’s supervisor

Grievance resolved

Grievance is taken to the next level of

management

Grievance resolved

Higher management and human

resource department become involved

Grievance resolved

FIGURE 17.1 General Process Followed

in a Union Grievance

Procedure

350

following general guidelines are frequently used for determining just cause as it relates to the

severity of punishment. HRM in Action 17.1 explains just cause in more detail.

1. Consider the past performance of the employee.

2. Consider previous disciplinary actions taken against other employees in similar situations.

3. Consider unusual circumstances surrounding the alleged offense.

Due Process Two principles that are central to just cause are due process and progressive discipline. Pro-

gressive discipline was described earlier in this chapter. Due process refers to the employee’s right to be dealt with fairly and justly during the investigation of an alleged offense and the

administration of discipline. Due process typically guarantees that the employee will receive

notifi cation and an explanation of the allegations, that an impartial investigation will be held

prior to the imposition of discipline, and that the employee can present his or her version of

the incident. As discussed earlier, unionized employees have the right to union representation

in the disciplinary review if they request it and if disciplinary actions might reasonably be

expected to result.

A breach of due process during the grievance procedure can result in either a modifi cation or

a complete reversal of a disciplinary action. Procedural requirements are often spelled out in the

grievance procedures of the contract. Failure to follow such provisions may constitute a breach

of due process. In general, to ensure that an employee is afforded due process, all contract terms

should be followed, adequate warning should be given prior to the discipline, explicit statements

should be made to the employee about possible disciplinary action if the employee’s actions do

not change, and a full and fair investigation should be conducted immediately after the offense.

Duty of Fair Representation Under the National Labor Relations Act of 1935, the union has a statutory duty to fairly

represent all employees in the bargaining unit, whether or not they are union members.

This duty has been termed duty of fair representation. The rationale underlying the duty of fair representation is that the union is the exclusive representative of all employees

in the bargaining unit. The extent of the union’s duty to fairly represent its members and

other employees was defi ned in a landmark case, Vaca v. Sipes. In this case, an employee who had a history of high blood pressure returned to work after six months of sick leave.

Although his personal physician and another doctor had certifi ed his fi tness to resume work,

the company doctor concluded that his blood pressure was too high to permit his reinstate-

ment, and as a result he was permanently discharged. The employee fi led a grievance, and

the union took the grievance through the steps leading up to arbitration. The employee was

then sent to a new doctor at the union’s expense. When this examination did not support

the employee’s contention that he could safely return to work, the union decided not to take

the grievance to arbitration, even though the employee demanded it. The employee sued the

offi cers and representatives of the union for breach of their duty of fair representation. The

case ultimately went to the Supreme Court, which held that (1) an individual does not have

the absolute right to have a grievance taken to arbitration; (2) a union must make decisions

as to the merits of particular grievances in good faith and nonarbitrarily; and (3) if a union

due process Right of an employee to be

dealt with fairly and justly

during the investigation

of an alleged offense and

the administration of any

subsequent disciplinary action.

duty of fair representation Under the National Labor

Relations Act of 1935, the

statutory duty of a union to

fairly represent all employees

in the bargaining unit, whether

or not they are union members.

Vaca v. Sipes Supreme Court decision

that held that a union is not

obligated to take all grievances

to arbitration but has the

authority to decide whether or

not the grievance has merit. If

such a decision is made fairly

and nonarbitrarily, the union

has not breached its duty of fair

representation.

JUST CAUSE Potential liability through a summary dismissal is often a

problem for employers because such dismissals are often

undertaken in the heat of the moment. Liability can often be

limited by proper investigations and thorough consideration

of the case’s strengths and weaknesses. The company should

take its time and consider all options rather than responding

in the heat of the moment.

Courts have stated that companies should not just use

the misconduct at hand when dismissing an employee but

should review the entirety of the employment relationship.

The goal for the company is not to show misconduct by an

employee, but also to show that said misconduct irreparably

harmed the employment relationship.

Source: Adapted from Stuart Rudner, “Just Cause Can Be Justifi ed,” Canadian HR Reporter, June 15, 2009, p. 14.

HRM in Action 17.1

351

decides in good faith and in a nonarbitrary manner that a grievance is not meritorious, a

breach of fair representation does not exist, even if it is proved that the grievance was, in

fact, meritorious.

An exception to this court ruling is included in a provision of the Taft–Hartley Act, which

states that an individual employee may present a grievance to the employer without the aid

of the union. However, this is contingent on the fact that any resulting adjustments must be

consistent with the terms of the contract and must be conveyed to the union. This has been

interpreted as meaning that the employer is under no obligation to consider such grievances.

However, if the union presents a grievance to the employer, the employer is obligated to con-

sider it and to resolve it through arbitration (if this is provided for in the contract) when the

grievance has not been resolved in the earlier stages of the grievance process.

In addition, individuals cannot take the case into their own hands if they think it is not being

effectively handled. Courts have held that the employee must thoroughly exhaust the griev-

ance procedure before taking individual action, and such action is then contingent on proof of

a breach of the duty of fair representation.

A Supreme Court decision, Bowen v. United States Postal Service, established that an employee may be entitled to recover damages from both the union and the employer in

cases where the employer has violated the labor agreement and the union has breached its

duty of fair representation. HRM in Action 17.2 details a case in which the court ruled that the

union did not violate its duty of fair representation.

Time Delays Perhaps the greatest criticism of the grievance procedure is that a great deal of time may

be necessary to resolve a grievance that goes through the entire process. Often the internal

stages of appeal may take several months to complete. If the case goes to arbitration, the

parties usually request a list of potential arbitrators from an arbitration service. The parties

must contact the arbitrator and must agree on an acceptable date for the hearing. Further-

more, after the hearing has taken place, the parties may desire to submit briefs, which can

take several additional weeks. When the hearing is closed upon receipt of all briefs, the arbi-

trator normally renders a decision within 30 to 60 days. Thus, many months and sometimes

a year or more may elapse before a fi nal decision is reached. An argument could be made

that this time delay in itself denies the grievant due process.

GRIEVANCE ARBITRATION

Grievance arbitration is the process whereby the involved parties voluntarily agree to settle a dispute through the use of an independent third party. In the United States, arbi-

tration evolves from the voluntary agreement by two parties to submit their unresolved

disputes to a privately selected neutral third party (an arbitrator). Both parties agree in ad-

vance to abide by the arbitrator’s decision. The arbitrator, who functions in a quasi-judicial

role, must work within the framework that the parties have negotiated in their collective

bargaining agreement. Arbitrators have no legal power to subpoena witnesses or records

and are not required to conform to legal rules of hearing procedures, other than that of

Bowen v. United States Postal Service (1983) Supreme Court decision that

established that an employee

may be entitled to recover

damages from both the union

and the employer is cases

where the employer has

violated the labor agreement

and the union has breached its

duty of fair representation.

grievance arbitration Arbitration that attempts to

settle unresolved disputes

arising during the term of

the collective bargaining

agreement that involve

questions of its interpretation

or application.

WORKER TERMINATION When a union worker was not paid full back wages after an

arbitrator found no just cause for the worker’s termination,

the worker claimed the union had breached its duty of fair

representation.

The judgment was in favor of the union. It was found

that the worker failed to show that the union acted in bad

faith in negotiating an ADR process with the company and

that there was no evidence that the employee’s decision not

to pursue binding arbitration resulted in arbitrary conduct

by the union.

Source: Adapted from Stephanie Maniscalco, “8th Circuit: Hansen v. Qwest Communications, et al.,” Missouri Lawyers Media, May 14, 2009.

HRM in Action 17.2

352

giving all parties the opportunity to present evidence. HRM in Action 17.3 describes a

discipline situation that an arbitrator overturned.

Grievance arbitration attempts to settle unresolved disputes arising during the term of the

collective bargaining agreement that involve questions of its interpretation or application.

Provision for grievance arbitration generally is not mandated by law. However, most labor con-

tracts provide an arbitration clause as the fi nal step in the grievance process. This is considered

to be the quid pro quo (even exchange) for the union’s agreement to a no-strike clause.

An arbitrator may serve on either a temporary (ad hoc) or permanent basis. In ad hoc ar-

bitration, the parties select an arbitrator to hear a single case. Permanent arbitrators settle all

grievance disputes arising between the parties for a period of time.

Arbitrators charge for their services. Normally arbitrators’ charges are paid on a 50–50 basis by

the company and the union. Both the Federal Mediation and Conciliation Service (FMCS) and the

American Arbitration Association (AAA) provide lists of qualifi ed arbitrators to the parties upon

request. FMCS’s services are available to both the private and public sector. AAA is a private, non-

profi t organization that also provides lists of arbitrators to both the private and public sectors.

Generally, court reviews of arbitration awards have been extremely narrow in scope. The

attitude of the U.S. Supreme Court was expressed in the Enterprise Wheel case: “It is the arbitrator’s interpretation which was bargained for, and so far as the arbitrator’s decision

concerns interpretation of the contract, the courts have no business overruling him because

their interpretation of the contract is different from his.”5 In spite of this opinion, courts have

overturned some arbitration awards in discharge cases. However, the tendency, for the most

part, has been to defer to the arbitrator’s decision.

1. Explain employment at will.

Employment at will allows either the employer or employee to terminate his or her

employment relationship at any time for virtually any reason or for no reason at all.

2. Explain employment arbitration programs.

Employment arbitration is a dispute resolution program for employees in nonunionized

organizations.

3. Explain the causes of disciplinary actions.

Two types of conduct that lead to discipline are poor job performance and actions that

indicate poor citizenship.

4. Describe progressive discipline.

Progressive discipline means that the normal sequence of actions taken by management in

disciplining an employee would be oral warning, written warning, suspension, and discharge.

Enterprise Wheel Supreme Court ruling in

1960 holding that as long

as an arbi trator’s decision

involves the interpretation of a

contract, the courts should not

overrule the arbitrator merely

because their interpretation of

the contract was different from

that of the arbitrator.

Summary of Learning Objectives

DISCHARGE AT AMERICAN MOTORS www.daimlerchrysler.com The grievant had been employed as a shipping and receiving

clerk at American Motors (now a subsidiary of Daimler

Chrysler) for 10 years. On November 30, the grievant asked

a purchasing clerk to look up the purchasing information

(part number, location, and price) on several parts, including

a Jeep door. The grievant testifi ed that his intention was to

buy the door for a sheriff friend who was going to fi x a DUI

ticket for him. The grievant obtained the door and stored it

on a shelf near his workplace until he completed his shift. At

quitting time, the grievant left his workplace, carrying the

door, and proceeded to the parking lot.

The grievant was seen putting the door in his van by

a member of management. Later that evening, another

employee contacted the grievant and informed him that a

member of management had seen him carrying the door to

his van. On December 1, the grievant brought in a check to

cover the price of the door. The company refused to accept

the check and fi red the employee for misappropriation of

company property.

Union witnesses testifi ed to many instances where

employees removed parts from the company without the

prior knowledge or approval of management and paid for

them at a later date. Much evidence was also presented

that procedures for removing and paying for parts were

haphazardly observed and not in writing.

The arbitrator overruled the discharge because of manage-

ment’s failure to establish, communicate, and properly admin-

ister a procedure for removing parts.

Source: Labor arbitration award by Lloyd L. Byars. Case involved the American Motors Corporation and the United Automobile Workers.

HRM in Action 17.3

Web site: Federal Mediation & Conciliation Service www.fmcs.gov

Web site: American Arbitration Association www.adr.org

Chapter 17 Employee Relations 353

5. Defi ne grievance procedures.

Grievance procedures are a systematic means of resolving disagreements over the collective

bargaining agreement and providing assurance that the terms and conditions agreed to in

negotiations are properly implemented.

6. Defi ne just cause.

Just cause concerns the burden and degree of proof of wrongdoing and the severity of

punishment.

7. Explain due process.

Due process refers to the employee’s right to be dealt with fairly and justly during the

investigation of an alleged offense and the administration of discipline.

8. Describe the duty of fair representation.

The duty of fair representation refers to the union’s statutory duty to fairly represent all

employees in the bargaining unit, whether or not they are union members.

9. Defi ne grievance arbitration.

Under grievance arbitration, the involved parties voluntarily agree to settle a dispute

through the use of an independent third party. Grievance arbitration attempts to settle

unresolved disputes arising during the term of the collective bargaining agreement that

involve questions of its interpretation or application.

1. What types of conduct normally result in disciplining an employee?

2. What was the signifi cance of the decision in the NLRB v. Weingarten case?

3. List the key points in administering discipline.

4. What was the signifi cance of the decision in the Alexander v. Gardner-Denver case?

5. What are grievance procedures?

6. Defi ne just cause, due process, and duty of fair representation.

7. What is arbitration?

Review Questions

Discussion Questions

1. “Unions make it almost impossible to discipline employees.” Do you agree or disagree?

Discuss.

2. Two employees violate the same work rule. One is above average in performance and has

been with your company for eight years. The other employee is an average performer who

has been with your company for a little over a year. Should these employees receive the

same discipline? Why or why not?

3. Under the doctrine of fair representation, unions are required to represent both members

and nonmembers in the bargaining unit. Do you think unions should be required to represent

nonmembers? Explain.

4. If you were starting your own company, what type of grievance procedure would you

establish for your employees?

Key Terms Alexander v. Gardner- Denver, 347

Bowen v. United States

Postal Service

(1983), 351

corrective (progressive)

discipline, 347

discipline, 344

due process, 350

duty of fair

representation, 350

employment arbitration

program, 344

employment at will, 343

Enterprise Wheel, 352

grievance arbitration,

351

grievance procedures, 348

just cause, 349

NLRB v. Weingarten, 346

Vaca v. Sipes, 350

354 Part Five Employee Well-Being and Labor Relations

Incident 17.1

Tardy Tom

On September 30, 2009, a large, national automobile-leasing fi rm in Columbus, Ohio, hired

Tom Holland as a mechanic. Tom, the only mechanic employed by the fi rm in Columbus,

was to do routine preventive maintenance on the cars. When he fi rst began his job, he was

scheduled to punch in on the time clock at 7 A.M. On October 30, 2009, Tom’s supervisor, Russ

Brown, called him to his offi ce and said, “Tom, I’ve noticed during October that you’ve been

late for work seven times. What can I do to help you get here on time?”

Tom replied, “It would be awfully nice if I could start work at 8 A.M. instead of 7 A.M.”

Russ then stated, “Tom, I’m very pleased with your overall work performance, so it’s OK with

me if your workday begins at 8 A.M.”

During the month of November 2009, Tom was late eight times. Another conversation

occurred similar to the one at the end of October. As a result of it, Tom’s starting time was

changed to 9 A.M.

On January 11, 2010, Russ Brown posted the following notice on the bulletin board:

Any employee late for work more than two times in any one particular pay period is subject to

termination.

On January 20, 2010, Russ called Tom into his offi ce and gave him a letter that read,

“During this pay period, you have been late for work more than two times. If this behavior

continues, you are subject to termination.” Tom signed the letter to acknowledge that he had

received it.

During February 2010, Tom was late eight times and between March 1 and March 11, fi ve

times. On March 11, 2010, Russ notifi ed Tom that he had been fi red for his tardiness.

On March 12, 2010, Tom came in with his union representative and demanded that he get

his job back. Tom alleged that there was another employee in the company who had been late as

many times as he had, or more. Tom further charged that Russ was punching the time clock for

this employee because Russ was having an affair with her. The union representative stated that

three other people in the company had agreed to testify, under oath, to these facts. The union

representative then said, “Russ, rules are for everyone. You can’t let one person break a rule and

penalize someone else for breaking the same rule. Therefore, Tom should have his job back.”

Questions

1. What is your position regarding this case?

2. What would you do if you were an arbitrator in this dispute?

Incident 17.2

Keys to the Drug Cabinet

John Brown, a 22-year-old African American, had been employed for only two-and-a-half

weeks as a licensed practical nurse in a local hospital’s alcohol and drug treatment center. John

worked the 11 P.M. to 7 A.M. shift. His responsibilities included having charge of the keys to

the drug cabinet.

One morning at 1 A.M., he became ill. He requested and received permission from the night

supervisor, Margaret Handley, to go home. A short time later, the supervisor realized that

John had failed to leave the keys when he signed out. She immediately tried to reach him by

telephoning his home.

More than a dozen attempts to call John proved futile; each time Margaret got a busy sig-

nal. Finally, at 3 A.M., a man answered but refused to call John to the phone, saying John was

too ill to talk. She became frantic and decided to call the police to retrieve the keys.

The police arrived at John’s home at 6:30 A.M. They found him preparing to leave to return

the keys to the hospital. The police took the keys and returned them.

Chapter 17 Employee Relations 355

Later that day, John reported to work on his assigned shift, apologized for not returning the

keys, and questioned the necessity of calling the police.

Two days later, the unit director, Marcus Webb, informed John that he had been termi-

nated. The reason cited for the discharge was that he had failed to leave the drug cabinet

keys before leaving the hospital and that the keys had been in his possession from 1 A.M. to

7 A.M. the following day. John learned that Margaret Handley had been verbally reprimanded

for her handling of the case.

John fi led an appeal regarding his dismissal with the human resource director of the hospi-

tal. However, the unit director’s recommendation was upheld.

Following this decision, John immediately fi led charges with the EEOC that he had been

discriminated against because of his race. Both the night supervisor and the unit director were

white. He requested full reinstatement with back pay. He also requested that his personnel fi le

be purged of any damaging records that alluded to the incident.

Questions

1. What would your decision be if you were asked to decide this case?

2. Should a supervisor and a lower-level employee be disciplined equally? Explain.

MOCK ARBITRATION

Following is a situation in which you are to conduct a mock arbitration. The class will be divided into teams,

fi ve to six students per team. Each team will then be assigned to represent either the union or the company.

Your team must decide on the witnesses you want at the hearing. Your opposing team must be given the

names and job titles of your witnesses. During class time, two teams will conduct the mock arbitration.

SITUATION

Background General Telephone Company of the Southeast (Georgia), hereinafter referred to as the company, provides

local telephone service within certain areas of the state of Georgia. Its employees, as defi ned by Article I

and Appendix A of the Agreement, are represented by the Communication Workers of America, hereinafter

referred to as the union. The parties are operating under an agreement that became effective June 27, 2005.

The grievant, Cassandra Horne, was hired by the company as a service representative on June 4, 1999.

On August 30, 2006, she was promoted to installer-repairer and was responsible for installing and repairing

residential and single-line business for customers. The grievant’s record is free of any disciplinary entries, and

she is considered by her supervisor, Fred Carter, to be a satisfactory employee.

On May 19, 2007, the grievant suffered an on-the-job injury to her knee while attempting to disconnect

a trailer from a company van. At some time after the injury, the grievant went on disability for approximately

eight weeks. She then returned to work with a statement from the company physician, allowing her to

perform her normal work. After approximately three weeks, the grievant was still experiencing pain in her

knee and was diagnosed by a different physician as having a tear in the cartilage below her kneecap. She

went back on disability and had surgery performed on October 19, 2007, to repair cartilage and ligament

damage to her knee.

During the grievant’s absence, her disability benefi ts expired, and she agreed to take a six-month leave

of absence beginning November 10, 2007. When the grievant’s leave expired on May 11, 2008, she was

terminated from her employment with the company.

The company argued that the company physician had stated the grievant could not perform installer–

repairer work and that no other jobs were open that the grievant could perform. The union argued that the

grievant had been cleared by her personal physician and that she felt she could do the work of installer–

repairer. A grievance was fi led at Step 1 on May 12, 2008, and was denied by the division personnel manager,

Jerry L. Leynes. The grievance was submitted to arbitration and is now properly before the arbitrator for

decision and award.

The company states that the issue before the arbitrator is as follows: Did the company violate the contract

by separating the grievant from her position as an installer–repairer, and if so, what should be the remedy?

The union states that the issue before the arbitrator is as follows: Is the discharge of the grievant for just or

proper cause; and if not, what should the remedy be?

Pertinent Provisions of the Agreement

Article 1, Recognition:

The company recognizes the union as the whole and exclusive collective bargaining agency with respect

to rates of pay, hours of employment, and other conditions of employment for all employees within the

exchanges coming under the operating jurisdiction of the above-named company. All supervisory and

EXERCISE 17.1

356 Part Five Employee Well-Being and Labor Relations

professional employees and those performing confi dential labor relations duties are excluded from the

bargaining unit.

Article 4, Work Jurisdiction:

1. The company recognizes the right of its employees to perform its work and will make every reasonable

effort to plan its work to accomplish this end.

2. The company agrees that in its employment of contract labor to assist in the carrying out of its programs

of construction, installation, removal, maintenance, and/or repair of telephone plant, it will not lay off or

reduce to part-time status, nor continue on layoff or part-time status, any regular employee performing

the same work as that which is being performed by contract labor.

Article 11, Absences from Duty:

1. Leave of absence, without pay, not to exceed six (6) months will be granted by the company for

good and compelling reason upon receipt of written request for such leave. Each such request will be

approved or disapproved dependent on the merit of the request. Such leaves may be extended for an

additional period of not to exceed three (3) months.

1.1 Working for another employer during leave shall constitute grounds for termination of employment.

1.2 Applying for unemployment compensation during leave may constitute grounds for termination of

employment, except this shall not be applicable where the employee has requested reinstatement in

accordance with the provisions of this article and no work is available.

1.3 A leave of absence shall not carry a guarantee of reemployment, but the employee concerned,

desiring to return from leave, shall be given opportunity for reemployment before any new

employees are hired, provided the returning employee is qualifi ed to perform the work.

Article 12, Paid Absences:

4. In cases of physical disability resulting from compensable accidental injury while on the job, the company

will pay the difference, if any, between the amount paid to the employee under workers’ compensation

and the employee’s basic rate in accordance with the schedule set forth below. No waiting period will be

required.

4.1 Up to fi ve (5) years’ accredited service, full pay not to exceed thirteen (13) weeks.

Article 23, Discharges, Suspensions, and Demotions:

1. Requirements and limitations

1.1 Any discharge, suspension, or demotion shall be only for proper cause and by proper action.

1.2 Any employee who is discharged, suspended, or demoted shall, at the time of discharge,

suspension, or demotion, be given a written statement setting forth the complete reasons for such

action.

1. Tara J. Radin, and Patricia H. Werhane, “Employment-at-Will, Employee Rights, and Future Directions

for Employment,” Business Ethics Quarterly 13, 2003, pp. 113–30.

2. Susan C., Zuckerman, “Supreme Court Decides Employment Case in Favor of Arbitration,” Dispute

Resolution Journal, May–July 2001, p. 5.

3. See Chapter 18 for a description of the NLRB.

4. See John J. McCall, “A Defense of Just Cause Dismissal Rules,” Business Ethics Quarterly 13, 2000,

pp. 151–75.

5. United Steelworkers of America v. Enterprise Wheel and Car Corporation, 46 LARM 2423 S.Ct.

(1960).

Notes and Additional Readings

357

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Describe the conspiracy doctrine.

2. Defi ne injunction.

3. Explain a yellow-dog contract.

4. Defi ne the Railway Labor Act (1926).

5. Describe the Norris–La Guardia

Act (1932).

Chapter Eighteen

The Legal Environment and Structure of Labor Unions

6. Defi ne the Wagner Act (1935).

7. Explain the Taft–Hartley Act (1947).

8. Describe right-to-work laws.

9. Explain the Landrum–Griffi n

Act (1959).

10. Describe the AFL–CIO.

11. Defi ne amalgamation and

absorption.

Chapter Outline

The Legal Environment of

Labor–Management Relations

Sherman Anti-Trust Act (1890)

Clayton Act (1914)

Railway Labor Act (1926)

Norris–La Guardia Act (1932)

National Labor Relations (Wagner)

Act (1935)

Labor–Management Relations (Taft–Hartley)

Act (1947)

Labor–Management Reporting and

Disclosure (Landrum–Griffi n)

Act (1959)

Civil Service Reform Act (1978)

Union Structures

AFL–CIO

National and International Unions

City and State Federations

Local Unions

Current and Future Developments in the

Labor Movement

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 18.1: Unions and Management

Incident 18.2: Voluntary Resignations

during a Strike

Exercise 18.1: Need for Unions

Notes and Additional Readings

Prior to the Industrial Revolution in the 19th century, an individual was usually born into a

level in society with a predestined standard of living. Custom and tradition kept a person’s

position relatively stable. After the Industrial Revolution, people were able to contract for

employment by offering their skills and services for a wage. However, once people had been

hired, they and their work output became the property of the employer.

Before long employees resorted to joint action to gain some infl uence over the terms and con-

ditions of their employment. Initially, the public and the courts frowned on these attempts. For

the most part, the relationships between employees and management were unilateral: Employees

358

asking for higher wages approached their employers with a “take it or we’ll strike” attitude, and

employers usually refused or ignored their requests. Generally, the result was a test of economic

strength to determine whose wage decisions would prevail. In most instances, employers pre-

vailed. HRM in Action 18.1 illustrates some of the consequences of early strikes.

As time passed, society became more aware of the plight of employees. Legislation was

enacted that was much more favorable toward employees and unions. This chapter explores

how the legal environment surrounding union–management relations has evolved. It also de-

scribes the organizational structure of unions and current issues facing unions.

THE LEGAL ENVIRONMENT OF LABOR–MANAGEMENT RELATIONS

The fi rst unions in America appeared between 1790 and 1820. These were local organizations

of skilled craftspeople, such as shoemakers in Philadelphia, printers in New York, tailors in

Baltimore, and other similar groups.

The demands of these unions were similar to those of unions today. Unions wanted job

security, higher wages, and shorter working hours. When management did not agree to these

demands, these early unions resorted to strikes, or “turn-outs,” as they were then called. A

strike is the collective refusal of employees to work.

To offset the pressure of these unions, employers formed associations and took legal action

against the unions. In the Philadelphia Cordwainers (shoemakers) case of 1806, the jury ruled that groups of employees banded together to raise their wages constituted a conspiracy in

restraint of trade. This decision established the conspiracy doctrine, which stated that a union could be punished if either the means used or the ends sought were deemed illegal by the courts.

Over the next 35 years, unions ran up against the conspiracy doctrine on numerous occa-

sions. Some courts continued to rule that labor unions were illegal per se. Others ruled that the

means unions used (e.g., strikes) to achieve their demands were illegal or that the ends sought

(e.g., closed shops) were illegal. A closed shop prohibits an employer from hiring anyone other

than a union member.

In 1842, in the landmark Massachusetts case Commonwealth v. Hunt, the Supreme Court of Massachusetts rejected the doctrine that the actions of labor unions were illegal per

se. The court noted that the power of a labor union could be used not only for illegal pur-

poses but also for legal purposes. This decision, of course, left open the door for legal actions

questioning the means used and ends sought by labor unions. Thus, even after 1842, the legal

environment for unions remained vague and uncertain. Some courts held that a closed shop

Philadelphia Cordwainers (shoemakers) case of 1806 Case in which the jury ruled

that groups of employees

banded together to raise their

wages constituted a conspiracy

in restraint of trade.

conspiracy doctrine Notion that courts can punish

a union if they deem that the

means used or the ends sought

by the union are illegal.

Commonwealth v. Hunt Landmark court decision in

1842 that declared unions were

not illegal per se.

HRM in Action 18.1

strike began, tension rose quickly. CFI hired a large number

of guards from outside the state, armed them, and paid

their salaries.

Violence erupted almost immediately. First, a company

detective and a union organizer were killed. A few days later,

CFI troops broke up a strikers’ mass meeting and killed three

workers. Vengeful miners then killed four company men.

Governor Ammons called out the National Guard to protect

all property and those people who were still working.

On April 20, 1914, a major battle erupted between the

strikers and the National Guardsmen. A fi re that resulted led

to the deaths of two women and 11 children. Several battles

occurred over the next several days, and fi nally, on April 28,

1914, several regiments of federal troops were called in to

end the war.

Source: Graham Adams, Jr., Age of Industrial Violence, 1910–1915 (New York: Columbia University Press, 1966), pp. 146–75.

STRIKE AT COLORADO FUEL AND IRON COMPANY (CFI) During the early 20th century, Colorado Fuel and Iron

Company (CFI) owned about 300,000 acres of mineral-rich

land in southern Colorado. This geographical insulation

enabled CFI to impose rather primitive conditions over its

30,000 workers. Most of the workers lived in company-

owned camps located 10 to 30 miles from any big towns.

Within the camps, 151 persons contracted typhoid in 1912

and 1913 because of unsanitary conditions. Wages were

paid in currency valid only in company stores.

These conditions sparked union-organizing activity. The

United Mine Workers (UMW) demanded an eight-hour

day, enforcement of safety regulations, removal of armed

guards, and abolition of company currency. The company

refused to negotiate on these issues.

Thus, in September 1913, up to 10,000 workers at

Colorado Fuel and Iron Company went on strike. After the

Chapter 18 The Legal Environment and Structure of Labor Unions 359

was a lawful objective; thus, strikes to obtain a closed shop were legal. Other courts reached

an opposite conclusion. During this time, the legality of union activities depended to a large

extent on the court jurisdiction in which the case occurred.

By the 1880s, most courts had moved away from the use of the conspiracy doctrine, and

the injunction became a favorite technique used by the courts to control union activities. An

injunction is a court order to stop an action that could result in irreparable damage to prop- erty when the situation is such that no other adequate remedy is available to protect the inter-

ests of the injunction-seeking party. During this time, the normal procedure used in seeking an

injunction in a labor dispute was as follows:

1. The complainant (usually the employer) went to court, fi led a complaint stating the nature

of the property threat, and requested relief.

2. The judge normally issued a temporary restraining order halting the threatened action until

a case could be heard.

3. Shortly thereafter, a preliminary hearing was held so the judge could decide whether to

issue a temporary injunction.

4. Finally, after a trial, a decision was made as to whether a permanent injunction should be

issued.

Injunctions had three effects. First, failure of the union to abide by the temporary restrain-

ing order or the temporary injunction meant risking contempt-of-court charges. Second, com-

pliance meant a waiting period of many months before the matter came to trial. Often this

waiting period was enough to destroy the effectiveness of the union. Third, the courts placed

a broad interpretation on the term property. Historically, courts had issued injunctions to pre-

vent damage to property where an award of money damages would be an inadequate remedy.

However, during this time, the courts held that an employer’s property included the right to

operate the business and make a profi t. Thus, the expectation of making a profi t became a

property right. Any strike, even a peaceful one, could be alleged to be injurious to the expecta-

tion of making a profi t and could be stopped by an injunction.

Injunctions were generally granted by the courts upon request and were frequently used to

control union activities until the 1930s. The attitude of the courts over this time seems to have

been that management had the right to do business without the interference of unions.

Another device used by employers to control unions during this time was the yellow-dog contract. The name was coined by the labor unions to describe an agreement between an employee and an employer that, as a condition of employment, the employee would not join a

labor union. These contracts could be oral, written, or both.

In 1917, the Supreme Court upheld the legality of yellow-dog contracts in Hitchman Coal & Coke Co. v. Mitchell. This case involved the management of Hitchman Coal & Coke Company, whose employees had been unionized in 1903, and the United Mine Workers

(UMW) in West Virginia. In 1906, the union called a strike against the company. However,

management defeated the union and resumed operations as a nonunionized company. To en-

sure that it remained nonunionized, management required all of its employees, as a condition

of employment, to sign an agreement saying that they would not join a union as long as they

were employed by Hitchman.

Later the United Mine Workers sent an organizer back into West Virginia. The organizer se-

cretly contacted and signed up the employees of Hitchman Coal. When enough employees signed

up, a strike was called and the mine was closed. However, Hitchman management brought a suit

against the union, alleging that the organizer had deliberately induced the employees to break

their agreements with the company. The Supreme Court ruled in favor of management and thus

upheld the enforceability of the yellow-dog contract. Yellow-dog contracts were used until they

were declared illegal by the Norris–La Guardia Act of 1932 (discussed later in this chapter).

Sherman Anti-Trust Act (1890) The Sherman Anti-Trust Act was signed into law in 1890. The law made trusts and conspiracies

that restrain interstate commerce illegal and forbade persons from monopolizing or attempting

to monopolize interstate trade or commerce. Furthermore, any person who believed he or she

injunction Court order to stop an action

that could result in irreparable

damage to property when the

situation is such that no other

adequate remedy is available

to protect the interest of the

injunction-seeking party.

yellow-dog contract Term coined by unions to

describe an agreement between

an employee and an employer

stipulating that, as a condition

of employment, the worker

would not join a labor union.

Yellow-dog contracts were

made illegal by the Norris–La

Guardia Act of 1932.

Hitchman Coal & Coke

Co. v. Mitchell Supreme Court case of 1917

that upheld the legality of

yellow-dog contracts.

360 Part Five Employee Well-Being and Labor Relations

had been injured by violations of the act was given the right to sue for triple the amount of

damages sustained and the costs of the suit, including a reasonable attorney’s fee.

Generally, it is agreed that the primary intent of Congress in passing the Sherman Anti-

Trust Act was to protect the public from the abuses of corporate monopolies. However, in

1908, in the landmark Danbury Hatters case, the Supreme Court decided that the Sherman Anti-Trust Act applied to all unions. In this case, the United Hatters Union, while attempting

to unionize Loewe & Company of Danbury, Connecticut, called a strike and initiated a na-

tional boycott against the company’s products. The boycott was successful, and Loewe fi led a

suit against the union alleging violation of the Sherman Anti-Trust Act. The Court further held

that the individual members of the union were jointly liable for the money damages awarded.

Clayton Act (1914) Labor unions rejoiced at the passage of the Clayton Act in 1914. In fact, Samuel Gompers, one

of the leading spokespersons of the early labor movement, called the Clayton Act the “Indus-

trial Magna Carta.”1 Sections 6 and 20 were of particular importance to labor:

Section 6: The labor of a human being is not a commodity or article of commerce. Nothing

contained in the antitrust law shall be construed to forbid the existence and operating of

labor . . . organizations . . . or to forbid or restrain individual members of such organizations

from lawfully carrying out the legitimate objects thereof; nor shall such organizations, or the

members thereof be held or construed to be illegal combinations or conspiracies in restraint of

trade under the antitrust laws.

Section 20: No restraining order or injunction shall be granted by any court of the United States

. . . in any case between an employer and employees, or between persons employed and persons

seeking employment, unless necessary to prevent irreparable injury to property, or to a property

right, of the party making the application, for which injury there is no adequate remedy of law.

However, the joy of the unions was short-lived. The Supreme Court, in the 1921 case

Duplex Printing Co. v. Deering, basically gutted the intent of the Clayton Act because of the vague wording of the law. At the time, Duplex was the only nonunionized company

manufacturing printing presses. The union attempted to organize the company, requesting

that customers not purchase Duplex presses, that a trucking company not transport Duplex

presses, and that repair shops not repair Duplex presses. The company asked for an injunction

against the union but was denied by both the U.S. district and circuit owners on the basis of

Section 20 of the Clayton Act. However, in a split decision, the Supreme Court overruled the

lower courts. In this decision, the Court ruled that Section 6 of the Clayton Act did not exempt

unions from the control of the Sherman Act. Furthermore, the Court’s decision meant that the

issuance of injunctions was largely unchanged by the Clayton Act.

Railway Labor Act (1926) Legislation and its interpretations by the courts were largely antiunion prior to the passage

of the Railway Labor Act in 1926. This act, which set up the administrative machinery for handling labor relations within the railroad industry, was the fi rst important piece of prolabor

legislation in the United States. The act was extended to airlines in 1936.2

One provision established the National Mediation Board to administer the act. Another

provision eliminated yellow-dog contracts for railroad employees. The act also established

mechanisms for mediation and arbitration of disputes between employers and unions within

the industry. However, the original act applied only to railroad employees and not to those

employed in other industries.

Norris–La Guardia Act (1932) The Norris–La Guardia Act of 1932 was particularly important to labor unions because it made yellow-dog contracts unenforceable and severely restricted the use of injunctions. The

law prohibited federal courts from issuing injunctions to keep unions from striking, paying

strike benefi ts, picketing (unless the picketing involved fraud or violence), and peacefully

assembling.

Other parts of the law further restricted the issuance of injunctions. For example, the law

required the employer to show that the regular police force was either unwilling or unable to

Danbury Hatters case Landmark case of 1908 in

which the Supreme Court

decided that the Sherman Anti-

Trust Act applied to all unions.

Duplex Printing Co. v. Deering Case in which the Supreme

Court ruled that unions were

not exempt from the control of

the Sherman Anti-Trust Act.

Railway Labor Act An act enacted in 1926 that

set up the administrative

machinery for handling labor

relations within the railroad

industry; the fi rst important

piece of prolabor legislation.

Norris–La Guardia Act of 1932 Prolabor act that eliminated the

use of yellow-dog contracts and

severely restricted the use of

injunctions.

361

protect the employer’s property before an injunction could be issued. Temporary restraining

orders could not be issued for more than fi ve days.

The Norris–La Guardia Act also gave employees the right to organize and bargain with em-

ployers on the terms and conditions of employment. However, its major weakness was that it

established no administrative procedures to ensure implementation of the rights. Employees

could gain bargaining rights only if their employer voluntarily agreed to recognize the union or

if the employees struck and forced recognition. In other words, the law gave employees the right

to organize but did not require management to bargain with their union.

National Labor Relations (Wagner) Act (1935) The National Labor Relations Act, commonly known as the Wagner Act (named after its principal sponsor, Senator Robert Wagner Sr., of New York) was passed in 1935. The bill

signaled a change in the federal government’s role in labor–management relations. As a result

of this law, government took a much more active role.

The Wagner Act gave employees the right to organize unions, bargain collectively with

employers, and engage in other concerted actions for the purpose of mutual protection. Of

course, the Norris–La Guardia Act had already granted these rights. However, the Wagner Act

went further in that it required employers to recognize unions chosen by employees and to bar-

gain with such unions in good faith. Furthermore, the act prohibited employers from engaging

in uncertain unfair labor practices, including

1. Interference with, restraint of, or coercion of employees in exercising their rights under the

act.

2. Domination of, interference with, or fi nancial contributions to a union.

3. Discrimination in regard to hiring, fi ring, or any term or condition of employment to

encourage or discourage membership in a union.

4. Discharge of or discrimination against an employee for fi ling charges or giving testimony

under the act.

5. Refusal to bargain in good faith with the legal representative of the employees.

In addition, the act established a three-member National Labor Relations Board (NLRB)

to administer the Wagner Act (the NLRB is discussed later in this chapter). The act also estab-

lished procedures for use in union elections and directed the NLRB to conduct such elections

and investigate unfair practices.

HRM in Action 18.2 describes the Employee Free Choice Act (EFCA), which has not pres-

ently been passed by Congress.

Labor–Management Relations (Taft–Hartley) Act (1947) After the passage of the Wagner Act, union membership grew from approximately 6 percent

of the total workforce to approximately 23 percent in 1947. Accompanying this growth was an

increase in union militancy. Strikes became much more frequent and widespread. In 1946, a

record 4.6 million employees participated in strikes. A nationwide steel strike, an auto strike,

two coal strikes, and a railroad strike negatively infl uenced scores of other industries, causing

shortages and layoffs.

National Labor Relations Act (Wagner Act) Prolabor act of 1935 that gave

workers the right to organize,

obligated the management of

organizations to bargain in

good faith with unions, defi ned

illegal management practices

relating to unions, and created

the National Labor Relations

Board (NLRB) to administer

the act.

HRM in Action 18.2

Relations Act and establish procedures where the National

Labor Relations Board (NLRB) would certify a union as a

bargaining representative of employees only if a majority

of unit employees signed union authorization cards. This

legislation would allow unions to continue to petition for

NLRB-supervised secret-ballot elections, once 30 percent of

said workers signed union authorization cards.

Source: Adapted from Anonymous,”EFCA Update: Are Compromise Measures Going Nowhere?”, HR Focus, October 2009, p. 6.

EFCA COMPROMISE UPDATE HR professionals and employers who feared the harsh

requirements laid out in the original Employee Free Choice

Act (EFCA) can relax. Despite months of negotiating and

alternative proposals, neither side has brought a compromise

bill with any chance of passing.

Via teleconference in late July, it was confi rmed that

neither business nor employer groups have found common

ground The EFCA would amend the National Labor

362 Part Five Employee Well-Being and Labor Relations

It was against this background of events that the Labor–Management Relations Act was passed in 1947. Known as the Taft–Hartley Act, it was an amendment and extension of the Wagner Act. The Taft–Hartley Act marked another change in the legislative posture toward

union–management relations. The act basically placed government in the role of referee to

ensure that both unions and management dealt fairly with each other.

Under the Taft–Hartley Act, employees have the right to organize a union, bargain col-

lectively with an employer, and engage in other concerted activities for the purpose of collec-

tive bargaining. The act also spelled out unfair labor practices by employers and prohibited

managers from forming or joining a labor union. Most provisions of the act are identical to

those of the Wagner Act, but one unfair practice was changed signifi cantly. Under the Wagner

Act, employers were prohibited from discriminating in regard to hiring, fi ring, or any term

or condition of employment to encourage or discourage membership in a union. However,

the Wagner Act permitted closed and preferential shop agreements. With a closed shop, only

union members can be hired, and the preferential shop requires that union members be given

preference in fi lling job vacancies. The Taft–Hartley Act made closed and preferential shops

illegal. However, the act permitted agreements in the construction industry, which required

union membership within seven days of employment. The act also permitted a practice in the

construction industry referred to as a union hiring hall, under which unions referred people to

employers with existing job openings.

Unlike the Wagner Act, the Taft–Hartley Act also established a number of unfair union

practices. In general, unions were forbidden to

1. Coerce employees who do not want to join.

2. Force employers to pressure employees to join a union.

3. Refuse to bargain in good faith with an employer.

4. Force an employer to pay for services not performed (featherbedding).

5. Engage in certain types of secondary boycotts (taking action against an employer that is not

directly engaged in a dispute with a union).

6. Charge excessive initiation fees when union membership is required because of a union

shop agreement. A union shop agreement requires employees to join the union and remain

members as a condition of employment.

The Taft–Hartley Act also contained an important provision, the so-called free-speech

clause. This clause stated that management has the right to express its opinion about unions or

unionism to its employees, provided they carry no threat of reprisal or force.

The Taft–Hartley Act also prohibited secondary boycotts. The concept of secondary boycott is a complex issue, but basically concerns involving other employers (secondary employers) in the relationship between a union and an employer (the primary employer). For

example, if a union attempts to persuade a large customer of a primary employer to stop doing

business with the primary employer until the primary employer agrees to the union’s demands,

this is a secondary boycott, which is illegal. However, distinguishing between a primary and

secondary employer is very complex and has been the subject of many unfair labor practice

charges that the NLRB has ruled on.3

National Labor Relations Board

The Taft–Hartley Act also expanded the size of the National Labor Relations Board (NLRB) and created the Offi ce of the General Counsel. Presently, the board is a fi ve-member panel appointed by the president of the United States with the advice and consent of the Senate. Each

member serves for a fi ve-year term. One of the fi ve is appointed as board chairperson by the

president, with Senate confi rmation. The general counsel, a separate offi ce independent from

the board, is appointed by the president and approved by the Senate for a four-year term.

The relationship between the fi ve-member board and the general counsel is similar to the

relationship between the judge (or jury) and the prosecutor. In unfair labor practice cases, the

board sits as the judge and the general counsel acts as the prosecutor. Anyone can fi le an unfair

labor practice complaint with the general counsel. Frequently, people refer to fi ling an unfair

labor practice charge with the board, but it is actually fi led with the general counsel. After the

Labor–Management Relations Act (Taft–Hartley Act) Legislation enacted in 1947

that placed the federal

government in a watchdog

position to ensure that

union–management relations

are conducted fairly by both

parties.

secondary boycott Issue involving other employers

(secondary employers) in the

relationship between a union

and an employer (the primary

employer).

National Labor Relations Board (NLRB) Five-member panel created by

the National Labor Relations

Act and appointed by the

president of the United States

with the advice and consent

of the Senate and with the

authority to administer the

Wagner Act.

Offi ce of the General Counsel Separate and independent

offi ce created by the Taft–

Hartley Act to investigate

unfair labor practice charges

and present those charges with

merit to the NLRB.

Chapter 18 The Legal Environment and Structure of Labor Unions 363

charge is fi led, the general counsel investigates it and decides the merit of the charge. If the

general counsel decides the act has been violated, a complaint is issued. The case is then tried

before the board, which decides whether a violation has occurred.

The division of authority between the board and the general counsel applies only to unfair

labor practice charges. Union election procedures are handled solely by the board. The role of

the board in union election campaigns is described in greater depth in Chapter 19.

Much of the work of the board and the Offi ce of the General Counsel is carried out in

regional offi ces established by the board. Each regional offi ce is headed by a regional director

appointed by the board. The regional director serves as the local representative of the general

counsel in processing unfair labor practice charges and as the local representative of the board

in administering union election procedures.

Right-to-Work Laws

Section 14(b) of the Taft–Hartley Act is one of the most controversial sections of the law. It

states:

Nothing in this act shall be construed as authorizing the execution or application of agreements

requiring membership in a labor organization as a condition of employment in any state or

territory in which such execution or application is prohibited by state or territory law.

Thus, section 14(b) leaves to the states and territories the right to pass laws prohibiting union

shops and other arrangements for compulsory union membership. Laws passed by individual

states prohibiting compulsory union membership are called right-to-work laws, and states that have passed such legislation are right-to-work states. Presently there are 21 right-to-work states:

Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Iowa, Kansas, Louisiana, Mississippi,

Nebraska, Nevada, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee,

Texas, Utah, Virginia, and Wyoming (see Figure 18.1). In these states, employees in unionized

organizations are represented by the union but are not required to belong to the union or pay union

dues. Unions argue that employees who choose not to belong or pay union dues get a free ride.4

The Taft–Hartley Act also created an independent agency known as the Federal Mediation

and Conciliation Service within the federal government. This agency assists parties in labor

disputes to settle such disputes through conciliation and mediation. Finally, the act also estab-

lished procedures that the president of the United States can use for resolving labor disputes

that imperil the national health and safety.

HRM in Action 18.3 describes a criminal investigation being conducted by the U.S. Department

of Labor against the International Brotherhood of Electrical Workers (IBEW) Local 1505.

right-to-work laws Legislation enacted by

individual states under the

authority of Section 14(b)

of the Taft–Hartley Act that

can forbid various types of

union security arrangements,

including compulsory union

membership.

Right-to-Work State

Forced-Unionism State

AZ NM

HI AK

MS AL

TN SC

VA KY

IN OH

VT ME NH

CT NJ

FIGURE 18.1 Map of Right-to-Work

States

Source: National Right to Work Legal

Defense Foundation.

364

Labor–Management Reporting and Disclosure (Landrum–Griffi n) Act (1959) Even after the passage of the Taft–Hartley Act, complaints continued concerning corruption and

heavyhanded activity by certain unions. Thus, Congress created the Senate Select Committee

on Improper Activities in the Labor or Management Field, better known as the McClellan Com-

mittee. Between 1957 and 1959, the McClellan Committee held hearings on union activities.

As a result of these hearings, in 1959 Congress passed the Labor–Management Reporting and Disclosure Act (LMRDA), usually called the Landrum–Griffi n Act. This act, which was also an amendment to and extension of the Wagner Act, was aimed primarily at regulating

internal union affairs and protecting the rights of individual union members.

The main provisions of the act are as follows:

1. Union members are guaranteed the right to vote in union elections.

2. Union members are guaranteed the right to oppose their incumbent leadership both in

union meetings and by nominating opposition candidates.

3. A majority affi rmative vote of members by a secret ballot is required before union dues can

be increased.

4. Reports covering most fi nancial aspects of the union must be fi led with the U.S. Department

of Labor.

5. Offi cers and employees of unions are required to report any fi nancial dealings with em-

ployees that might potentially infl uence the union members’ interests.

6. Each union is required to fi le a constitution and bylaws with the U.S. Department of Labor.

7. Rigid formal requirements are established for conducting both national and local union

elections.

8. Union members are allowed to bring suit against union offi cials for improper management

of the union’s funds and for confl ict-of-interest situations.

9. Trusteeships that allow national or international unions to take over the management of

a local union can be established only under provisions specifi ed in the constitution and

by-laws of the union and only to combat corruption or fi nancial misconduct.

Civil Service Reform Act (1978) Prior to 1978, labor–management relations within the federal government were administered

through executive orders. These orders are issued by the president of the United States and relate to the management and operation of federal government agencies. Executive Order

10988, issued by President Kennedy, gave federal employees the right to join unions and re-

quired good-faith bargaining by both unions and federal agency management. Executive Order

11491, issued by President Nixon, defi ned more precisely the rights of federal employees

Labor–Management Reporting and Disclosure Act (LMRDA) (Landrum–Griffi n Act) Legislation enacted in 1959

regulating labor unions and

requiring disclosure of certain

union fi nance information to

the government.

executive orders Orders issued by the president

of the United States for

managing and operating federal

government agencies.

IBEW LOCAL 1505 The U.S. Department of Labor notifi ed Local 1505 of the IBEW

of a criminal investigation that was being conducted concern-

ing fi nancial matters within the local union. Local 1505 repre-

sents approximately 2,400 of Raytheon’s 11,500 employees in

Massachusetts. Investigators are examining fi nancial records

of the union. They have requested all credit card statements

and receipts from January 1999 to present; all bank state-

ments, canceled checks, and bonds for the same period; and

all expense vouchers. In addition, the investigators have asked

for all information regarding the sale of Local 1505’s building

and have advised the union’s leadership not to destroy any

information. This investigation is likely to cause more internal

strife within Local 1505.

Michael Zagami was elected business manager of Local

1505 in 1996; Stanley Lichwala was elected president of Local

1505 in 1999. These two leaders have provoked a great deal

of criticism within Local 1505. Zagami and Lichwala had a

fallout over fi nances and management styles in March 2002.

Both of these men ran for business manager of the union in

June 2002, but were defeated by George Noel, a longtime

internal critic of the union’s leadership. Lichwala admitted

he had returned some funds to the local union after an

investigation conducted by the IBEW national offi ces.

Source: Adapted from Ross Kerber, “U.S. Launches Probe of Massachusetts Union Local Representing Raytheon Workers,” Knight Ridder Tribune Business News, Washington, D.C., August 13, 2002, p. 1.

HRM in Action 18.3

Chapter 18 The Legal Environment and Structure of Labor Unions 365

in regard to unionization by establishing unfair labor practices for both unions and federal

agency management. It also established procedures to safeguard these rights.

In 1978, the Civil Service Reform Act was passed. Basically, it enacted into law the meas- ures that had previously been adopted under Executive Orders 10988 and 11491. The act gave

federal employees the right to organize and establish procedures for handling labor– management

relations within the federal government. The main provisions of the act are as follows:

1. Established the Federal Labor Relations Authority (FLRA) to administer the act. The FLRA is composed of three members, not more than two of whom may be members of

the same political party. Members of the authority are appointed by the president, with

approval of the Senate, for a term of fi ve years.

2. Created the Offi ce of the General Counsel within the FLRA to investigate and prosecute

unfair labor practices. The general counsel is appointed by the president, with approval of

the Senate, for a term of fi ve years.

3. Created the Federal Services Impasses Panel (FSIP) within the FLRA to provide assistance in resolving negotiation impasses between federal agencies and unions. The

panel is composed of a chairperson and at least six other members who are appointed by

the president for a term of fi ve years.

4. Established unfair labor practices for the management of federal agencies and unions.

5. Established the general areas that are subject to collective bargaining.

6. Required binding arbitration for all grievances that have not been resolved in earlier stages

of the grievance procedure.

7. Prohibited strikes in the federal sector.

UNION STRUCTURES

As the previously described legislation was passed and court actions taken, organizational

units were developed within the union movement to deal with problems and take advantage of

opportunities. Four basic types of such units exist:

• Federations of local, national, and international unions (e.g., AFL–CIO).

• National or international unions.

• City and state federations.

• Local unions.

Some important dates relating to the development of the different union organizational units

are shown in Table 18.1.

AFL–CIO Structurally speaking, the American Federation of Labor–Congress of Industrial Organ- izations (AFL–CIO) is the largest organizational unit within the union movement. Its primary goal is to promote the interests of unions and workers. The AFL–CIO resulted from the 1955

merger of the American Federation of Labor and the Congress of Industrial Organizations.

Federal Services Impasses Panel (FSIP) Entity within the FLRA

whose function is to provide

assistance in resolving

negotiation impasses within the

federal sector.

Web site: AFL–CIO www.afl cio.org

American Federation of Labor–Congress of Industrial Organizations (AFL–CIO) Combination of national,

international, and local unions

joined together to promote the

interest of union and workers.

The AFL–CIO was formed in

1955 by the amalgamation of

the American Federation of

Labor (AFL) and the Congress

of Industrial Organizations

(CIO).

Civil Service Reform Act Legislation enacted in 1978

regulating labor–management

relations for federal

government employees.

Federal Labor Relations Authority (FLRA) Three-member panel created by

the Civil Service Reform Act

whose purpose is to administer

the act.

TABLE 18.1 Important Dates in the

Labor Movement

Year Event

1792 First local union: Philadelphia Shoemaker’s Union

1833 First city federation: New York, Philadelphia, Baltimore

1850 First national union: International Typographical Union

1869 First attempt to form a federation of unions: Knights of Labor

1886 Formation of American Federation of Labor (AFL)

1938 Formation of Congress of Industrial Organizations (CIO)

1955 AFL–CIO merger

366 Part Five Employee Well-Being and Labor Relations

Formed in 1886, the AFL was composed primarily of craft unions, which had only skilled workers as members. Most such unions had members from several related trades (e.g.,

the Bricklayers, Masons, and Plasterers International Union). The CIO, formed in 1938, was

developed to organize industrial unions, which have as members both skilled and unskilled workers in a particular industry or group of industries. The United Automobile Workers is an

example of an industrial union.

Technically speaking, the AFL–CIO is not itself a union but is merely an organization com-

posed of affi liated national and international unions, affi liated state and local bodies, local

unions affi liated directly with the AFL–CIO, and eight trade and industrial departments. The

AFL–CIO is merely a loose, voluntary federation of unions. Not all national and international

unions belong to the AFL–CIO. However, a majority of unions are affi liated with the AFL–CIO.

The basic policies of the AFL–CIO are set and its executive council elected at a national

convention held every two years. The executive council—composed of the president, the

secretary-treasurer, the executive vice president, and 29 other members—carries out the

policies established at the convention. Each affi liated national and international union sends

delegates to the convention. The number of delegates a particular union sends is determined

by the size of its membership.

To deal with specifi c concerns, the AFL–CIO president appoints and supervises standing

committees that work with staff departments to provide services to the union membership. The

general board meets at the call of the president or the executive council and acts on matters

referred to it by the executive council.

National and International Unions The organizational structure of most national and international unions is similar to that of the

AFL–CIO. Unions are called international because they often have members in both the United

States and Canada. In general, both national and international unions operate under a constitution

and have a national convention with each local union represented in proportion to its member-

ship. Usually the convention elects an executive council, which normally consists of a president,

a secretary-treasurer, and several vice presidents. Normally, the president appoints and manages a

staff for handling matters such as organizing activities, research, and legal problems.

The fi eld organization of a national or an international union usually has several regional

or district offi ces headed by a regional director. Under the regional director are fi eld repre-

sentatives who are responsible for conducting union organizing campaigns and assisting local

unions in collective bargaining and handling grievances.

City and State Federations City federations receive charters from the AFL–CIO and are composed of local unions within

a specifi ed area. Local unions send delegates to city federation meetings, which are generally

held on a biweekly or monthly basis.

The primary function of city federations is to coordinate and focus the political efforts of

local unions. During elections, city federations usually endorse a slate of candidates. Most

city federations maintain an informal lobby at the city hall and present labor issues to legisla-

tive committees. City federations do not always focus their efforts only on labor issues. Other

issues and activities that city federations frequently address include school board policies,

community fund-raising drives, and public transportation problems.

State federations are also chartered by the AFL–CIO and are composed of local unions and city

federations. The main goal of state federations is to infl uence political action favorable to unions.

They try to persuade union members to vote for union-endorsed candidates. During state legisla-

tive sessions, the state federation actively lobbies for passage of bills endorsed by labor unions.

Local Unions Most local unions operate under the constitution of their national or international union. How-

ever, a number are independent in that they operate without a national affi liation. Furthermore,

a local union can be affi liated directly with the AFL–CIO without being connected with a

national or international union.

As a rule, the membership of a local union elects offi cers, who carry out the union activities.

In a typical local union, the members elect a president, vice president, and secretary-treasurer

craft unions Unions having only skilled

workers as members. Most

craft unions have members

from several related trades

(e.g., Bricklayers, Masons, and

Plasterers International Union).

industrial unions Unions having as members

both skilled and unskilled

workers in a particular industry

or group of industries.

Chapter 18 The Legal Environment and Structure of Labor Unions 367

35%

30%

25%

20%

15%

10%

'21 '27 '33 '39 '45 '51 '57 '63 '69 '75 '81 '87 '93 '99 '03 '08'01

FIGURE 18.2 Union Membership History

as a Percentage of the U.S.

Workforce, 1921–2003.

Source: U.S. Department of Labor.

and usually form several committees. For example, a bargaining committee is usually appointed

to negotiate the contract for the union, and a grievance committee is usually appointed to handle

grievances for the membership. The latter committee is generally composed of a chief steward

and several departmental stewards. The stewards recruit new employees into the union, listen to

employee complaints, handle grievances, and observe management’s administration of the union

contract. Generally, most local union offi cials work at a regular job but have some leeway in using

working time to conduct union business. In large locals, most offi cials are full-time, paid employees

of the union. The local usually depends heavily on the fi eld representative of its national or interna-

tional union for assistance in handling contract negotiations, strikes, and arbitration hearings.

In those industries where membership is scattered among several employers, local unions often

have a business agent who is a full-time, paid employee of the local union. This agent manages

internal union activities, negotiates contracts, meets with company offi cials to resolve contract inter-

pretation issues, handles grievances, and serves as an active participant in arbitration hearings.

CURRENT AND FUTURE DEVELOPMENTS IN THE LABOR MOVEMENT

Between 1935 (the year the National Labor Relations Act was passed) and the end of World

War II, union membership quadrupled (see Figure 18.2). During the post–World War II era

through 1970, union membership continued to grow. Between 1970 and 1980, union member-

ship grew by slightly more than 1 million members, but as a percentage of the total workforce

it dropped signifi cantly. In addition, union membership dropped in the 1980s by approxi-

mately 5 million workers, and it has continued to drop as a percentage of the total workforce.

In contrast, union membership for government employees has grown recently. Unions also

hold a much higher percentage of the government workforce.

In January 2004, the U.S. Department of Labor published a report indicating that 12.9 per-

cent of wage and salary workers were union members, down from 13.3 percent in 2002. The

2003 data include these highlights:

• Men were more likely to be union members than women.

• African Americans were more likely to be union members than were whites, Asians, and

Hispanics.

• Nearly 4 in 10 government workers were union members in 2003, compared with less than

1 in 10 workers in private-sector industries.

• Nearly two of fi ve workers in the education, training, and library occupations were union

members.

• Nearly two of fi ve workers in the protective service occupation which includes fi re fi ghters

and police offi cers.

• Four states had union membership rates over 20 percent in 2003: New York (24.6 percent),

Hawaii (23.8 percent), Alaska (22.3 percent), and Michigan (21.9 percent).

• North Carolina (3.1 percent) and South Carolina (4.2 percent) reported the lowest union

membership rates.5

Web site: FindLaw www.fi ndlaw.com

368 Part Five Employee Well-Being and Labor Relations

Historically, labor unions have gained their strength from blue-collar production workers.

However, the workforce has grown and will continue to grow principally in the service sector

of the economy. Less than 10 percent of the service sector is currently organized. Unions have

been successful in organizing narrow segments of the service sector, such as teachers, pilots,

and musicians. However, it is expected that a major emphasis of future organizing campaigns

will be directed toward convincing unorganized white-collar employees that their personal and

professional needs can be satisfi ed through union representation.

By the late 1990s, investments in private pension plans reached approximately $3 trillion.

Labor unions are likely to attempt to infl uence how these monies are invested. Specifi cally,

unions will probably request that the funds not be invested in stock of antiunion companies or

companies that engage in antiunion practices.

The AFL–CIO has lost about 3.6 million of its nearly 13 million members and about

$26 mil lion of its $126 million budget as a result of the disaffi liation of three large unions. The

1.8-million-member Service Employees International Union, the 1.4-million-member Inter-

national Brotherhood of Teamsters, and the 1.4-million-member United Food and Commercial

Workers Union all disaffi liated with the federation in July, 2009.

Another likely development is the continued increase in union mergers. Union mergers

take two basic forms. An amalgamation involves two or more unions, normally of roughly equal size, forming a new union. An absorption involves the merging of one union into a considerably larger one. Roughly 50 of the AFL–CIO affi liates have under 50,000 members,

and another 30 have under 100,000 members. Larger unions can, of course, bring much more

pressure on management, not only in negotiating collective bargaining agreements but also in

union organizing campaigns.

1. Describe the conspiracy doctrine.

The conspiracy doctrine established that a union could be punished if either the means

used or ends sought by the union were deemed illegal by the courts.

2. Defi ne injunction.

An injunction is a court order to stop an action that can result in irreparable damage to

property when the situation is such that no adequate remedy is available to protect the

interests of the injunction-seeking party.

3. Explain a yellow-dog contract.

A yellow-dog contract (a term coined by labor unions) is an agreement between a worker

and an employer stipulating, as a condition of employment, that the worker will not join

a labor union. Yellow-dog contracts are now illegal.

4. Defi ne the Railway Labor Act (1926).

This act set up the administrative machinery for handling labor relations within the

railroad and airline industries.

5. Describe the Norris–La Guardia Act (1932).

This act made yellow-dog contracts unenforceable and severely limited the use of

injunctions. It also gave employees the right to organize and bargain with employers on

the terms and conditions of employment.

6. Defi ne the Wagner Act (1935).

This act gave employees the right to organize unions, bargain collectively with employers,

and engage in other concerted actions for the purpose of mutual protection.

7. Explain the Taft–Hartley Act (1947).

This act basically placed government in the role of referee to ensure that both unions and

management deal fairly with each other.

8. Describe right-to-work laws.

Right-to-work laws were passed by individual states and prohibit compulsory union

membership.

Web site: Internet Law Library www.lectlaw.com

amalgamation Union merger that involves

two or more unions, usually of

approximately the same size,

forming a new union.

absorption Union merger that involves

the merger of one union into a

considerably larger one.

Summary of Learning Objectives

Chapter 18 The Legal Environment and Structure of Labor Unions 369

9. Explain the Landrum–Griffi n Act (1959).

This act aimed primarily to regulate internal union affairs and protect the rights of

individual union members.

10. Describe the AFL–CIO.

The AFL–CIO is a voluntary federation of unions whose primary goal is to promote the

interests of unions and workers.

11. Defi ne amalgamation and absorption.

An amalgamation involves two or more unions, normally of roughly equal size, forming

a new union. An absorption involves the merging of one union into a considerably

larger one.

1. Explain the ruling in the Philadelphia Cordwainers case of 1806.

2. What was the decision in the Commonwealth v. Hunt case of 1842?

3. What is an injunction? How were injunctions used against labor unions?

4. What is a yellow-dog contract?

5. List the major benefits unions gained with the passage of the Norris–La Guardia Act

of 1932.

6. What unfair employer practices were specified by the Wagner Act of 1935?

7. What unfair union practices were specified by the Taft–Hartley Act of 1947?

8. Outline the main areas covered by the Landrum–Griffin Act of 1959.

9. Outline the main areas covered by the Civil Service Reform Act of 1978.

10. Briefly describe the four basic types of union organizational units.

11. What trends have occurred in labor union membership from 1935 to the present?

1. Why did legislation take a prounion turn in the 1930s?

2. Discuss your feelings about the following statement: “Management should always fight

hard to keep unions out of their organization.”

3. Do you think white-collar employees should join unions? Why or why not?

4. Do you believe college professors and nurses are good candidates for unionization? Why

or why not?

Review Questions

Discussion Questions

Key Terms absorption, 368 amalgamation, 368

American Federation of

Labor–Congress of

Industrial Organizations

(AFL–CIO), 365

Civil Service Reform

Act, 365

Commonwealth v. Hunt, 358

conspiracy doctrine, 358

craft unions, 366

Danbury Hatters case, 360

Duplex Printing Co. v.

Deering, 360

executive orders, 364

Federal Labor Relations

Authority (FLRA), 365

Federal Services Impasses

Panel (FSIP), 365

Hitchman Coal & Coke

Co. v. Mitchell, 359

industrial unions, 366

injunction, 359

Labor–Management

Relations Act

(Taft–Hartley Act), 362

Labor–Management

Reporting and Disclosure

Act (LMRDA) (Landrum–

Griffi n Act), 364

National Labor Relations

Act (Wagner Act), 361

National Labor Relations

Board (NLRB), 362

Norris–La Guardia Act

of 1932, 360

Offi ce of the General

Counsel, 362

Philadelphia Cordwainers

(shoemakers) case of

1806, 358

Railway Labor Act, 360

right-to-work laws, 363

secondary boycott, 362

yellow-dog contract, 359

370 Part Five Employee Well-Being and Labor Relations

Incident 18.1

Unions and Management

International Association of Machinists and Aerospace Workers (IAMAW) Local 709 voted to

end a strike against the Marietta plant of Lockheed-Georgia Company. The contract that was

agreed on contained a wage increase of about 13 percent and improved retirement, insurance,

and other benefi ts. The company also agreed to pay employees for the seven days over the

Christmas holidays and the two days over the Thanksgiving holidays that were missed during

the strike.

For the Marietta workers, the main issue was their right to “bump” workers with less senior-

ity from projects during times when there are not enough jobs to go around. Lockheed offi cials

claimed the bumping procedure, whereby an employee having at least one day’s seniority

over another could take the junior’s job, would hurt production so badly that it could force the

company to abandon projects. Lockheed’s initial proposal had been that an employee without

at least three months’ seniority over the junior employee would not be allowed to bump. After

the union rejected this proposal, the company proposed to change the seniority requirement to

at least one month. At that point, negotiations broke down.

The last Lockheed offer, which was accepted, was that the seniority system remain the same

for all current Lockheed employees. However, anyone hired after Lockheed’s offer was accepted

would have to have at least one month’s seniority to be able to bump another worker.

Questions

1. Why do you think unions insisted on seniority as the criterion in the preceding example?

2. Do you think seniority should be used in any process within a company? Why or why not?

Incident 18.2

Voluntary Resignations during a Strike

The Supreme Court ruled in a fi ve-to-four decision that unions cannot fi ne employees who

resign their union membership during a strike and return to work in violation of union rules.

The case involved a seven-month strike by the Pattern Makers’ League against clothing

companies in Illinois and Wisconsin. The union had a rule prohibiting resignations during a

strike and enforced it by fi ning 10 employees the approximate amount they earned after they

returned to work during the strike.

The Court, upholding the view of the National Labor Relations Board, said that impos-

ing fi nes and other restrictions on employees who quit the union during a strike “impairs the

policy of voluntary unionism.”

Source: Adapted from Stephen Wermiel, “Justices Rule Unions Can’t Fine Members Who Quit, Resume

Work during a Strike,” The Wall Street Journal, June 28, 1985, p. 5.

Questions

1. Do you think unions should be able to restrict resignations during a strike? Why or why

not?

2. Do you think this decision has had any effect on union membership?

The class breaks into teams of four to fi ve students. Each team should prepare to debate the

following statements:

1. Unions served a useful purpose in the past but have outlived their usefulness.

2. Unions are needed today as much as they have been in the past. Without unions, wages and

working conditions of the average employee would deteriorate.

EXERCISE 18.1

Need for Unions

Chapter 18 The Legal Environment and Structure of Labor Unions 371

After the debate, the instructor will list on the board some points made by each team, and the

class will discuss the issues involved.

1. Samuel Gompers, “The Charter of Industrial Freedom,” American Federationist, November 1914,

pp. 971–72.

2. See Frank N. Wilner, “Should the Railway Labor Act Be Updated?” Railway Age, July 2001, p. 56.

3. See Joseph Bonney, “NLRB Investigating Evergreen Charges,” Journal of Commerce, May 23, 2003,

p. 1.

4. See Clay Walker, “The Myth of Right-to-Work Laws,” Area Development Site and Facility Planning,

June 2001, pp. 121–24.

5. Union Members Summary, U.S. Department of Labor, Bureau of Labor Statistics, January 21, 2004,

pp. 1–2.

Notes and Additional Readings

373

Chapter Learning Objectives

After studying this chapter, you should be

able to:

1. Defi ne collective bargaining.

2. Explain the captive-audience doctrine.

3. Defi ne bargaining unit.

4. Explain certifi cation, recognition, and

contract bars.

Chapter Nineteen

Union Organizing Campaigns and Collective Bargaining

5. Describe good-faith bargaining.

6. Discuss boulwarism.

7. Explain mediation.

8. Defi ne checkoff.

9. Explain seniority.

10. Defi ne lockout and strike.

Chapter Outline

Union Membership Decision

Reasons for Joining

The Opposition View

Union Organizing Campaign

Determining the Bargaining Unit

Election Campaigns

Election, Certification, and Decertification

Good-Faith Bargaining

Participants in Negotiations

Employer’s Role

Union’s Role

Role of Third Parties

Collective Bargaining Agreements

Specifi c Issues in Collective Bargaining

Agreements

Management Rights

Union Security

Wages and Employee Benefi ts

Individual Security (Seniority) Rights

Dispute Resolution

Impasses in Collective Bargaining

Trends in Collective Bargaining

Summary of Learning Objectives

Key Terms

Review Questions

Discussion Questions

Incident 19.1: Florida National Guard and

NAGE

Incident 19.2: Retiree Benefits

Exercise 19.1: Contract Negotiations

Notes and Additional Readings

Collective bargaining is a process that involves the negotiation, drafting, administration, and interpretation of a written agreement between an employer and a union for a specifi c

period of time. The end result of collective bargaining is a contract that sets forth the joint un-

derstandings of the parties as to wages, hours, and other terms and conditions of employment.

Contracts cover a variety of time periods, the most common being three years.

The basic components of the collective bargaining process are the following:

1. Negotiation of relevant issues in good faith by both management and the union.

2. Incorporation of the parties’ understandings into a written contract.

collective bargaining Process that involves the

negotiation, drafting,

administration, and

interpretation of a written

agreement between an

employer and a union for a

specifi c period of time.

374 Part Five Employee Well-Being and Labor Relations

3. Administration of the daily working relationships according to the terms and conditions of

employment specifi ed in the contract.

4. Resolution of disputes in the interpretation of the terms of the contract through established

procedures.

Normally the human resource department serves as management’s primary representative in

all aspects of the collective bargaining process.

UNION MEMBERSHIP DECISION

Before the collective bargaining process begins, the employees of an organization must decide

whether they want to be represented by a union. Thus, an important prerequisite to understand-

ing the collective bargaining process is knowledge of what attracts employees to unions.

Reasons for Joining A variety of factors infl uence an employee’s desire to join a union. Employees who are dis-

satisfi ed with their wages, job security, benefi ts, the treatment they receive from management,

and their chances for promotion are more likely to vote for union representation. Another

important factor in determining employees’ interest in union membership is their perception

of the ability of the union to change the situation. If employees do not believe unionization

will change the economic and working conditions that dissatisfy them, they are unlikely to

vote for unionization.

While wages, benefi ts, working conditions, and job security are the main issues contribut-

ing to the decision to join a union, other factors include employees’ desires for

1. Better communication with management.

2. Higher quality of management and supervision.

3. Increased democracy in the workplace.

4. Opportunity to belong to a group where they can share experiences and comradeship.

The Opposition View Understanding why employees oppose unionization is as important as knowing why they favor

it. The major reasons for not joining a union are satisfactory wages, benefi ts, working condi-

tions, and job security. Some employees also have a negative image of labor unions, believing

unions have too much political infl uence, require members to go along with decisions made

by the union, and have leaders who promote their own self-interests. Other reasons include

the belief that unions abuse their power by calling strikes, causing high prices, and misusing

union dues and pension funds.

Some employees identify with management and view unions as adversaries. However, dis-

satisfaction with wages, benefi ts, and working conditions can quickly break down this nega-

tive attitude toward unions.

Many organizations have avoided unionization. In most cases, the managements of those

organizations have provided satisfactory wages, benefi ts, working conditions, and job secu-

rity for their employees. Other management practices that decrease the likelihood of unioni-

zation include creating a procedure for handling employee complaints, eliminating arbitrary

and heavy-handed management and supervisory practices, establishing a meaningful system

of two-way communication between management and employees, eliminating threats to

employees’ job security, and making employees feel that they are part of the organization.

UNION ORGANIZING CAMPAIGN

Most often, union organizing campaigns begin when one or more employees request that the

union begin an organizing campaign. In some instances, national and international unions

contact employees in organizations that have been targeted for organizing campaigns. Gener-

ally, however, unions will not attempt to organize a facility unless there is a strong body of

Web site: United States National Labor Relations Board www.nlrb.gov

Chapter 19 Union Organizing Campaigns and Collective Bargaining 375

support among the employees. Typically, the union begins a campaign to interest employees

in joining it. After the union generates suffi cient interest, employees sign authorization cards

indicating they would like to have an election to vote for or against representation by a union.

If 30 percent of the employees sign these authorization cards, the National Labor Relations

Board (NLRB) may be requested to come in and supervise an election. In practice, it is

unlikely the NLRB will be petitioned unless over 50 percent sign authorization cards.

Several restrictions have been placed on where and when support for the unions can be

solicited. Generally, employees in favor of the union can orally solicit support from other

employees in work and nonwork areas, but only on nonwork time. In addition, if management

allows employees to engage in casual conversation while they are working, the employees can

discuss union matters if production is not hindered. Union literature can be distributed only on

nonworking time, and management can limit the distribution of literature to nonwork areas.

The NLRB rarely approves exceptions to the general rules for oral solicitation and distribu-

tion of union literature. However, some exceptions have been granted. For example, department

stores can establish rules prohibiting oral solicitation on the sales fl oor, provided employees

are generally prohibited from casual conversations on the sales fl oor because customers are

waiting for service.

The rights to orally solicit union support and distribute union literature on company prop-

erty apply only to employees. Generally management can prohibit union organizers from en-

tering company property for these purposes. One exception in this area is that if management

allows other solicitors to enter company property, they cannot exclude union organizers.

Under the so-called captive-audience doctrine, management has the right to speak against the union on company time to employees and require employees to attend the meeting. On the

other hand, the union does not have the right to reply on company time. The primary exception

to the captive-audience doctrine is that management is prohibited from giving a speech on

company time to a mass employee audience in the 24 hours immediately before an election.

However, the 24-hour rule applies only to a speech before a large group. Managers are permitted

to talk against the union to employees individually or in small groups during the last 24 hours.

Determining the Bargaining Unit When the union obtains signed authorization cards from at least 30 percent of the employees,

either the union or the employer can petition the National Labor Relations Board to conduct a

representation election. In the event the union has signed authorization cards from more than

50 percent of the employees, the union can make a direct request to the employer to become

the bargaining agent of the employees. When this happens, the employer normally refuses, and

the union then petitions the NLRB for an election.

After a petition is fi led, a representative of the NLRB (called an examiner) verifi es that

the authorization requirement has been fulfi lled and then makes a determination as to the

appropriate bargaining unit. A bargaining unit (or election unit) is defi ned as a group of employees in a plant, fi rm, or industry that is recognized by the employer, agreed on by the

involved parties, or designated by the NLRB or its regional director as appropriate for the

purposes of collective bargaining.

Although the NLRB is ultimately responsible for establishing an appropriate bargaining

unit, the parties usually have a great deal of infl uence on this decision. Most elections are

known as consent elections, in which the parties have agreed on the appropriate bargaining unit. When this is not the case, the NLRB must make the bargaining unit decision guided by

a concept called community of interest. Community-of-interest factors include elements such as similar wages, hours, and working conditions; the employees’ physical proximity to

one another; common supervision; the amount of interchange of personnel within the pro-

posed unit; and the degree of integration of the employer’s production process of operation.

Election Campaigns During the election campaign, certain activities, called unfair labor practices, are illegal. These

include (1) physical interference, threats, or violent behavior by the employer toward union or-

ganizers; (2) employer interference with employees involved in the organizing drive; (3) dis-

cipline or discharge of employees for prounion activities; and (4) threatening or coercing of

captive-audience doctrine Management’s right to speak

against a union to employees

on company time and to

require employees to attend the

meeting.

bargaining unit Group of employees in a

plant, fi rm, or industry that is

recognized by the employer,

agreed on by the parties to

a case, or designated by the

NLRB as appropriate for

the purposes of collective

bargaining.

consent elections Union elections in which the

parties have agreed on the

appropriate bargaining unit.

community of interest Concept by which the NLRB

makes a bargaining unit

decision based on areas of

employee commonality.

376 Part Five Employee Well-Being and Labor Relations

employees by union organizers. After fi ling for an election with the NLRB, a union can picket

an employer only if the employer is not presently unionized, the petition has been fi led with

the NLRB within the past 30 days, and a representation election has not been conducted

during the preceding 12 months. Picketing of this type is called informational picketing. Individuals patrol at or near the place of employment carrying signs to publicize the fact that

the union is requesting an election to become the bargaining agent for the employees.

During the election campaign, management usually initiates a campaign against a union,

emphasizing the costs of unionization and the loss of individual freedom that can result from

collective representation. Management can legally state its opinion about the possible rami-

fi cations of unionization if its statements are based on fact and are not threatening. Manage-

ment can also explain to employees the positive aspects of their current situation. However,

promises to provide or withhold benefi ts in the future in the event of unionization or nonun-

ionization are prohibited. An employer can conduct polls to verify union strength prior to an

election, but in general it may not question employees individually about their preferences or

otherwise threaten or intimidate them.

During the election campaign, unions emphasize their ability to help employees satisfy their

needs and improve their working conditions. The ability of the union to sell these concepts

to employees is a critical factor in the union’s success in an election campaign. Employees

must believe the union cares about their problems, can help resolve them, and can assist in

improving their wages, benefi ts, and working conditions. Unions are legally prohibited from

coercing or threatening individual employees if they do not join the union.1

The actual impact of an election campaign is unclear. However, the campaign tactics of

both management and the union are monitored by the NLRB. If the practices of either party

are found to be unfair, the election results may be invalidated and a new election conducted.

Furthermore, charges of unfair labor practices against management, if serious enough, can

result in the NLRB ordering management to bargain with the union. Such situations are called

Gissel bargaining orders. Gissel bargaining orders are named after a landmark Supreme Court decision, NLRB v. Gissel Packing Company, which held that bargaining orders by the

NLRB are an appropriate remedy for certain types of employer misconduct. Gissel bargaining

orders are rarely issued by the NLRB.

Election, Certifi cation, and Decertifi cation If management and the union agree to conduct the election as a consent election, balloting often

occurs within a short period of time. However, if management does not agree to a consent elec-

tion, a long delay may occur. Delays in balloting often increase the likelihood that management

will win the election. As a result, management frequently refuses to agree to a consent election.

In union elections, the time when an election can be held is an important issue. The so-

called 12-month rule provides that no election can be held in any bargaining unit within which a valid election has been held within the preceding 12-month period. Also, the NLRB

will not permit another election in the bargaining unit within 12 months of a union’s certi-

fi cation. This is called a certifi cation bar. The NLRB also prohibits an election for up to 12 months after an employer voluntarily recognizes a union. This is called a recognition bar. Finally, after a contract is agreed on by both parties, the NLRB does not normally permit an election in the bargaining unit covered by a contract until the contract expires, up to a maxi-

mum of three years. This is known as the contract bar doctrine. When the exact date for the election is fi nally established, the NLRB conducts a secret-ballot

election. If the union receives a majority of the ballots cast, it becomes certifi ed as the exclu-

sive bargaining representative of all employees in the unit. Exclusive bargaining representa-

tive means the union represents all employees (both union members and nonmembers) in the

bargaining unit in negotiating their wages, hours, and terms and conditions of employment. It

is important to note that the union does not have to receive a positive vote from a majority of

employees in the bargaining unit. It has to receive only a majority of the votes cast.

After a union has been certifi ed, it remains by law the exclusive bargaining representa-

tive for all employees until the employees within the unit desire otherwise. In the event the

employees want to oust the union, they can fi le a petition with the NLRB for a decertifi cation

election. If 30 percent of the employees support the petition to decertify and a valid election

informational picketing Patrolling at or near an

employer’s facility by

individuals carrying signs

to publicize the fact that the

union is requesting an election

to become the bargaining

agent for the employees of the

organization.

Gissel bargaining orders Situations in which the NLRB

orders management to bargain

with the union; named after

a landmark Supreme Court

decision, NLRB v. Gissel

Packing Company.

12-month rule Provides that no election can

be held in any bargaining unit

within which a valid election

has been held within the

preceding 12-month period.

certifi cation bar Condition occurring when the

NLRB will not permit another

election in the bargaining

unit within 12 months of a

union’s certifi cation.

recognition bar Condition occurring when

the NLRB prohibits an

election for up to 12 months

after an employer voluntarily

recognizes a union.

contract bar doctrine Doctrine under which the

NLRB will not permit an

election in the bargaining unit

covered by a contract until

the contract expires, up to a

maximum of three years.

Chapter 19 Union Organizing Campaigns and Collective Bargaining 377

to oust the union has not been held within the preceding year, a decertifi cation election is con-

ducted. If a majority of the voting employees vote to decertify the union, it no longer legally

represents them. Figure 19.1 summarizes the steps involved in an organizing campaign. HRM

in Action 19.1 describes a decertifi cation campaign.

GOOD-FAITH BARGAINING

After a union is certifi ed, the employer is required by law to bargain in good faith with the

union. Of course, bargaining between an employer and the union also takes place before the

expiration of an existing contract. The National Labor Relations Act stipulates the legal re-

quirement of good-faith bargaining for private enterprise organizations, whereas the Civil Service Reform Act of 1978 make the same requirement of federal agencies. Unfortunately,

good-faith bargaining Sincere intention of both

parties to negotiate differences

and reach a mutually

acceptable agreement.

FIGURE 19.1 Steps Involved in a Union

Organizing Campaign

Union is certified by NLRB as exclusive

bargaining agent

Employer remains

nonunion

Yes

Contact with employees of organization

Campaign for signatures on authorization cards

Union obtains signed authorization cards from

at least 30 percent of employees it is trying to

represent

Union or employer requests representation

election from NLRB

NLRB examiner determines that 30 percent

of employees have signed authorization cards

and determines appropriate bargaining unit

Election campaign

Secret ballot election

Does union receive more than 50 percent

of the votes cast?

378

DECERTIFICATION OF A UNION Nearly 1,000 Comcast employees in the Pittsburgh area are

scheduled to vote on whether to decertify the Communication

Workers of America (CWA) as their bargaining agent. Comcast

inherited the CWA-represented employees when it combined

with AT&T Broadband. The CWA has charged that the company

is encouraging employees to vote for decertifi cation. Comcast

says it simply wants employees to be properly informed before

they exercise their legal rights regarding union representation.

The CWA says that Comcast has encouraged employees to

vote against the union through captive audience meetings,

picnics, and Monday night football parties. The CWA has

been running radio advertisements and posting yard signs

criticizing Comcast’s use of outside contractors to perform

customer service work.

The union was never able to negotiate a fi rst contract in

the Pittsburgh area with either AT&T or Comcast. The union

was close to tentative agreement on several occasions and

claims that each time the company would change lawyers

and start bargaining anew. The fi rst contract is essential

to union success because if a new bargaining unit goes for

a year without obtaining a fi rst contract, employees can

petition the National Labor Relations Board (NLRB) for a

decertifi cation election to vote the union out.

However, in 2005, after years of fi ghting, the CWA won

contracts at Comcast.

Source: Adapted from Jim McKay, “Pittsburgh-Area Comcast Workers to Vote on Whether to Keep Union,” Knight Ridder Tribune Business News, November 11, 2003, p. 1.

HRM in Action 19.1

good faith—or the lack of it—is not explicitly defi ned in either of these laws. Over the years,

however, decisions of the NLRB, the Federal Labor Relations Authority (FLRA), and the

courts have interpreted good-faith bargaining to be the sincere intention of both parties to ne-

gotiate differences and to reach an agreement acceptable to both. Good-faith bargaining does

not require the parties to agree; it merely obligates them to make a good-faith attempt to reach

an agreement. Thus, the existence of good faith is generally determined by examining the total

atmosphere in the collective bargaining process. The essential requirement is that a bona fi de

attempt be made to reach an agreement. HRM in Action 19.2 describes a charge that the union

charged a lack of good faith bargaining.

Several bargaining situations have been taken to the NLRB to determine the presence

or lack of good-faith bargaining. A key case involved General Electric Company’s use of

boulwarism, which was named after a General Electric vice president, Lemuel Boulware, and means that management makes its best offer at the outset of bargaining and fi rmly

adheres to the offer throughout the bargaining sessions. The NLRB has ruled that boul-

warism is not good-faith bargaining. In its decision, the NLRB held that boulwarism was

illegal because the company not only adhered to a rigid position at the bargaining table

but, in this case, had also mounted a publicity campaign to convince its employees that

the company’s offer was best. The company belittled the union in its literature. Since the

employer simply ignored the union and went directly to the employees with its proposal,

it violated its duty to bargain in good faith with the employees’ exclusive bargaining

representative (i.e., the union).2

PARTICIPANTS IN NEGOTIATIONS

A number of parties may be either directly or indirectly involved in the collective bargain-

ing process. The primary participants are, of course, the employer and union representatives.

However, several third parties can play a signifi cant role.

Employer’s Role The employer’s participation in collective bargaining may take one of several forms. The

single-company agreement is most common. Under this approach, representatives of a single

company meet with representatives of the union and negotiate a contract. Of course, it is possi-

ble for one company to have several unions representing different groups of employees. In this

situation, representatives of the company would negotiate a different contract with each union.

Furthermore, it is possible for one company and one union to negotiate different contracts for

each of the company’s facilities or plant locations.

Web site: Federal Labor Relations Authority www.fl ra.gov

boulwarism Named after a General Electric

vice president; occurs when

management makes its best

offer at the outset of bargaining

and fi rmly adheres to the offer

throughout the bargaining

sessions. The NLRB has ruled

that this is not good-faith

bargaining and is therefore

illegal.

379

In some industries, multiemployer agreements are common. Generally, individual employ-

ers in these industries are small and are in a weak position relative to the union. Employers

then often pool together in an employer association, which negotiates a single agreement for

all involved employers. Multiemployer agreements may be on a local level (e.g., the construc-

tion industry within a city), a regional level (e.g., coal and mining), or at the national level

(railroad industry). When multiemployer bargaining occurs on a regional or national basis, it

is often referred to as industrywide bargaining.

In large organizations such as General Motors, master agreements on wage and benefi t

issue are negotiated between corporate offi cials and offi cials of the national or international

union. However, in addition to the master agreement, local supplements are negotiated at the

plant level. Local supplements deal with issues that are unique to each plant.

Union’s Role Union participation in negotiations can take several forms. In single-company agreements,

the size of the company determines the nature of the union participation. For smaller com-

panies, the local union normally works closely with a fi eld representative of the international

or national union in negotiations. In these instances, the international representative gives

advice and counsel to the local union and frequently serves as the principal negotiator for

the union.

In large companies with multiple plants, the top offi cials of the national or international

union conduct negotiations. For example, the president of the United Automobile Workers

(UAW) is normally a chief negotiator in negotiations with Ford, General Motors, and Chrysler.

Local union offi cials and a fi eld representative of the national or international union negotiate

local supplements to the master agreement for large companies.

In those industries with multiemployer agreements, union participation is usually directed

by the president of the national or international union. However, in these types of negotiations,

representatives of the local unions to be covered by the multiemployer agreement normally serve

on the union’s negotiating committee. It is also possible for several unions to bargain jointly with

a single employer. This type of negotiation is called coordinated bargaining.

Role of Third Parties Several third parties can and frequently do become involved in the collective bargaining pro-

cess. Typically the services of third parties are not required unless one or both parties feels the

other party is not bargaining in good faith or the parties reach an impasse in negotiations.

National Labor Relations Act

The National Labor Relations Act (discussed in Chapter 18) requires both unions and manage-

ment to bargain in good faith. Refusal to bargain by either party can be overridden by an order

of the National Labor Relations Board (NLRB). Furthermore, if the board’s order has been

properly issued, the U.S. Court of Appeals is required to order enforcement under the threat of

contempt-of-court penalties.

Besides refusing to bargain, other kinds of behavior can be held to be unfair labor prac-

tices. Some of these were described earlier in this chapter. The NLRB has the authority to

Web site: United Auto Workers www.uaw.org

coordinated bargaining A form of bargaining in which

several unions bargain jointly

with a single employer.

REFUSING TO BARGAIN IN GOOD FAITH The United Public Workers claimed that Gov. Linda Lingle

and her labor negotiator are not bargaining in good faith.

The UPW claims Lingle has been cancelling and walking

out of negotiation sessions. The union fi led a prohibited

practices complaint with the Hawaii Labor Relations Board.

Lingle, however, believes the claims of the UPW are

inaccurate. Through Lingle’s team, they claim there was no

meeting set for the date the UPW claims and that a second

meeting was never confi rmed.

Lingle had ordered state employees to take three

furlough days a month to help close a huge budget defi cit.

Source: Adapted from Derrick DePledge, “UPW Files Labor Complaint: Lingle, Chief Negotiator Refusing to Bargain in Good Faith, Union Says,” McClatchy-Tribune Business News, July 8, 2009.

HRM in Action 19.2

380 Part Five Employee Well-Being and Labor Relations

determine whether a particular behavior is unfair. If either party believes an unfair labor

practice has occurred during negotiations, a charge can be fi led with the NLRB. An NLRB

representative then investigates the charge and determines whether it is warranted. If so, the

parties are given the opportunity to reach an informal settlement before the NLRB takes

further action. If an informal settlement cannot be reached, the NLRB issues a formal com-

plaint against the accused party, and an NLRB trial examiner then conducts a formal hearing.

Upon completion of the hearing, the examiner makes recommendations to the NLRB. Either

party may appeal the recommendations of the examiner to the board. If the board decides the

party named in the complaint has engaged or is engaging in an unfair labor practice, it can

order the party to cease such practice and can take appropriate corrective action. Either party

can appeal decisions of the NLRB to the U.S. Circuit Court of Appeals and even the U.S.

Supreme Court.

Federal Labor Relations Authority (FLRA)

The Federal Labor Relations Authority (FLRA) was given its authority by the Civil Service

Reform Act of 1978 and serves as the counterpart to the NLRB for federal sector employees,

unions, and agencies. Under procedures similar to those of the NLRB, the FLRA investigates

unfair labor practice charges, conducts hearings on unfair labor practices, and can issue orders

to cease from any such practices.

Federal Services Impasses Panel (FSIP)

If the parties in the federal sector reach an impasse in negotiations, either party may re-

quest the Federal Services Impasses Panel (FSIP) to consider the matter. The FSIP, an entity

within the FLRA, has the authority to recommend solutions to resolve an impasse and take

whatever action is necessary to resolve the dispute, as long as the actions are not inconsist-

ent with the Civil Service Reform Act of 1978. In addition, the parties may agree to adopt

a procedure for binding arbitration of a negotiation impasse, but only if the procedure is

approved by the FSIP. The FSIP is considered to be the legal alternative to a strike in the

federal sector.

Federal Mediation and Conciliation Service (FMCS)

Created by the National Labor Relations Act, the Federal Mediation and Conciliation Service (FMCS) is an independent agency within the executive branch of the federal government. The jurisdiction of the FMCS encompasses employees of private enterprise

organizations engaged in interstate commerce, federal government employees, and employees

in private, nonprofi t hospitals and other allied medical facilities.

One of the responsibilities of the FMCS is to provide mediators to assist in resolv-

ing negotiation impasses. Mediation (or conciliation, as it is often called) is a process whereby both parties invite a neutral third party (called a mediator) to help resolve contract

impasses. Mediators help the parties fi nd common ground for continuing negotiations,

develop factual data on issues over which the parties disagree, and set up joint study com-

mittees involving members of both parties to examine more diffi cult issues. In negotiations

where the parties have become angry and/or antagonistic toward each other, the mediator

often separates them and serves as a buffer, carrying proposals and counterproposals be-

tween the parties. Mediators cannot impose decisions on the parties. Various state agencies

and private individuals, such as lawyers, professors, and arbitrators, also provide mediation

services.

Arbitrators

Although arbitration is most frequently used in the resolution of grievances during a con- tract period, it can be used to resolve impasses during collective bargaining. Arbitration

of contract terms is called interest arbitration or contract arbitration. Interest arbitration is

rarely used in the private sector but is common in the public sector. Such arbitration can take

one of two forms: conventional and fi nal-offer. Under conventional interest arbitration, the arbitrator listens to arguments from both parties and makes a binding decision, which

Web site: Federal Labor Relations Authority www.fl ra.gov/fsip/panel.html

Federal Mediation and Conciliation Service (FMCS) Independent agency within the

federal government that provides

mediators to assist in resolving

contract negotiation impasses.

mediation Process whereby both parties

invite a neutral third party

(called a mediator) to help

resolve contract impasses. The

mediator, unlike an arbitrator,

has no authority to impose a

solution on the parties.

Web site: Federal Mediation and Conciliation Service www.fmcs.gov

arbitration Process whereby the parties

agree to settle a dispute

through the use of an

independent third party (called

an arbitrator). Arbitration is

binding on both parties.

conventional interest arbitration Form of arbitration in which the

arbitrator listens to arguments

from both parties and makes

a binding decision, which can

be identical to the position of

either party or different from

the positions of both parties.

Occasionally mediators are invited as a third party to fi nd common ground among parties. Eric Audras/Photoalto/ PictureQuest

381

can be identical to the position of either party or different from the positions of both parties.

In fi nal-offer interest arbitration, the arbitrator is restricted to selecting the fi nal offer of one of the parties. Furthermore, interest arbitration can be either voluntary or mandatory.

Both the Federal Mediation and Conciliation Service and the American Arbitration Associa-

tion (AAA) provide lists of certifi ed arbitrators. HRM in Action 19.3 describes a ruling by the

Supreme Court on mandatory arbitration clauses.

COLLECTIVE BARGAINING AGREEMENTS

The collective bargaining agreement (or union contract) results from the bargaining proc-

ess and governs the relations between employer and employees for a specifi c period of

time. The contract specifi es in writing the mutual agreements reached by the parties during

the negotiations. Under the Taft–Hartley Act, collective bargaining agreements are legally

enforceable contracts. Suits charging violation of contract between an employer and a un-

ion may be brought in any district court of the United States having jurisdiction over the

parties.3

As discussed earlier in this chapter, the National Labor Relations Act obligates employ-

ers and unions to bargain in good faith on wages, hours, and other terms and conditions

of employment. These are called mandatory subjects of negotiation. However, as would be

expected, controversy has developed over the subjects covered by the phrase “other terms

and conditions of employment.” Unions attempt to expand the mandatory area by giving

a broad interpretation to the phrase. Employers, on the other hand, naturally resist this

expansion. Numerous NLRB and court decisions have been rendered concerning this is-

sue. For example, the Supreme Court ruled in one decision that all management decisions

representing a departure from prior practice that signifi cantly impair (1) job tenure, (2) em-

ployment security, and (3) reasonably anticipated work opportunities must be negotiated as

mandatory subjects. The number of mandatory bargaining items has defi nitely expanded

over the years.

An issue on which the parties are not required to bargain is called a nonmandatory, or

permissive, issue. During contract negotiations, the parties (if both agree) may bargain about

permissive issues, but neither party is legally required to do so. Furthermore, it is an illegal

labor practice for one party to insist on bargaining about a permissive issue.

The diffi culties of establishing a group of mandatory and permissive issues for all organi-

zations are great. Subjects in one industry or organization that are appropriately handled

through collective bargaining may be inappropriate in another industry or organization.

Ultimately, however, the courts and the NLRB decide whether an issue is mandatory or

permissive.

In addition to mandatory and permissive issues, there is a small group of prohibited issues

that cannot be included in a collective bargaining agreement. The leading examples are the

closed shop and a hot-cargo clause. A closed shop requires employers to hire only people who

are union members. A hot-cargo clause results when an employer agrees with a union not to

handle or use the goods or services of another employer.

fi nal-offer interest arbitration Form of arbitration in which

the arbitrator is restricted to

selecting the fi nal offer of one

of the parties.

MANDATORY ARBITRATION CLAUSE On April 1, 2009, the U.S. Supreme Court in a 5–4 decision

enforced a collective bargaining agreement that clearly

requires union members to arbitrate claims regarding the

Age Discrimination in Employment Act. This ruling overruled

a lower court’s ruling on the case.

The cases followed the terrorists’ attacks of 9/11. The cases

stemmed from job reassignments in hopes of improving

offi ce security. The reassigned workers claimed to have been

moved to lower paying and less attractive positions.

Source: Adapted from Allen Smith, “U.S. Supreme Court Enforces Mandatory Arbitration Clause,” HR Magazine, May 2009, p. 16.

HRM in Action 19.3

382 Part Five Employee Well-Being and Labor Relations

For the federal sector, the Civil Service Reform Act of 1978 makes it mandatory to bargain

over “conditions of employment.” The act defi nes conditions of employment as personnel

policies, practices, and matters affecting working conditions. Table 19.1 summarizes the pro-

hibited and permitted issues for federal government employees.

SPECIFIC ISSUES IN COLLECTIVE BARGAINING AGREEMENTS

While each contract is different, most contracts include fi ve issues: (1) management rights,

(2) union security, (3) wages and benefi ts, (4) individual security (seniority) rights, and

(5) dispute resolution.

Management Rights The question of how many of their prerogatives can be retained in the union–employer

relationship is of great concern to most employers. The primary purpose of the management

rights clause is to retain for management the right to direct all business activities. Items that

are normally regarded as an integral part of management rights include the rights to direct the

workforce, determine the size of the workforce (including the number and class of employees

to be hired or laid off), set working hours, and assign work. Generally, in the management

rights clause, the union insists on a sentence specifying that management will not discriminate

against the union.

Union Security Union security clauses deal with the status of employee membership in the union and attempt to

ensure that the union has continuous strength. Nearly all contracts provide some type of union

security clause. Union security is provided in several forms. A union shop requires that all employees in the bargaining unit join the union and retain membership as a condition of em-

ployment. A modifi ed union shop requires all employees hired after the effective date of the

agreement to acquire and retain union membership as a condition of employment. The inclusion

of a “grandfather” clause enables employees who are not members of the union as of the effec-

tive date of the contract to remain nonmembers. Under an agency shop provision, employees are not required to actually join the union, but they are required to pay a representation fee as

a condition of employment. A provision for maintenance of membership does not require that an employee join the union, but employees who do join are required to remain members for

a stipulated period of time as a condition of employment.

union shop Provision in a contract that

requires all employees in a

bargaining unit to join the

union and retain membership

as a condition of employment;

most right-to-work laws outlaw

the union shop.

agency shop Contract provision that does

not require employees to

join the union but requires

them to pay the equivalent of

union dues as a condition of

employment.

maintenance of membership Contract provision that does

not require an employee

to join the union but does

require employees who do

join to remain members for a

stipulated time period.

TABLE 19.1 Prohibited and Permitted

Collective Bargaining Issues

in the Federal Sector

Prohibited Issues

Negotiation of wage rates

Mission, budget, or organization of the agency

Number of employees

Internal security practices of the agency

Hiring, assigning, directing, laying off, and retaining employees in the agency; suspending, removing,

reducing grade or pay; or taking other disciplinary action against employees

Assigning work, making determinations with respect to contracting work, and determining the

personnel by which agency operations shall be conducted

Filling vacant positions from properly ranked and certifi ed candidates

Taking whatever actions may be necessary to carry out the agency mission during emergencies

Permitted Issues

Numbers, types, and grades of employees or positions assigned to any organizational subdivision, work

project, or tour of duty

Technology, means, and methods of performing work

Procedures used by the agency management to exercise its authority in carrying out duties that cannot

be negotiated

Arrangements for employees adversely affected by the exercise of management’s authority in carrying

out duties that cannot be negotiated

Chapter 19 Union Organizing Campaigns and Collective Bargaining 383

As discussed in the previous chapter, the Taft–Hartley Act permits states to pass legislation

that guarantees the right to work regardless of union membership. States that have passed this

legislation are known as right-to-work states. The Taft–Hartley Act also prohibits two addi-

tional forms of union security: the closed shop and the preferential shop. In a closed shop, only

union members can be hired, whereas the preferential shop requires that union members be

given preference in fi lling job vacancies. However, in certain industries, such as construction,

exceptions to the act’s provisions are permitted.

In addition to providing a means for maintaining union membership, union security pro-

visions often include checkoff procedures. A checkoff is an arrangement made with the company under which it agrees to withhold union dues, initiation fees, and assessments

from the employees’ paychecks and submit this money to the union. Individual union mem-

bers must sign cards authorizing the withholding before such arrangements can be made.

Wages and Employee Benefi ts Traditionally, increased wages have been the primary economic goal of unions. Most contracts

contain a provision for general wage increases during the life of the contract. Cost-of-living adjustments (COLA) are common in many industries. COLA clauses tie wage increases to rises in the Bureau of Labor Statistics consumer price index (CPI). Most COLA clauses call

for hourly increases in wages for each specifi ed rise in the CPI. Adjustments can be made on a

quarterly, semiannual, or annual basis. A recent trend has been an attempt by the management

of many organizations to eliminate or restrict the use of COLA clauses.

Other wage issues specifi ed in contracts include overtime pay and rates of pay for work on

Saturdays, Sundays, holidays, and the sixth or seventh consecutive day of work. Other em-

ployee compensation items normally contained in contracts include supplementary pay for shift

differentials, reporting and call-in or call-back pay, temporary-transfer pay, hazardous-duty pay,

and job-related expenses. Each of these terms is defi ned in Table 19.2.

The benefi ts normally covered in union contracts include holidays, vacations, insurance,

and pensions. Pay is usually required in union contracts for all recognized holidays. Eligibility

for holiday pay is of one or two types: a length-of-service requirement or a work requirement.

Normally, an employee must have worked a minimum of four weeks with the employer before

being eligible for holiday pay. Furthermore, an employee generally must work the day before

and the day after a holiday to receive holiday pay.

Most union contracts provide vacation provisions. Vacation entitlement is usually tied

directly to the employee’s length of service. One trend in contracts has been an increase in

the amount of vacation time per year and a reduction in the amount of service required for

receiving increased vacations.

Most union contracts contain clauses providing health, accident, and life insurance benefi ts.

Many union contracts also contain major medical insurance, accidental death and dismember-

ment benefi ts, dental insurance, and coverage for miscellaneous medical expenses such as pre-

scription drugs.

checkoff Arrangement between an

employer and a union under

which the employer agrees to

withhold union dues, initiation

fees, and assessments from

the employees’ paychecks and

submit this money to the union.

cost-of-living adjustments (COLA) Contract provision that ties

wage increases to rises in the

Bureau of Labor Statistics

consumer price index.

TABLE 19.2 Defi nitions of Typical

Supplementary Pay Items

Item Defi nition

Shift differential pay Bonus paid for working less desirable hours of work

Reporting pay Pay given to employees who report for work as scheduled but fi nd

on arrival that no work is available

Call-in or call-back pay Pay earned when employees are called in or back to work at some time

other than their regularly scheduled hours

Temporary-transfer pay Pay given when employees are temporarily transferred to another job

(if the transfer is to a lower-paying job, normally the employee continues

to receive the old rate of pay; if to a higher-paying job, the employee is

usually paid the higher rate)

Hazardous-duty pay Pay given for performing jobs that, from a safety or health point of

view, are considered to be riskier than usual

Job-related expenses Remuneration for travel expenses, work clothes, or tools required

for the job

384 Part Five Employee Well-Being and Labor Relations

Individual Security (Seniority) Rights Seniority refers to an employee’s relative length of service with an employer. Seniority may be measured on the basis of the employee’s length of service in a job classifi cation or a department

or on the individual’s length of service with one plant or with the company as a whole.

Job security for employees is a basic concern for unions. The seniority system is the method

most commonly used to achieve job security. In general, union contract provisions specify that

seniority is to be used within the bargaining unit for transfers to higher-level jobs, layoffs,

recalls from layoffs, and choice of work shifts and vacation periods.

Seniority systems are designed to benefi t employees with greater length of service. Thus,

women and minorities, generally the most recently hired employees, can be adversely affected

by a seniority system. Section 703(a) of the 1964 Civil Rights Act prohibits discrimination

on the basis of race, color, religion, sex, or national origin. However, Section 703(h) exempts

bona fi de seniority systems from the mandate of Section 703(a). Section 703(h) suggests that

bona fi de seniority may have a disproportionate impact on a certain class of people and still be

deemed valid. However, such a system may not be the result of intent to discriminate against

a class of individuals. In the Stotts case, discussed in Chapter 2, the Supreme Court ruled that

a judge could not impose an affi rmative action plan that required white employees to be laid

off when the otherwise applicable system would have required the layoff of African American

employees with less seniority. It is important to note that this decision did not ban affi rmative

action programs. It did indicate, however, that seniority systems may limit the application of

certain affi rmative action measures.

Dispute Resolution Inevitably, disputes arise during the life of a contract. Most contracts contain specifi c clauses

describing how disputes are to be resolved.

A “no-strike” clause pledges the union to cooperate in preventing work stoppages. No-strike

pledges can be either unconditional or conditional. Unconditional pledges ban any interference

with production during the life of the contract. Conditional pledges permit strikes under certain

circumstances. The no-strike ban most commonly is lifted after exhaustion of the grievance

procedure or after an arbitration award has been violated. In return for a no-strike pledge, the

union normally asks for a promise on the part of the company not to engage in lockouts during

the term of the contract. A lockout is a refusal of the employer to let employees work. The grievance procedure provision is the most common method for resolving disputes

arising during the term of the contract. The fi nal step in the dispute resolution procedure is

usually arbitration. Both grievance procedures and arbitration were discussed in Chapter 17.

IMPASSES IN COLLECTIVE BARGAINING

At the end of the contract period, if a new agreement has not been reached, employees can

continue working under the terms of the old contract until a new agreement is reached or a

strike is called. Union offi cials will not recommend that the employees continue working

unless signifi cant progress is being made in contract negotiations.

If no progress is being made and the contract expires, a strike is frequently called. A strike occurs when employees collectively refuse to work. Strikes are not permitted for most public

employees. To strike, the union must fi rst hold a vote among its members. Unless the vote is

heavily in favor of a strike, one will not be called. When a strike does occur, union members

picket the employer. In picketing, individual members patrol at or near the place of employ-

ment to publicize the existence of a strike, discourage employees from working, and discour-

age the public from dealing with the employer. Frequently, members of other unions will

refuse to cross the picket line of a striking union. For example, unionized truck drivers often

refuse to deliver goods to an employer involved in a strike. HRM in Action 19.4 describes a

potential strike at a correctional institution.

The purpose of a strike is to bring economic hardship to the employer, forcing the employer

to agree to union demands. The success of a strike is determined by how severely the union is

seniority An employee’s relative length

of service with an employer.

lockout Refusal of an employer to let

its employees work.

strike Collective refusal of employees

to work.

385

able to interrupt the organization’s operations. Employers often attempt to continue operations

by using supervisory and management personnel, people not in a striking bargaining unit,

people within the bargaining unit who refuse to go on strike, or people hired to replace striking

employees. Attempts to continue operations through these methods can increase the diffi culty

of reaching an agreement and often result in violence.

When the president of the United Sates believes a strike may jeopardize the national health

and safety, the emergency dispute provisions of the Taft–Hartley Act can be used. Under these

provisions, the president is authorized to appoint a special board of inquiry, which makes a

preliminary investigation of the impasse prior to issuing an injunction to halt the strike. If

the impasse is not resolved during this preliminary investigation, the president can issue an

injunction prohibiting the strike action for 80 days. This is called a cooling-off period. The

parties then have 60 days to resolve the impasse, after which the NLRB is required to poll the

employees to see whether they will accept the employer’s last offer. If the employees do not

agree to accept the employer’s last offer, the injunction is dissolved and the president can refer

the impasse to Congress and recommend a course of action.

TRENDS IN COLLECTIVE BARGAINING

Technological change and increased use of automation, changing government regulations,

rising foreign competition, the decline in the percentage of blue-collar employees, and high

rates of unemployment are just some of the variables that infl uence the collective bargaining

process.4 These and other variables can change rapidly, making virtually useless a contract

provision negotiated two years earlier.

One form of collective bargaining that has evolved to cope with these rapidly changing var-

iables involves the establishment of joint labor–management committees that meet regularly

over the contract period to explore issues of common concern. The essential characteristics of

this new form of collective bargaining are as follows:

1. Meetings are held frequently during the life of the contract and are independent of its

expiration.

2. Discussions examine external events and potential problem areas rather than internal

complaints about current practices.

3. Outside experts such as legal, economic, actuarial, medical, and industry specialists play a

major role in making the fi nal decision on some issues.

4. Participants in the meetings are encouraged to take a problem-solving, rather than an

adversarial, approach.

CORRECTION SUPERVISOR FIRED Steven Kennaway, president of the Massachusetts Correction

Offi cers Federated Union, says that a supervisor was fi red

and fi ve other supervisors were demoted and transferred to

other correctional institutions as a result of an incident that

occurred on January 28, 2004. The union represents nearly

5,000 correction offi cers in Massachusetts. The union said that

the incident that precipitated this action by management

was a situation in which an inmate being escorted to the

prison’s health services unit kicked an offi cer in the groin. The

inmate was then subdued by six guards who held him down

on a gurney as he thrashed his legs. The union alleged that

the inmate received a black eye and two small lacerations

near his eye. The offi cer who was kicked in the groin was

fi red because the investigation by management determined

that he gave the inmate his injury. The union was told that

two lieutenants and three sergeants were stripped of their

ranks and demoted after an investigation by management

found that they engaged in misconduct and were unable to

account for how the inmate received his injury.

This is the same correctional facility in which the defrocked

priest John Geoghan was killed during the summer of 2003.

Geoghan was beaten and strangled to death by another

inmate. An investigation found that a handful of guards

wrote trumped-up disciplinary reports that prompted

Geoghan’s transfer to the dangerous inmate unit where he

was killed.

Union offi cials stated they were considering calling for

a strike vote to protest the guards’ treatment after the

incident of January 28.

Source: Adapted from Denise Lavoie, “Strike Threatened over Discipline; Correction Supervisor Fired,” Telegram & Gazette, April 15, 2004, p. A.2.

HRM in Action 19.4

386 Part Five Employee Well-Being and Labor Relations

Another likely trend in collective bargaining within U.S. companies is productivity bar-

gaining. Under productivity bargaining, unions and management develop a contract whereby

the union agrees to exchange old work procedures and methods for new and more effective

ones in return for gains in pay and working conditions. Productivity bargaining involves not

only reaching an agreement but also creating an atmosphere of ongoing cooperation in which

the changes called for in the agreement can be implemented.

A fi nal trend involves what has been called “take-back-bargaining.” This form of bargaining

involves asking unions to make concessions on wages and benefi ts. It has occurred in indus-

tries especially hard hit by foreign competition.

1. Defi ne collective bargaining.

Collective bargaining involves the negotiation, drafting, administration, and interpretation

of a written agreement between an employer and a union for a specifi c period of time.

2. Explain the captive-audience doctrine.

Under this doctrine, management has the right to speak to employees against the union on

company time and require employees to attend the meeting. The union does not have the

right to reply on company time. However, management is prohibited from giving a speech

on company time to a mass-employee audience in the 24 hours immediately before a

union election.

3. Defi ne bargaining unit.

A bargaining unit is a group of employees in a plant, fi rm, or industry that is recognized

by the employer, agreed on by the parties to a case, or designated by the NLRB or its

regional director as appropriate for the purposes of collective bargaining.

4. Explain certifi cation, recognition, and contract bars.

Under a certifi cation bar, the NLRB will not permit another election within 12 months

of a union’s certifi cation. Under a recognition bar, the NLRB will not permit an election

for up to 12 months after an employer voluntarily recognizes a union. Under a contract

bar, the NLRB does not normally permit an election on the bargaining unit covered by a

contract until the contract expires, up to a maximum of three years.

5. Describe good-faith bargaining.

Good-faith bargaining is the sincere intention of both parties to negotiate differences and

reach an agreement acceptable to both.

6. Discuss boulwarism.

Boulwarism is a form of collective bargaining under which management makes its best

offer at the outset of bargaining and adheres to its position throughout the bargaining

sessions. Boulwarism is in violation of an employer’s obligation to negotiate in good faith

and is illegal.

7. Explain mediation.

Mediation is a process whereby both parties invite a neutral third party to help resolve

contract impasses.

8. Defi ne checkoff.

Checkoff is an arrangement a union makes with a company under which the company

agrees to withhold union dues, initiation fees, and assessments from the employees’ pay-

checks and submits this money to the union.

9. Explain senority.

Seniority refers to an employee’s relative length of service with an employer.

10. Defi ne lockout and strike.

A lockout is a refusal of the employer to let employees work. A strike occurs when

employees collectively refuse to work.

Summary of Learning Objectives

Chapter 19 Union Organizing Campaigns and Collective Bargaining 387

1. What is collective bargaining?

2. Describe some of the reasons employees join unions.

3. What is a bargaining unit?

4. Defi ne some unfair labor practices that can occur during a union election campaign.

5. Defi ne good-faith bargaining.

6. What is a multiemployer agreement?

7. Describe the roles of the following third parties in the collective bargaining process:

a. NLRB

b. FLRA

c. FSIP

d. FMCS

e. Mediators

f. Arbitrators

8. Defi ne the following union security clauses:

a. Union shop

b. Agency shop

c. Maintenance of membership

d. Closed shop

e. Preferential shop

9. What is the purpose of COLA clauses in a union contract?

10. Defi ne seniority.

11. What is a strike?

1. “Seniority provisions in a contract discriminate against women and minorities.” What is

your opinion of this statement?

2. “Right-to-work laws should be rescinded.” Discuss.

3. Identify several management rights that you believe should not be subject to collective

bargaining.

4. Why do you think collective bargaining is increasing among white-collar employees?

Incident 19.1

Florida National Guard and NAGE

The Florida National Guard employs full-time civilian technicians to assist in training the

guard and to help repair and maintain the guard’s equipment and supplies. As a condition of

their employment, these technicians are required to maintain membership in the guard. The

technicians are represented by the National Association of Government Employees (NAGE).

Review Questions

Discussion Questions

12-month rule, 376

agency shop, 382

arbitration, 380

bargaining unit, 375

boulwarism, 378

captive-audience doctrine, 375

certifi cation bar, 376

checkoff, 383

collective bargaining, 373

community of interest, 375

consent elections, 375

contract bar doctrine, 376

conventional interest

arbitration, 380

coordinated bargaining, 379

cost-of-living adjustments

(COLA), 383

Federal Mediation and

Conciliation Service

(FMCS), 380

fi nal-offer interest

arbitration, 381

Gissel bargaining orders, 376

good-faith bargaining, 377

informational picketing, 376

lockout, 384

maintenance of membership,

382

mediation, 380

recognition bar, 376

seniority, 384

strike, 384

union shop, 382

Key Terms

388 Part Five Employee Well-Being and Labor Relations

During negotiations between NAGE and the Florida National Guard, the technicians sub-

mitted through their unions a proposal whereby the technicians could opt to wear either their

military uniform or agreed-on civilian attire while performing their technician duties. The

parties were unable to reach an agreement on this issue. Consequently, NAGE asked the Fed-

eral Services Impasses Panel (FSIP) to resolve the matter. FSIP directed the parties to adopt

the proposal as part of their collective bargaining agreement. The guard refused.

NAGE then fi led an unfair labor practice charge with the Federal Labor Relations Authority

(FLRA). The FLRA concluded that wearing the uniform was not within the guard’s duty to

bargain and dismissed the charge.

Questions

1. Do you feel that the National Guard should bargain over this issue?

2. If you had been advising the National Guard, would you have recommended that it bargain

over this issue? Why or why not?

Incident 19.2

Retiree Benefi ts

Federal courts have ruled that two companies cannot require retirees and their dependents cov-

ered by collective bargaining agreements to pay part of their health care costs. One company is

trying to make its retirees pay monthly premiums and deductibles, while the second company

is trying to impose copayments and deductibles on its retirees. In the case of the fi rst company,

a federal judge reinstated the benefi ts to retirees since the benefi ts were intended to outlast the

life of the labor contract. In the case of the second company, a U.S. district court ordered the

company to reinstate the benefi ts of the retirees pending the outcome of a jury trial.

Questions

1. Should a company be allowed to make changes to the health benefi ts of retired employees

who are covered by a collective bargaining agreement? Why or why not?

2. Why do you think the court system was involved in the resolution of this disagreement?

You will be put on a team of three to four students. Each team will be required to negotiate a contract for a company or a union. The company’s wage scale, $14.00 per hour, compares favorably with most fi rms in its area but is about 8 percent below those fi rms that employ workers of equivalent skill. Wages have not increased in proportion to cost-of-living increases over the past three years. At the last bargaining session, the company and union took the following positions:

1. Hospital and medical plan

Past contract: Company paid one-fourth of cost, employee paid remaining three-fourths.

Union: Demanded that company pay full cost.

Company: Refused to pay more than one-fourth.

Proportion of company payment

Company 1/4 2/4 3/4 4/4

Union 0 20,000 40,000 60,000

Increase in total dollar value per year

2. Wages

Past contract: $14.00 per hour.

Union: Demanded an increase of 60 cents per hour.

Company: Refused outright.

Cents increase per hour

Company 0 10 20 30 40 50 60

Union 0 31,200 62,400 93,600 124,800 156,000 187,200

Total dollar value per year

EXERCISE 19.1

Contract

Negotiations*

*Adapted from James

A. Vaughan and Samuel

D. Deep, “Exercise

Negotiations,” Program of

Exercises for Management

and Organizational Behavior

(Beverly Hills, Calif.: Glencoe

Press, 1975), pp. 137–52.

Chapter 19 Union Organizing Campaigns and Collective Bargaining 389

3. Sliding pay scale to conform to cost of living

Past contract: Pay scale is fi xed through the term of the contract.

Union: Demanded pay increases in proportion to increases to the cost of living.

Company: Rejected outright.

Company No Yes

Union 0 120,000

Total dollar value per year

4. Vacation pay

Past contract: Two weeks’ paid vacation for all employees with one year of service.

Union: Wants three weeks’ paid vacation for employees with 10 years of service.

Company: Rejected.

Company

2 weeks/ 3 weeks/ 3 weeks/ 3 weeks/

Union 1 year 20 years 15 years 10 years

0 10,000 20,000 30,000

Total dollar value per year

Each week on strike (10 minutes of negotiations in the exercise) costs the company $40,000 in lost profi ts and the employees $40,000 in lost wages.

1. Negotiate the above contract issues with another team (as assigned by your instructor).

2. At the end of negotiations, your instructor will summarize the beginning, ending, and costs for each negotiation.

1. For discussion of organizing tactics by unions, see Gillian Flynn, “When the Unions Come Calling,”

Workforce, November 2000, pp. 82–86.

2. See Terence K. Huwe and Janice Kimball, “Collective Bargaining in the Private Sector,” Industrial

Relations, October 2003, p. 779.

3. See Marc Boulanger and Brian H. Kleiner, “Preparing and Interpreting Collective Bargaining

Agreements Effectively,” Management Research News 26 (2003), pp. 193–200.

4. Stuart R. Korshak, “Good Union Relationships Are Best,” Workforce, January 26, 2001.

Notes and Additional Readings

391

Glossary A absorption Union merger that involves the merging of one

union into a considerably larger one.

acquired immunodefi ciency syndrome (AIDS) A life-

threatening disease that, although not communicable in most

work settings, is causing many work-related debates that have yet

to be legally resolved.

adventure learning Programs that use many kinds of challenging

outdoor activities to help participants achieve their goals.

adverse impact Condition that occurs when the selection rate

for minorities or women is less than 80 percent of the selection

rate for the majority group in hiring, promotions, transfers,

demotions, or any selection decision.

affi rmative action plan Written document outlining specifi c

goals and timetables for remedying past discriminatory actions.

Age Discrimination in Employment Act (ADEA) Prohibits

discrimination against employees over 40 years of age by all

companies employing 20 or more people in the private sector.

agency shop Contract provision that does not require

employees to join the union but requires them to pay the

equivalent of union dues as a condition of employment.

Alexander v. Gardner-Denver Supreme Court decision in 1974

that ruled that using the fi nal and binding grievance procedure in

an organization does not preclude an aggrieved employee from

seeking redress through court action.

amalgamation Union merger that involves two or more

unions, usually of approximately the same size, forming a new

union.

Amended Age Discrimination in Employment Act (ADEA)

Forbids mandatory retirement at any age for all companies

employing 20 or more people in the private sector and in the

federal government.

American Federation of Labor–Congress of Industrial

Organizations (AFL–CIO) Combination of national,

international, and local unions joined together to promote the

interests of unions and workers. The AFL–CIO was formed in

1955 by the amalgamation of the American Federation of Labor

(AFL) and the Congress of Industrial Organizations (CIO).

Americans with Disabilities Act (ADA) (1990) Gives disabled

persons sharply increased access to services and jobs.

applicant fl ow record Form completed voluntarily by a job

applicant and used by an employer to obtain information that

might be viewed as discriminatory.

apprenticeship training Giving instruction, both on and

off the job, in the practical and theoretical aspects of the work

required in a skilled occupation or trade.

aptitude tests Means of measuring a person’s capacity or latent

ability to learn and perform a job.

arbitration Process whereby the parties agree to settle a

dispute through the use of an independent third party (called an

arbitrator). Arbitration is binding on both parties.

assessment center Formal method used in training and/or

selection and aimed at evaluating an individual’s potential as a

manager by exposing the individual to simulated problems that

would be faced in a real-life managerial situation.

B bargaining unit Group of employees in a plant, fi rm, or

industry that is recognized by the employer, agreed on by the

parties to a case, or designated by the NLRB as appropriate for

the purposes of collective bargaining.

base wage or salary Hourly, weekly, or monthly pay that

employees receive for their work.

behaviorally anchored rating scale (BARS) Method of

performance appraisal that determines an employee’s level

of performance based on whether or not certain specifi cally

described job behaviors are present.

behavior modeling (interaction management) Method

of training in which interaction problems faced by managers

are identifi ed, practiced, and transferred to specifi c job

situations.

benchmarking Thoroughly examining internal practices and

procedures and measuring them against the ways other successful

organizations operate.

benefi ts Rewards employees receive as a result of their

employment and position with the organization.

board or panel interview Interview method in which two or

more people conduct a single interview with one applicant.

bona fi de occupational qualifi cation (BFOQ) Permits

employer to use religion, age, sex, or national origin as a factor

in its employment practices when reasonably necessary to the

normal operation of that particular business.

bonus Reward that is offered on a one-time basis for high

performance.

bottom line concept When the overall selection process does

not have an adverse impact, the government will usually not

examine the individual components of that process for adverse

impact or evidence of validity.

boulwarism Named after a General Electric vice president;

occurs when management makes its best offer at the outset

of bargaining and fi rmly adheres to the offer throughout the

bargaining sessions. The NLRB has ruled that this is not good-

faith bargaining and is therefore illegal.

Bowen v. United States Postal Service (1983) Supreme Court

decision that established that an employee may be entitled to

recover damages from both the union and the employer in cases

where the employer has violated the labor agreement and the

union has breached its duty of fair representation.

broadbanding A base-pay technique that reduces many

different salary categories to several broad salary bands;

broadbanding collapses job clusters or tiers of positions into

a few wide bands to manage career growth and deliver pay.

392 Glossary

burnout Occurs when work is no longer meaningful to a

person; can result from stress or a variety of other work-related

or personal factors.

business necessity Condition that comes into play when an

employer has a job criterion that is neutral but excludes members

of one sex at a higher rate than members of the opposite

sex. The focus in business necessity is on the validity of

stated job qualifi cations and their relationship to the work

performed.

business simulation Method of classroom training that

simulates an organization and its environment and requires

participants to make operating decisions based on the situation.

C cafeteria plans of benefi ts Plans that give employees the

opportunity to choose, from among a wide range of alternatives,

how their benefi ts will be distributed.

campus recruiting Recruitment activities of employers on

college and university campuses.

captive-audience doctrine Management’s right to speak

against a union to employees on company time and to require

employees to attend the meeting.

career development An ongoing formalized effort by an

organization that focuses on developing and enriching the

organization’s human resources in light of both the employees’

and the organization’s needs.

career pathing A technique that addresses the specifi cs

of progressing from one job to another in an organization;

sequence of developmental activities involving informal and

formal education, training, and job experiences that help make

an individual capable of holding a more advanced job in the

future.

career planning Process by which an individual formulates

career goals and develops a plan for reaching those goals.

career plateau Point in an individual’s career where the

likelihood of an additional promotion is very low.

career self-management The ability to keep up with the

changes that occur within the organization and industry and to

prepare for the future.

cascade approach Objective-setting process designed to

involve all levels of management in the organizational planning

process.

case study Method of classroom training in which the trainee

analyzes real or hypothetical situations and suggests not only

what to do but also how to do it.

central tendency Tendency of a manager to rate most

employees near the middle of the performance scale.

certifi cation bar Condition occurring when the NLRB will not

permit another election in the bargaining unit within 12 months

of a union’s certifi cation.

checklist Method of performance appraisal in which the rater

answers, with a yes or no, a series of questions about the behavior

of the employee being rated.

checkoff Arrangement between an employer and a union under

which the employer agrees to withhold union dues, initiation fees,

and assessments from the employees’ paychecks and submit this

money to the union.

Civil Rights Act (1991) Permits women, persons with

disabilities, and persons who are religious minorities to have

a jury trial and sue for punitive damages if they can prove

intentional hiring and workplace discrimination. Also requires

companies to provide evidence that the business practice that

led to the discrimination was not discriminatory but was job-

related for the position in question and consistent with business

necessity.

Civil Service Reform Act Legislation enacted in 1978

regulating labor–management relations for federal government

employees.

classroom training Most familiar training method; useful for

quickly imparting information to large groups with little or no

knowledge of the subject.

coaching Method of management development conducted

on the job, which involves experienced managers advising and

guiding trainees in solving managerial problems.

collective bargaining Process that involves the negotiation,

drafting, administration, and interpretation of a written

agreement between an employer and a union for a specifi c

period of time.

commission plan Incentive plan that rewards employees, at

least in part, based on their sales volume.

commitment manpower planning (CMP) Systematic

approach to human resource planning designed to get managers

and their subordinates thinking about and involved in human

resource planning.

Commonwealth v. Hunt Landmark court decision in 1842 that

declared unions were not illegal per se.

communication Transfer of information that is meaningful to

those involved.

community of interest Concept by which the NLRB makes a

bargaining unit decision based on areas of worker commonality.

comparable worth theory Idea that every job has a worth

to the employer and society that can be measured and assigned a

value.

compensable factors Characteristics of jobs that the

organization deems important to the extent that it is willing

to pay for them.

compensation All the extrinsic rewards that employees receive

in exchange for their work; composed of the base wage or salary,

any incentives or bonuses, and any benefi ts.

competency-based pay system Rewarding employees based on

knowledge, skills, and behaviors that result in performance.

concentration Practice of having more minorities or women

in a job category than would reasonably be expected when

compared to their presence in the relevant labor market.

concurrent validity Validity established by identifying a

criterion predictor, administering it to current employees,

and correlating the test data with the current employees’

performance.

consent elections Union elections in which the parties have

agreed on the appropriate bargaining unit.

conspiracy doctrine Notion that courts can punish a union if

they deem that the means used or the ends sought by the union

are illegal.

construct validity Extent to which a selection criterion

measures the degree to which job candidates have identifi able

Glossary 393

characteristics determined to be relevant to successful job

performance.

content validity Extent to which the content of a selection

procedure or instrument is representative of important aspects of

job performance.

contingent workers Employees who are independent

contractors and on-call workers or temporary short-term

workers.

contract bar doctrine Doctrine under which the NLRB will

not permit an election in the bargaining unit covered by a contract

until the contract expires, up to a maximum of three years.

conventional interest arbitration Form of arbitration in which

the arbitrator listens to arguments from both parties and makes a

binding decision, which can be identical to the position of either

party or different from the positions of both parties.

coordinated bargaining Form of bargaining in which several

unions bargain jointly with a single employer.

corrective (progressive) discipline Normal sequence of actions

taken by management in disciplining an employee: oral warning,

written warning, suspension, and fi nally discharge.

cost-of-living adjustments (COLA) Contract provision that

ties wage increases to rises in the Bureau of Labor Statistics

consumer price index.

craft unions Unions having only skilled workers as members.

Most craft unions have members from several related trades (e.g.,

Bricklayers, Masons, and Plasterers International Union).

criteria of job success Ways of specifying how successful

performance of the job is to be measured.

criterion predictors Factors such as education, previous work

experience, and scores on company-administered tests that are

used to predict successful performance of a job.

critical-incident appraisal Method of performance appraisal

in which the rater keeps a written record of incidents that

illustrate both positive and negative employee behaviors. The

rater then uses these incidents as a basis for evaluating the

employee’s performance.

cross training See Job rotation.

D Danbury Hatters case Landmark case of 1908 in which the

Supreme Court decided that the Sherman Anti-Trust Act applied

to all unions.

data Raw material from which information is developed:

composed of facts that describe people, places, things, or events

and that have not been interpreted.

deadwood Individuals in an organization whose present

performance has fallen to an unsatisfactory level and who have

little potential for advancement.

defi ned-benefi t plan Pension plan under which an employer

pledges to provide a benefi t determined by a defi nite formula at

the employee’s retirement date.

defi ned-contribution plan Pension plan that calls for a fi xed or

known annual contribution instead of a known benefi t.

degree statements Written statements used as a part of

the point method of job evaluation to further break down job

subfactors.

Delphi technique Judgmental method of forecasting that uses a

panel of experts to make initially independent estimates of future

demand. An intermediary then presents each expert’s forecast and

assumptions to the other members of the panel. Each expert is

then allowed to revise his or her forecast as desired. This process

continues until some consensus or composite emerges.

departmental and job orientation Specifi c orientation

that describes topics unique to the new employee’s specifi c

department and job.

differential piece rate plan Piece rate plan devised by

Frederick W. Taylor that pays one rate for all acceptable units

produced up to some standard and then a higher rate for all pieces

produced if the output exceeds the standard.

direct feedback Process in which the change agent

communicates the information gathered through diagnosis

directly to the affected people.

disability insurance Designed to protect employees who

experience a long-term or permanent disability.

disabling injuries Work-related injuries that cause an employee

to miss one or more days of work.

discipline Action taken against an employee who has violated

an organizational rule or whose performance has deteriorated to

the point where corrective action is needed.

disparate impact Unintentional discrimination involving

employment practices that appear to be neutral but adversely

affect a protected class of people.

disparate impact doctrine States that when the plaintiff shows

that an employment practice disproportionately excludes groups

protected by Title VII, the burden of proof shifts to the defendant

to prove that the standard reasonably relates to job performance.

disparate treatment Intentional discrimination; treatment of

one class of employees differently from other employees.

downsizing Laying off large numbers of managerial and other

employees.

due process Right of an employee to be dealt with fairly and

justly during the investigation of an alleged offense and the

administration of any subsequent disciplinary action.

Duplex Printing Co. v. Deering Case in which the Supreme

Court ruled that unions were not exempt from the control of the

Sherman Anti-Trust Act.

duties One or more tasks performed in carrying out a job

responsibility.

duty of fair representation Under the National Labor

Relations Act of 1935, the statutory duty of a union to fairly

represent all employees in the bargaining unit, whether or not

they are union members.

E element Aggregation of two or more micromotions; usually

thought of as a complete entity, such as picking up or transporting

an object.

employee assistance programs (EAPs) Company-sponsored

programs designed to help employees with personal problems

such as alcohol and drug abuse, depression, anxiety, domestic

trauma, fi nancial problems, and other psychiatric/medical

problems.

394 Glossary

employee benefi ts (fringe benefi ts) Rewards that an

organization provides to employees for being members of the

organization and for their positions in the organization; usually

not related to employee performance.

employee leasing companies Provide permanent staffs at

customer companies.

Employee Retirement Income Security Act (ERISA) Federal

law passed in 1974 designed to give employees increased security

for their retirement and pension plans and to ensure the fair

treatment of employees under pension plans.

employee stock ownership plan (ESOP) Form of stock option

plan in which an organization provides employee purchase of its

stock at a set price for a set time period based on the employee’s

length of service and salary and the profi ts of the organization.

Employer Information Report (Standard Form 100) Form

that all employers with 100 or more employees are required to

fi le with the EEOC; requires a breakdown of the employer’s

workforce in specifi ed job categories by race, sex, and national

origin.

employment arbitration program A dispute resolution

program for employees in nonunionized organizations that

requires a signed arbitration agreement as a condition of

employment.

employment at will Allows either the employer or employee

to terminate his or her employment relationship at any time for

virtually any reason for no reason at all.

employment parity Situation in which the proportion of

minorities and women employed by an organization equals the

proportion in the organization’s relevant labor market.

empowerment Form of decentralization that involves giving

subordinates substantial authority to make decisions.

Enterprise Wheel Supreme Court ruling in 1960 holding that

as long as an arbitrator’s decision involves the interpretation of

a contract, the courts should not overrule the arbitrator merely

because their interpretation of the contract was different from that

of the arbitrator.

equal employment opportunity The right of all people

to work and to advance on the basis of merit, ability, and

potential.

Equal Employment Opportunity Commission (EEOC)

Federal agency created under the Civil Rights Act of 1964 to

administer Title VII of the act and to ensure equal employment

opportunity; its powers were expanded in 1979.

Equal Pay Act Prohibits sex-based discrimination in rates of

pay for men and women working on the same or similar jobs.

ERISA See Employment Retirement Income Security Act.

ESOP See Employee stock ownership plan.

essay appraisal Method of performance appraisal in which

the rater prepares a written statement describing an employee’s

strengths, weaknesses, and past performance.

executive orders Orders issued by the president of the

United States for managing and operating federal government

agencies.

external equity Addresses what employees in an organization

are being paid compared to employees in other organizations

performing similar jobs.

extrinsic rewards Rewards that are controlled and distributed

directly by the organization and are of a tangible nature.

F factor comparison method Job evaluation technique that uses

a monetary scale for evaluating jobs on a factor-by-factor basis.

Family and Medical Leave Act (FMLA) Enables qualifi ed

employees to take prolonged unpaid leave for family- and health-

related reasons without fear of losing their jobs.

Federal Labor Relations Authority (FLRA) Three-member

panel created by the Civil Service Reform Act whose purpose is

to administer the act.

Federal Mediation and Conciliation Service (FMCS)

Independent agency within the federal government that, as one

of its responsibilities, provides mediators to assist in resolving

contract negotiation impasses.

Federal Register Periodical found in many public and college

libraries that regularly publishes all OSHA standards and

amendments. The offi cial daily publication for rules, proposed

rules, and notices of federal agencies and organizations. http://

www.gpoaccess.gov/fr/

Federal Services Impasses Panel (FSIP) Entity within the

FLRA whose function is to provide assistance in resolving

negotiation impasses within the federal sector.

fi nal-offer interest arbitration Form of arbitration in which

the arbitrator is restricted to selecting the fi nal offer of one of

the parties.

fl exible-benefi t plan Benefi t plan that allows employees to

select from a wide range of options how their direct compensation

and benefi ts will be distributed. See also cafeteria plan of benefi ts.

fl oating holiday Holiday that may be observed at the discretion

of the employee or the employer.

forced-choice rating Method of performance appraisal that

requires the rater to rank a set of statements describing how an

employee carries out the duties and responsibilities of the job.

4/5ths or 80 percent rule Limit used to determine whether or

not there are serious discrepancies in hiring decisions and other

employment practices affecting women or minorities.

401(k) plan Most popular type of defi ned contribution plan,

named after section 401(k) of the Internal Revenue Code. Allows

employees to defer a portion of their pay into the plan, thus

making contributions tax deductible (up to a limit).

frequency rate Ratio that indicates the frequency with which

disabling injuries occur.

G gain sharing Programs also known as profi t sharing,

performance sharing, or productivity incentives; generally refers

to incentive plans that involve employees in a common effort

to achieve the company’s productivity objectives. Based on the

concept that the resulting incremental economic gains are shared

among employees and the company.

garnishment Legal procedure by which an employer is

empowered to withhold wages for payment of an employee’s debt

to a creditor.

general-duty clause Clause in the Occupational Safety and

Health Act covering those situations not addressed by specifi c

standards; in essence, it requires employers to comply with the

intent of the act.

Glossary 395

Gissel bargaining orders Situations in which the NLRB orders

management to bargain with the union; named after a landmark

Supreme Court decision, NLRB v. Gissel Packing Company.

good-faith bargaining Sincere intention of both parties to

negotiate differences and reach a mutually acceptable agreement.

graphic rating scale Method of performance appraisal that

requires the rater to indicate on a scale where the employee

rates on factors such as quantity of work, dependability, job

knowledge, and cooperativeness.

graphology (handwriting analysis) Use of a trained analyst to

examine a person’s handwriting to assess the person’s personality,

emotional problems, and honesty.

grievance arbitration Arbitration that attempts to settle

unresolved disputes arising during the term of the collective

bargaining agreement that involve questions of its interpretation

or application.

grievance procedures Outline of the steps to be taken by

employees appealing any management action they believe violates

the union contract or corporate procedures agreed to in negotiations.

group incentives Incentives based on group rather than

individual performance.

group interview Interview method in which several applicants

are questioned together.

H halo effect Occurs when managers allow a single prominent

characteristic of an employee to infl uence their judgment on

separate items of a performance appraisal.

handicapped individual Person who has a physical or mental

impairment that substantially limits one or more major life

activities, has a record of such impairment, or is regarded as

having such impairment.

Hazard Communication Standard Standard issued by OSHA in

the early 1980s that established uniform requirements to ensure that

the hazards of all chemicals produced or used in, or imported into, the

workplace are evaluated and that the results of these evaluations are

transmitted to affected employers and exposed employees.

headhunter A type of private employment agency that seeks

candidates for high-level, or executive, positions.

health maintenance organization (HMO) Health service

organization that contracts with companies to provide certain

basic medical services around the clock, seven days a week, for a

fi xed cost.

Hitchman Coal & Coke Co. v. Mitchell Supreme Court case of

1917 that upheld the legality of yellow-dog contracts.

hot-stove rule Set of guidelines used in administering

discipline that calls for quick, consistent, and impersonal action

preceded by a warning.

HR Scorecard A measurement and control system that uses a mix

of quantitative and qualitative measures to evaluate performance.

human resource functions Tasks and duties human resource

managers perform (e.g., determining the organization’s human

resource needs; recruiting, selecting, developing, counseling,

and rewarding employees; acting as liaison with unions and

government organizations; and handling other matters of

employee well-being).

human resource generalist Person who devotes a majority of

working time to human resources issues, but does not specialize

in any specifi c area.

human resource information system (HRIS) A database

system that contains all relevant human resource information and

provides facilities for maintaining and accessing these data.

human resource management (HRM) Activities designed to

provide for and coordinate the human resources of an organization.

human resource planning (HRP) Process of determining the

human resource needs of an organization and ensuring that the

organization has the right number of qualifi ed people in the right

jobs at the right time.

human resource specialist Person specially trained in one or

more areas of human resource management (e.g., labor relations

specialist, wage and salary specialist).

I Immigration Reform and Control Act 1986 act making

it illegal to hire, recruit, or refer for U.S. employment anyone

known to be an unauthorized alien.

in-basket technique Method of classroom training in which

the trainee is required to simulate the handling of a specifi c

manager’s mail and telephone calls and to react accordingly.

incentive or variable pay plans Pay plans designed to relate

pay directly to performance or productivity; often used in

conjunction with a base wage/salary system.

incentive stock option (ISO) Form of qualifi ed stock option

plan in which the manager does not have to pay any tax until the

stock is sold.

incentives Rewards offered in addition to the base wage or

salary and usually directly related to performance.

incident method Form of case study in which students are

initially given the general outline of a situation and receive

additional information from the instructor only as they request it.

individual equity Addresses the rewarding of individual

contributions; is very closely related to the pay-for-performance

question.

individual retirement account (IRA) Individual pension plan

for employees not covered by private pension plans.

industrial unions Unions having as members both skilled and

unskilled workers in a particular industry or group of industries.

information Data that have been interpreted and that meet a

need of one or more managers.

informational picketing Patrolling at or near an employer’s

facility by individuals carrying signs to publicize the fact that the

union is requesting an election to become the bargaining agent

for the employees of the organization.

initial impressions Interviewer draws conclusions about job

applicant within the fi rst ten minutes of the interview.

injunction Court order to stop an action that could result in

irreparable damage to property when the situation is such that no

other adequate remedy is available to protect the interests of the

injunction-seeking party.

interaction management See Behavior modeling.

interest tests Tests designed to determine how a person’s interests

compare with the interests of successful people in a specifi c job.

396 Glossary

internal equity Addresses what an employee is being paid

for doing a job compared to what other employees in the same

organization are being paid to do their jobs.

intrinsic rewards Rewards internal to the individual and

normally derived from involvement in certain activities or tasks.

J job Group of positions that are identical with respect to their

major or signifi cant tasks and responsibilities and suffi ciently

alike to justify their being covered by a single analysis. One or

many persons may be employed in the same job.

job advertising Placement of help-wanted advertisements in

daily newspapers, in trade and professional publications, or on

radio and television.

job analysis Process of determining and reporting pertinent

information relating to the nature of a specifi c job.

job classifi cation method Job evaluation method that

determines the relative worth of a job by comparing it to a

predetermined scale of classes or grades of jobs.

job depth Freedom of jobholders to plan and organize their own

work, work at their own pace, and move around and communicate.

job description Written synopsis of the nature and

requirements of a job.

job design Process of structuring work and designating the

specifi c work activities of an individual or group of individuals to

achieve certain organizational objectives.

job evaluation Systematic determination of the value of each

job in relation to other jobs in the organization.

job knowledge tests Tests used to measure the job-related

knowledge of an applicant.

job posting and bidding Method of making employees

aware of job vacancies by posting a notice in central locations

throughout an organization and giving a specifi ed period to apply

for the job.

job ranking method Job evaluation method that ranks jobs in

order of their diffi culty from simplest to most complex.

job rotation (cross training) Training that requires an

individual to learn several different jobs in a work unit or

department and perform each for a specifi ed time period.

job satisfaction An employee’s general attitude toward the job.

job scope Number and variety of tasks performed by the

jobholder.

job specifi cation Description of the competency, educational,

and experience qualifi cations the incumbent must possess to

perform the job.

job subfactor Detailed breakdown of a single compensable

factor of a job.

just cause Requires that management initially bear the burden

of proof of wrongdoing in discipline cases and that the severity of

the punishment must coincide with the seriousness of the offense.

K Keogh plan Retirement plan allowing self-employed persons

to have their own 401(k) plan following the same rules as other

401(k) plans.

L Labor–Management Relations Act (Taft–Hartley Act)

Legislation enacted in 1947 that placed the federal government in

a watchdog position to ensure that union–management relations

are conducted fairly by both parties.

Labor–Management Reporting and Disclosure Act (LMRDA)

(Landrum–Griffi n Act) Legislation enacted in 1959 regulating

labor unions and requiring disclosure of certain union fi nancial

information to the government.

Landrum–Griffi n Act of 1959 Labor–Management

Reporting and Disclosure Act, regulating labor unions and

requiring disclosure of certain union fi nancial information to

the government.

learners Individuals in an organization who have a high

potential for advancement but who are currently performing

below standard.

leniency Occurs in performance appraisals when a manager’s

ratings are grouped at the positive end instead of being spread

throughout the performance scale.

lockout Refusal of an employer to let its employee work.

M maintenance of membership Contract provision that does not

require an employee to join the union but does require employees

who do join to remain members for a stipulated time period.

management by objectives (MBO) Consists of establishing

clear and precisely defi ned statements of objectives for the work

to be done by an employee, establishing an action plan indicating

how these objectives are to be achieved, allowing the employee

to implement the action plan, measuring objective achievement,

taking corrective action when necessary, and establishing new

objectives for the future.

management development Process concerned with developing

the experience, attitudes, and skills necessary to become or

remain an effective manager.

management inventory Specialized, expanded form of skills

inventory for an organization’s current management team; in

addition to basic types of information, it usually includes a brief

assessment of past performance and potential for advancement.

management succession plan Chart or schedule that shows

potential successors for each management position within an

organization.

managerial estimates Judgmental method of forecasting that

calls on managers to make estimates of future staffi ng needs.

market-based pay systems Systems that focus on external

rather than internal equity and operate without traditional pay

ranges.

Marshall v. Barlow’s, Inc. 1978 Supreme Court decision that

ruled that employers are not required to admit OSHA inspectors

onto their premises without a search warrant; also ruled that

probable cause needed to obtain the search warrant is much less

than that required in a criminal matter.

mediation Process whereby both parties invite a neutral third

party (called a mediator) to help resolve contract impasses.

The mediator, unlike an arbitrator, has no authority to impose a

solution on the parties.

Glossary 397

merit pay increase Reward based on performance but also

perpetuated year after year.

metrics Any set of quantitative measures used to assess

workforce performance.

microcomputer Very small computer, ranging in size from a

“computer on a chip” to a typewriter-size unit.

micromotion Simplest unit of work; involves very elementary

movements such as reaching, grasping, positioning, or releasing

an object.

motion study Job analysis method that involves determining

the motions and movements necessary for performing a task or

job and then designing the most effi cient methods for putting

those motions and movements together.

N National Labor Relations Act (Wagner Act) Prolabor act

of 1935 that gave workers the right to organize, obligated the

management of organizations to bargain in good faith with

unions, defi ned illegal management practices relating to unions,

and created the National Labor Relations Board (NLRB) to

administer the act.

National Labor Relations Board (NLRB) Five-member

panel created by the National Labor Relations Act and appointed

by the president of the United States with the advice and

consent of the Senate and with the authority to administer the

Wagner Act.

needs assessment Systematic analysis of the specifi c training

management development activities required by an organization

to achieve its objectives.

NLRB v. Weingarten Supreme Court decision in 1975

holding that an employee has the right to refuse to submit to a

disciplinary interview without union representation.

nonqualifi ed stock options Similar to qualifi ed options, except

that they are subject to less favorable tax rate and are not subject

to the same restrictions.

Norris–La Guardia Act of 1932 Prolabor act that eliminated

the use of yellow-dog contracts and severely restricted the use of

injunctions.

O occupation Grouping of jobs or job classes that involve similar

skill, effort, and responsibility within a number of different

organizations.

Occupational Informational Network (O*NET) The United

States’ primary source of occupational information. The O*NET

database is a comprehensive online database of employee

attributes and job characteristics. www.onet.center.org

occupational parity Situation in which the proportion of

minorities and women employed in various occupations within

an organization is equal to their proportion in the organization’s

relevant labor market.

Occupational Safety and Health Act Federal law enacted in

1971 to ensure safe and healthful working conditions for every

working person.

Offi ce of Federal Contract Compliance Programs (OFCCP)

Offi ce within the U.S. Department of Labor that is responsible for

ensuring equal employment opportunity by federal contractors

and subcontractors.

Offi ce of the General Counsel Separate and independent

offi ce created by the Taft–Hartley Act to investigate unfair

labor practice charges and present those charges with merit to

the NLRB.

Older Workers Benefi t Protection Act of 1990 Provides

protection for employees over 40 years of age in regard to fringe

benefi ts and gives employees time to consider an early retirement

offer.

on-the-job training (OJT) Training showing the employee

how to perform the job and allowing him or her to do it under the

trainer’s supervision.

operating manager Person who manages people directly

involved with the production of an organization’s products or

services (e.g., production manager in a manufacturing plant,

loan manager in a bank).

organizational development (OD) Organizationwide,

planned effort managed from the top, with the goal of increasing

organizational performance through planned interventions and

training experiences.

organizational equity Addresses how profi ts are divided up

within the organization.

organizational inducements Positive features and benefi ts

offered by an organization to attract job applicants.

organizational morale An employee’s feeling of being

accepted by and belonging to a group of employees through

common goals, confi dence in the desirability of those goals, and

the desire to progress toward the goals.

organizational objectives Statements of expected results that

are designed to give the organization and its members direction

and purpose.

organizational orientation General orientation that presents

topics of relevance and interest to all employees.

organizational replacement chart Chart that shows both

incumbents and potential replacements for given positions within

an organization.

organizational rewards Rewards that result from employment

with the organization; includes all types of rewards, both intrinsic

and extrinsic.

organizational reward system Organizational system

concerned with the selection of the types of rewards to be used by

the organization.

organizational vitality index (OVI) Index that results from

ratio analysis; refl ects the organization’s human resource vitality

as measured by the presence of promotable personnel and

existing backups.

organizationwide incentives Incentives that reward all

members of the organization, based on the performance of the

entire organization.

orientation Introduction of new employees to the organization,

work unit, and job.

orientation kit Packet of written information given to a new

employee to supplement the verbal orientation program.

OSHA Forms 300 and 300A Forms for recording all

occupational injuries and illnesses. Each occurrence must be

recorded within six working days from the time the employer

learns of the accident or illness.

398 Glossary

OSHA Form 301 Form that requires much more detail about

each injury or illness. Form 301 must be completed within

six working days from the time the employer learns of an

occupational injury or illness.

outplacement Benefi t provided by an employer to help an

employee leave the organization and get a job someplace else.

outsourcing Subcontracting work to an outside company that

specializes in that particular type of work.

P panel interview See Board interview.

parallel forms Method of showing a test’s reliability; involves

giving two separate but similar forms of the test at the same time.

pay Refers only to the actual dollars employees receive in

exchange for their work.

pay grades Classes or grades of jobs that for pay purposes are

grouped on the basis of their worth to an organization.

pay range Range of permissible pay, with a minimum and a

maximum, that is assigned to a given pay grade.

performance Degree of accomplishment of the tasks that make

up an employee’s job.

performance appraisal Process of evaluating and communi-

cating to an employee how he or she is performing the job and

establishing a plan for improvement.

performance share plan (unit plan) Incentive plan that

awards top executives a set number of performance units at the

beginning of the performance period; actual value of the units

is then determined by the company’s performance over the

performance period.

performance-vesting options Stock options priced at market

price but only exercisable if stock price reaches or exceeds price

goal within defi ned period.

personality tests Tests that attempt to measure personality traits.

personnel requisition form Describes the reason for the need

to hire a new person and the requirements of the job.

phantom stock plan Special type of stock option plan that

protects the holder if the value of the stock being held decreases;

does not require the option holder to put up any money.

Philadelphia Cordwainers (shoemakers) case of 1806 Case

in which the jury ruled that groups of employees banded together

to raise their wages constituted a conspiracy in restraint of trade.

point method Job evaluation method in which a quantitative

point scale is used to evaluate jobs on a factor-by-factor basis.

polygraph Machine that records fl uctuations in a person’s

blood pressure, respiration, and perspiration on a moving roll

of graph paper in response to questions asked of the person;

commonly known as a lie detector.

position Collection of tasks and responsibilities constituting the

total work assignment of a single employee.

predictive validity Validity that is established by identifying a

criterion predictor such as a test, administering the test to all job

applicants, hiring people without regard to their test scores, and

at a later date correlating the test scores with the performance of

these people on the job.

preferred provider organization (PPO) Formed by

contracting with a group of doctors and hospitals to provide

services at a discount or otherwise attractive price. Such

providers are designated as “preferred” providers of care.

Pregnancy Discrimination Act (PDA) Requires employers to

treat pregnancy just like any other medical condition with regard

to fringe benefi ts and leave policies.

premium-priced options Stock options with an exercise price

signifi cantly above stock’s current market price.

private plans Employee benefi t that provides a source of

income to people who have retired; funded either entirely by the

organization or jointly by the organization and employee during

employment.

profi ciency tests Tests that measure how well a job applicant

can do a sample of the work that is to be performed.

psychomotor tests Tests that measure a person’s strength,

dexterity, and coordination.

Q qualifi ed stock options Stock options approved by the Internal

Revenue Service for favorable tax treatment.

R Railway Labor Act An act enacted in 1926 that set up the

administrative machinery for handling labor relations within the

railroad industry; the fi rst important piece of prolabor legislation.

ranking methods Methods of performance appraisal in which the

performance of an employee is ranked relative to the performance

of others.

ratio analysis Tool used in human resource planning to

measure the organization’s human resource vitality as indicated

by the presence of promotable personnel and existing backups.

realistic job previews (RJP) Method of providing complete

job information, both positive and negative, to the job applicant.

recency Tendency of a manager to evaluate employees on work

performed most recently—one or two months prior to evaluation.

recognition bar Condition occurring when the NLRB prohibits

an election for up to 12 months after an employer voluntarily

recognizes a union.

recruitment Process of seeking and attracting a pool of people

from which qualifi ed candidates for job vacancies can be chosen.

reengineering Fundamental rethinking and radical redesign

of business processes to achieve dramatic improvements in cost,

quality, service, and speed.

Rehabilitation Act of 1973 Prohibits discrimination against

handicapped individuals.

relevant labor market The geographical area in which a

company recruits its employees.

reliability Refers to the extent to which a criterion predictor

produces consistant results if repeated measurements are made.

responsibilities Obligations to perform certain tasks and

assume certain duties.

restricted stock plan Plan under which a company gives shares

of stock to participating managers, subject to certain restrictions;

major restriction of most plans is that shares are subject to

forfeiture until “earned out” over a stipulated period of continued

employment.

Glossary 399

Retirement Equity Act Act passed in 1984 that liberalized

eligibility requirements, vesting provisions, maternity/paternity

leaves, and spouse survivor benefi ts of retirement plans.

reverse discrimination Condition under which there is alleged

preferential treatment of one group (minority or women) over

another group rather than equal opportunity.

rightsizing Continuous and proactive assessment of mission-

critical work and its staffi ng requirements.

right-to-sue-letter Statutory notice by the EEOC to the

charging party if the EEOC does not decide to fi le a lawsuit on

behalf of the charging party.

right-to-work laws Legislation enacted by individual states

under the authority of Section 14(b) of the Taft–Hartley Act

that can forbid various types of union security arrangements,

including compulsory union membership.

Roth IRA Retirement plan that allows individuals to make

nondeductible contributions and tax-free withdrawals with certain

restrictions.

S Scanlon plan Organizationwide incentive plan that provides

employees with a bonus based on tangible savings in labor costs.

scenario analysis Using workforce environmental scanning

data to develop alternative workforce scenarios.

secondary boycott Issue involving other employers (secondary

employers) in the relationship between a union and an employer

(the primary employer).

selection Process of choosing from those available the

individuals who are most likely to perform successfully in a job.

self-managed work teams Groups of peers are responsible for

a particular area or task.

seniority An employee’s relative length of service with an

employer.

sensitivity training Method used in OD to make one more

aware of oneself and one’s impact on others.

SEP-IRA Retirement plan that allows small businesses and

sole proprietors to make deductible contributions.

severity rate Ratio that indicates the length of time injured

employees are out of work.

sexual harassment Unwelcome sexual conduct that has the

purpose or effect of unreasonably interfering with an individual’s

work performance or creating an intimidating, hostile, or

offensive work environment.

skill-based pay systems Systems that compensate employees

for the skills they bring to the job.

skills inventory Consolidated list of biographical and other

information on all employees in the organization.

social security Federally administered insurance system

designed to provide funds upon retirement or disability or both

and to provide hospital and medical reimbursement to people

who have reached retirement age.

software as a service (SaaS) Standard business applications

that are delivered over the Internet on a pay-as-you-go basis.

solid citizens Individuals in an organization whose present

performance is satisfactory but whose chance for future

advancement is small.

split halves Method of showing a test’s reliability; involves

dividing the test into halves.

stars Individuals in an organization who are presently doing

outstanding work and have a high potential for continued

advancement.

stock appreciation rights (SARs) Type of nonqualifi ed stock

option in which an executive has the right to relinquish a stock

option and receive from the company an amount equal to the

appreciation in the stock price from the date the option was

granted. Under an SAR, the option holder does not have to put up

any money, as would be required in a normal stock option plan.

stock-for-stock swap Allows options to be exercised with

shares of previously purchased company stock in lieu of cash;

postpones the taxation of any gain on stock already owned.

stress Mental and physical condition that results from a

perceived threat of danger (physical or emotional) and the

pressure to remove it.

stress interview Interview method that puts the applicant under

pressure to determine whether he or she is highly emotional.

strike Collective refusal of employees to work.

structured interview Interview conducted using a

predetermined outline.

subfactor Detailed breakdown of a single compensable factor

of a job.

succession planning Technique that identifi es specifi c people to

fi ll future openings in key positions throughout the organization.

suggestion systems Systems that usually offer cash incentives

for employee suggestions that result in either increased profi ts or

reduced costs.

systemic discrimination Large differences in either

occupational or employment parity.

T Taft–Hartley Act of 1947 Labor–Management Relations Act,

which placed the federal government in a watchdog position to

ensure that union–management relations are conducted fairly by

both parties.

talent management The broad spectrum of HR activities

involved in obtaining and managing the organization’s human

resources.

task Consisting of one or more elements, one of the distinct

activities that constitute logical and necessary steps in the

performance of work by an employee. A task is performed

whenever human effort, physical or mental, is exerted for a

specifi c purpose.

team building Process by which a work group develops

awareness of conditions that keep it from functioning effectively

and takes action to eliminate these conditions.

telecommuting Working at home by using an electronic linkup

with a central offi ce.

temporary help People working for employment agencies who

are subcontracted out to businesses at an hourly rate for a period

of time specifi ed by the businesses.

test-retest One method of showing a test’s reliability; involves

testing a group and giving the same group the same test at a later

time.

400 Glossary

time study Job analysis method that determines the elements

of work required to perform the job, the order in which these

elements occur, and the times required to perform them effectively.

Title VII of the Civil Rights Act of 1964 Keystone federal

legislation that covers disparate treatment and disparate impact

discrimination; created the Equal Employment Opportunity

Commission.

Toxic Substance Control Act Federal law passed in 1976

requiring the pretesting of new chemicals marketed for safety.

training Learning process that involves the acquisition of skills,

concepts, rules, or attitudes to increase employee performance.

12-month rule Provides that no election can be held in any

bargaining unit within which a valid election has been held

within the preceding 12-month period.

U understudy assignments Method of on-the-job training in

which one individual, designated as the heir to a job, learns the

job from the present jobholder.

underutilization Practice of having fewer minorities or women

in a particular job category than their corresponding numbers in

the relevant labor market.

unemployment compensation Form of insurance designed

to provide funds to employees who have lost their jobs and are

seeking other jobs.

union shop Provision in a contract that requires all employees

in a bargaining unit to join the union and retain membership as

a condition of employment; most right-to-work laws outlaw the

union shop.

unstructured interview Interview conducted without a

predetermined checklist of questions.

utilization evaluation Part of the affi rmative action plan that

analyzes minority group representation in all job categories, past and

present hiring practices, and upgrades, promotions, and transfers.

V Vaca v. Sipes Supreme Court decision that held that a union

is not obligated to take all grievances to arbitration but has the

authority to decide whether or not the grievance has merit. If such

a decision is made fairly and nonarbitrarily, the union has not

breached its duty of fair representation.

validity Refers to how accurately a predictor actually predicts

the criteria of job success.

vesting Right of employees to receive the money paid into a

pension or retirement fund on their behalf by their employer if

they leave the organization prior to retirement.

Vietnam-Era Veterans Readjustment Assistance Act of 1974

Prohibits federal government contractors, and subcontractors

with federal government contracts of $10,000 or more from

discriminating in hiring and promoting Vietnam and disabled

veterans.

vision statement A concise statement of career goals in

measurable terms.

Vocational Rehabilitation Act Legislation enacted in 1973 that

prohibits discrimination against otherwise qualifi ed handicapped

individuals solely on the basis of their disability; applies only in

certain situations involving federal contracts, recipients of federal

assistance, or federal agencies.

W wage and salary curves Graphical depiction of the relationship

between the relative worth of jobs and their wage rates.

wage and salary survey Survey of selected organizations

within a geographical area or industry designed to provide a

comparison of reliable information on policies, practices, and

methods of payment.

Wagner Act of 1935 National Labor Relations Act; prolabor

act that gave workers the right to organize, obligated the

management of organizations to bargain in good faith with

unions, defi ned illegal management practices relating to unions,

and created the National Labor Relations Board (NLRB) to

administer the act.

Web-based training Method of training in which material is

presented on computer video screens via either the Internet or

company intranet; participants are required to answer questions

correctly before being allowed to proceed.

weighted application form Assigns different weights or values

to different questions on an application form.

wellness programs Company-implemented programs designed

to prevent illness and enhance employee wellness.

work sampling Job analysis method based on taking statistical

samples of job actions throughout the workday and then drawing

inferences about the requirements and demands of the job.

work standards approach Method of performance appraisal

that involves setting a standard or expected level of output and

then comparing each employee’s level to the standard.

workers’ compensation Form of insurance that protects

employees from loss of income and extra expenses associated

with job-related injuries or illness.

Y yellow-dog contract Term coined by unions to describe an

agreement between an employee and employer stipulating that,

as a condition of employment, the worker would not join a labor

union. Yellow-dog contracts were made illegal by the Norris–La

Guardia Act of 1932.

401

Name Index

Adams, Graham, Jr., 358

Adkins, John I., Jr., 340

Al-Hawamdeh, Suliman, 185

Alvarez, Ralph, 101

Andler, Edward C., 144

Applebaum, Steven H., 210, 340

Aquilano, Nicholas J., 83

Arnold, Edwin W., 230, 272

Atchison, Thomas J., 253

Auster, Ellen R., 250

Bach, Pete, 84

Baker, Carolyn A., 316

Bakke, Allan, 35

Balderrama, Jose, 271

Bambacas, Mary, 209

Banik, Joseph A., 21

Bankston, Karen, 271

Banning, Kevin C., 185

Barcellos, David, 271, 272

Bardwick, Judith M., 210

Barlow, Wayne E., 73, 83,

250, 337

Barrier, Michael, 341

Beard, L. Michelle, 210

Beatty, R. W., 219

Beck, Evelyn, 340

Beckham, Renee, 290

Belcher, David W., 253

Bell, Bradford S., 21

Benge, Eugene, 257

Benjamin, Ellen R., 272

Benko, Cathleen, 210

Bergel, Gary L., 272

Berry, Mike, 316

Biggs, W. D., 316

Blanton, Kimberly, 294

Blasi, Joseph R., 290

Bonache, Jaime, 290

Bonney, Joseph, 371

Bordia, Prashant, 209

Boulanger, Marc, 389

Boulware, Lemuel, 378

Boyle, Matthew, 209

Bradner, Tim, 334

Brady, Teresa, 243

Brandau, Mark, 101

Breaugh, James A., 124

Brennan, C. W., 290

Brown, Trevor C., 166

Buhler, Patricia M., 108

Burack, E. H., 195, 209

Burne, James A., Jr., 60

Burns, LaShonda, 46

Burr, Barry B., 289

Burrows, Donald M., 21

Byars, Lloyd L., 352

Caldwell, Cam, 185

Camardella, Matthew J., 229

Camden, T. M., 210

Cantalupo, Jim, 101

Capozzoli, Thomas, 290

Captain, Lori, 301

Carberry, Ed, 290

Carey, John, 339

Cargemi, J. P., 310

Carlson, D. G., 302

Carroll, Kathleen, 271

Carter, Nancy, 210

Case, John, 250

Case, Stanley R., 108

Catalanello, Ralph E., 108

Caudron, Shari, 21, 83, 249, 271, 272

Cavanagh, Michael E., 339

Champy, J., 21

Chase, Richard B., 83

Chavez, Linda, 250

Cherniphenko, Oleksandr S., 316

Chicci, D. L., 109

Cira, Darrell J., 272

Claypool, J. C., 310

Cohen, Alan, 21

Colella, Adrienne, 250

Conger, Jay A., 229

Conlin, Michelle, 339

Conway, Michael A., 271

Cooke, Rhoda, 340

Cornelius, Nelarine E., 109

Cornell, Christopher, 315

Crawford, Neil, 9

Crawford, Vicky, 55

Crispell, Diane, 243

Csiernik, Rick, 340

Cummings, Larry I., 249

Cutler, W. Gale, 208

Dahl, Darren, 109

Daughtery, Chad, 316

David, Fred R., 185

Davidson, Duncan, 21

Davidson, Linda, 108

Davis, Jeff, 334

Davis, Louis E., 83

Davis, Paula, 289

Deep, Samuel, D., 388

Delaney, John, 272

Demby, Elayne Robertson, 340

DePledge, Derrick, 379

Dickmeyer, William, 271

Dickson, Duane, 21

Dobson, Sarah, 195

Dominguez, Cari M., 210

Donovan, Tristan, 78

Drozdowski, Lisa, 26

Dugal, Sanjiv S., 290

Dysart, Ted, 100

Eargle, Fred L., 271

Eimicke, Victor W., 114

Eisenberg, Daniel, 236

Elswick, Jill, 271

Emens, Paul, 42

Epstein, Gene, 210

Fandray, Dayton, 229

Faria, A. J., 185

Farish, Phil, 21

Farr, Stephanie, 26

Farrell, Christopher, 290

Farzad, Roben, 280

Fasoldt, Gene F., 303

Feldman, B. H., 194

Ference, T. P., 199, 209, 210

Feyerherm, Ann E., 185

Finnie, Bruce, 76

Firestone, David, 209

Firestone, Dvorah, 210

Fisher, Anne, 209

Fisher, Cynthia D., 249

Fisscher, Olaf A. M., 230

Fleming, Sue, 300

Flynn, Gillian, 144, 389

Foust, Dean, 280

Frauenheim, Ed, 191

Gale, Sarah Fister, 83, 210

Garlough, Cory, 9

Garvey, Thomas W., 21

Geisel, Jerry, 300

Gerhart, Barry, 265

Giancola, Frank L., 272

Gibbons, John, 237

Gibson, Linda, 76

Gilbert, Jacqueline A., 20

Gill, Brian, 83

Gill, Jennifer, 236

402 Name Index

Gillen, Terry, 230

Gompers, Samuel, 371

Granholm, Axel R., 171

Grant, Philip C., 83

Green, Percy, 34

Greene, Charles N., 237, 249

Greengard, Samuel, 21, 103, 109

Greenlaw, P. S., 316

Greenman, Russell L., 297

Greenwald, Judy, 294, 340

Grigson, Deb, 272

Grindle, Stephen, 30

Grossman, Robert J., 289

Grow, Brian, 280

Gruys, Melissa L., 185

Gunderson, Morley, 249

Gunkel, Marjaana, 249

Gurchiek, Kathy, 84

Gusman, Phil, 289

Guthman, Mike, 263

Haggerty, James, 333

Hain-Cole, Alexandra, 316

Hakim, Cliff, 201, 210

Hammer, M., 21

Hammonds, Keith, 290

Hansen, Fay, 157, 271, 281

Hardison, Larry G., 57

Hare, Edward Z., 73, 83

Harrington, Jeff, 117

Hatch, D. Diane, 250, 337

Hays, Daniel, 316

Hays, Scott, 249, 271

Henderson, Richard I., 84, 271

Herbst, Dara, 144

Hickins, Michael, 250

Hickman, E. Stewart, 272

Higgins, Graham, 156

Hills, Frederick S., 249

Hobel, John, 20

Hooper, John A., 108

Hopkins, Ann, 225

Hussain, Zahid, 109

Huwe, Terence K., 389

Hwang, Alvin, 185

Iaffaldano, Michelle T., 249

Impara, James C., 143

Ingram, Earl, II, 265

Inhofe, James, 42

Ivancevich, John M., 20

Jacobs, F. Robert, 83

Jahja, Henry, 272

Jarboe, Kathleen Johnston, 289, 290

Johnson, Glorious, 254

Joiner, Dennis A., 185

Joinson, Carla, 209

Jones, Michelle D., 249

Jones, P. R., 208

Jones, Robert, 272

Jordan, John D., 339

Kahya, Emin, 271

Kanin-Lovers, Jill, 294

Kastros, Anthony, 179

Kaye, Beverly, 208, 210

Kennaway, Steven, 385

Kerssens-van Drongelen, Inge, 230

Kilgour, John G., 271

Kimball, Janice, 389

King, Jane, 124

King, Tina, 124

Klaff, Leslie Gross, 109

Klass, Brian S., 21

Kleiner, Brian H., 272, 389

Knight, Dana, 340

Kohrman, Dan, 27

Korshak, Stuart R., 389

Koudsi, Suzanne, 210

Kovac, Jason C., 271, 272

Kronhotz, June, 44

Kroumova, Maya K., 290

Kruse, Douglas L., 290

Kryder, LeeAnne G., 185

Kurash, Stephen P., 303

La Greca, Genevieva, 339

Laabs, Jennifer J., 316

Lacey, Nick, 42

Lachnit, Carroll, 124, 166

Lambert, J., 250

Lavoie, Denise, 385

Lawler, E. E., III, 242, 244, 250

Lawton, Katie, 316

Ledbetter, Lilly, 241

Ledford, Gerald E., Jr., 266, 272

Ledgerwood, Donna, 339

Ledvinka, S., 316

Lee, Patrick Chang Boon, 210

Lee, Sae-Won, 21

Leibowitz, Zandy B., 193

Leigh, David R., 91

Leonard, Bill, 271, 316

LePree, Joy, 166

Leukart, R. H., 256

Levin, Barbara, 245

Levinsin, Harry, 229

Liang, David, 108

Liebowitz, Zandy B., 194

Lincoln, James F., 282

Linstedt, Sharon, 340

Liradas, Sheila, 340

Little, Matthew, 253

Livadas, Sheila, 333

Locke, E. A., 249

Long, Richard, 271

Lovelace, Kay, 20

Luchak, Andrew, 249

Luhby, Tami, 316

Lui, Cecilia, 340

Lusk, Edward J., 249

Lynch, Christopher, 96

Macfarlane, Bruce, 185

Madigan, Robert M., 249

Maniscalco, Stephanie, 351

Mann, Sandi, 166

Mannila, Chuck, 341

Markham, Steven E., 249

Markowitz, J., 83

Marks, Susan J., 271

Marshall, Ray, 321

Martindale, Nick, 112

Martinez, Michelle Neely, 124

Martone, David, 229

Mathys, N. J., 195, 209

May, Douglas R., 83

Maynard, John, 333

McCaffery, R. M., 315

McCall, John J., 356

McCarthy, Christopher J., 210

McElwain, James E., 109

McGough, Robert E., 326

McGrath, J. E., 339

McGregor, Jena, 280

McKay, Jim, 378

McNeilly, Kevin M., 250

McNerney, Jim, 326

McShulskis, Elaine, 316

Meckel, N. T., 209

Meister, Jeanne C., 209

Merriman, Kimberly, 272

Miller, Ernest C., 108

Miller, Stephen, 289, 341

Mills, D. Quinn, 92, 109

Miners, Ian A., 340

Moller, Naomi, 210

Morgenson, Gretchen, 289

Morin, William J., 209

Moses, Barbara, 209

Moskal, Brian S., 61

Mosley, S. H., 194

Muchinsky, Paul M., 249

Murphy, Betty Southard,

250, 337

Murray, Brian, 265

Murray, Patricia M., 108

Nardelli, Robert L., 280

Neikirk, William, 316

Nosbusch, Keith, 326

Nykadyn, Nick, 340

O’Brien, Joan C., 261, 271

O’Donnell, Lisa, 155

Oldham, Greg R., 83

Olsen, Florence, 267

O’Neil, Laurence, 20

Otis, J. L., 256

Name Index 403

Paetzold, Ramona L., 250

Painter, Charles N., 230

Pallarito, Karen, 340

Pallone, Greg, 249

Pasqueletto, Joe, 21

Pati, Gopal C., 340

Patten, Thomas H., 109

Paulin, George, 289

Paulsen, Kevin M., 290

Payne, Richard C., 210

Perkins, Frances, 18

Perry, Olophius, 121

Peyton, John, 254

Phillips, Fonda, 340

Pincis, Laura, 250

Pinto, P. R., 71, 83

Plachy, Roger J., 271

Plank, Barbara S., 143

Polson, John M., 124

Porter, Christine, 230

Power, Christine, 185

Pronsky, J., 250

Pulich, Marcia, 230

Purcell, Patrick, 316

Quinn, Dick, 311

Radin, Tara J., 356

Raia, Anthony P., 93

Rake, Katherine, 253

Randolph, A. B., 209

Raphael, Todd, 21

Rathert, Cheryl, 83

Rees, W. David, 185, 230

Reynes, Roberta, 340

Rhoas, Steven E., 243

Ripley, David E., 108

Risher, Howard, 267, 272

Roberts, Bill, 109

Roberts, Gary E., 230

Roberts, Sally, 316

Robinson, James D., III, 283

Robotham, George, 339

Rogers, Donald P., 329

Rorholm, Janet, 340

Rosen, Benson, 20

Rosen, Corey, 290

Roy, Matthew H., 290

Rudner, Stuart, 350

Ruig, Theresa Smith, 210

Ruiz, Gina, 21

Russ, C. F., Jr., 108

Russ, Frederick A., 250

Rutz, Gina, 340

Safran, Gerson, 109

Salavich, Brad, 294

Santos, Amalia, 166

Schlossberg, Nancy K., 193

Schmertz, Eric J., 297

Schneider, C. E., 219

Schoeff, Mark Jr., 12

Schramm, Jennifer, 289

Schwab, Donald P., 249

Schwanhausser, Mark, 289

Scott, Clyde J., 272

Scott, K. Dow, 249

Sears, David, 144

Seng, Lee Chye, 185

Sesil, James C., 290

Shapiro, Barbara T., 340

Shaw, Bill, 250

Shea, J. H., 316

Sherman, Bruce, 101

Silva, Chris, 311

Simons, Rabbi D., 339

Simonsen, Peggy, 250

Skinner, Jim, 101

Smallwood, Andrew, 267

Smart, Tim, 290

Smith, A. E., 277

Smith, Adam, 75

Smith, Allen, 381

Speizer, Irwin, 84

Spies, Robert A.,143

St. John, W. D., 152, 153

Staats, E., 209

Stackel, Leslie, 340

Stanley, T. L., 249

Starke, Mary, 124

Stephens, Paul, 316

Stolzfus, Eli R., 341

Stone, T. H., 209

Stoner, J. A., 199, 209, 210

Stowe, Gene, 340

Stropki, John, 236

Stuart, Mark, 166

Sutherland, Tracey, 185

Swanson, William H., 326

Taher, Mohamed, 185

Tapia, Andres, 9

Tarbell, Russ, 339

Taylor, Frederick W., 275

Taylor, H. R., 208

Taylor, Michael, 96

Telfer, Dorothy, 253

Tergesen, Anne, 27

Thelan, David S., 339

Thibodeau, Patrick, 109

Thomas, Steven L., 144

Thompson, Don, 101

Thompson, P., 250

Thomsen, D. J., 292

Thornton, Emily, 280

Thornton, George C., III, 185

Toegel, Ginka, 229

Toossi, Mitra, 7, 20

Tornov, W. B., 71, 83

Torres, John, 277

Traband, Diane, 340

Trice, Jane, 21

Tullo, Alexander H., 210

Tyler, Kathryn, 271

Vaill, P. B., 83

van Veldhoven, M., 10

Vaughan, James A., 388

Vaught, Steve, 144

Viollis, Paul, 341

Voermons, M., 10

Walker, Clay, 371

Walker, H. Fred, 209

Walker, James W., 91, 108

Walker, Richard W., 267

Wallace, James, 109

Wallsten, Kevin, 249

Walsh, Mary Williams, 250

Walters, Charles F., 339

Ward, Dan, 109

Warner, Jim, 210

Warr, E. K., 199

Warren, E. K., 209, 210

Watson, Steve, 271

Weaver, Craig S., 339

Weaver, Peter, 290

Weber, Brian F., 36

Weisberg, Anne, 210

Welch, Jack, 280

Werhane, Patricia H., 356

Wesson, Michael J., 250

Wexler, Jim, 177

Wheeler, John D., 20

White, Richard D., Jr., 143

Williams, Helen, 21

Williams, Nadia, 118

Williams, Valerie L., 290

Wilner, Frank N., 371

Wing, David L., 340

Winterscheid, B. C., 209

Wiscombe, Janet, 249

Witt, Clyde E., 340

Wolf, Frederick, 76

Wolff, Birgitta, 249

Wood, G. Christopher, 91

Woodward, Nancy Hatch, 334

Woolf, Daphne, 11

Worley, Christopher G., 185

Wright, Vikki, 333

Yeung, Sarah K., 21

Zachary, Mary Kathryn, 30

Zaffi na, Sarah T., 31

Zardoohi, Asghar, 250

Zarraga, Celia, 290

Zawacki, Robert A., 261, 271

Zegel, Susan, 280

Zeidner, Rita, 104

Zuckerman, Susan C., 356

405

Subject Index A

Abilities, 68, 72

Ability to perform, as BFOQ, 53

Absenteeism, 173

Absorption, 368

Accident and disability insurance, 307

Accidents; See also Safety, employee

causes of, 323–324

on the job, 297

proneness to, 324

reporting, 102

Accommodations, reasonable, 29, 73, 132–133

Action plans, 96–98

ADA, 28–29, 30, 46, 72–73, 130, 132–133

Adarand Contractors v. Peña, 38, 52

ADEA, 26–27, 46, 303, 347, 381

Administrative functions, 12

Advance warning, of discipline, 346–347

Adventure learning, 177–178

Adverse impact, 128, 138–139

Advertising, for jobs, 115, 117, 119

Advisory Group for World at Work, 77

Affi rmative action

college admission and, 35, 38, 40–41

plans for (AAPs), 27, 31–32, 36, 40, 52

seniority and, 36, 40

AFL-CIO, 365–366

Afl ac, 281

African Americans, discrimination

against, 34–38

AFSCME v. State of Washington, 55–56

Age Discrimination in Employment Act

(1967), 26–27, 46, 303, 347, 381

Agency shop, 382

AIDS, 57, 130, 331–332

Air Line Pilots Against Age Discrimination, 42

Alabama Goodyear Tire & Rubber

Company, 241

Albemarle Paper v. Moody, 35, 128, 134

Alcoholism, 329–331

Alexander v. Gardiner-Denver, 347–348

Alternation ranking method, 221

Alternative forms, 137

Alternative work arrangements

condensed workweek, 78

contingent workers, 79, 98

fl exible work arrangements (FWAs), 10,

76–79, 333

job sharing, 78, 98, 333

telecommuting, 10, 77–78, 333

Amalgamation, 368

American Arbitration Association, 344,

352, 381

American Can, 308

American Federation of Labor-Congress of

Industrial organizations (AFL-CIO),

365–366

American Institute of Stress, 328

American International Group (AIG), 279

American Management Association,

178, 330

American Motors, 352

American Society of Safety Engineers, 335

Americans with Disabilities Act (1990), 28–29,

30, 46, 72–73, 130, 132–133

Anchors, in BARS, 218–219

Anti-trust, 359–360

Applicant diversity chart, 49–50

Applicant fl ow record, 127

Applications, 116, 126–127; See also

Selection, of employees

Appraisal, performance; See Performance

appraisal

Appraisal interview, 223–224

Apprenticeship training, 159

Aptitude tests, 128

Arbitration, 344, 351–352, 380–381

Arrow Electronics Inc., 177

Asian labor force, 7

Assessment centers, 133, 179, 194

Asynchronous classrooms, 177

At will employment, 343–344

Attitude, job satisfaction and, 236, 239

Authoria Inc., 235, 274

Autonomous work groups, 75

Baby boomers, 7

Background checks, 133

Balanced scorecard, 13

Bargaining, good-faith, 377–378

Bargaining unit, 375, 376, 382

BARS, 217–219

Base insurance plans, 305

Base wage and salary systems, 251–272;