Human Resources

Answer Questions 1-4 including A and B Human Resources questions add references 

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Assignment 1

Please read ALL directions below before starting your assignment. You may find it helpful to print a copy and cross off or highlight as you complete each expectation. Good luck!

HRMN300 Assignment 1 – Spring 2020



· Please submit your assignment as an attachment in your assignments folder.

· Your assignment cannot be accepted via messages, email or conferences.

· You must submit to the assignment link by the due date stated in the syllabus for credit. A missing assignment will be assigned a 0.

· Respond to all four questions below on a new, blank word processing document (such as MS Word).

· Develop each answer to the fullest extent possible, discussing the nuances of each topic and presenting your arguments logically.

· In addition, include citations from the class content resources in weeks 1- 4 to support your arguments.

· Each answer should be robust and developed in-depth.

· You are expected to demonstrate critical thinking skills, as well as an understanding of the issues identified. Some questions may also require personal reflection and practical application. Your responses will be evaluated for content as well as grammar and punctuation.

· All writing must be your original work. PLEASE do not copy or quote anything. Sources are just that, a reference. Once you locate the information, read and interpret the data. What does it mean to you? Type your own thoughts and own words. Then, include in-text citations to support your ideas. This is not a research paper.  


· Include a Cover Page with Name, Date, and Title of Assignment.

· Do not include the original question, only the question number.

· Each response should be written in complete sentences, double-spaced and spell-checked. Use 12-point Times New Roman font with 1-inch margins on all sides. Include page numbers according to APA formatting guidelines.

· In addition, you will want to include citations in APA format at the end of each answer. Include a minimum of 3 references for each answer.


Faculty to select four questions from the following list of twelve. Delete this note and the eight questions you are not using and post this document to the Week 4 Activities folder at the end of Week 3. Note: some questions have Part A and Part B.

Question 1:

A) Discuss the evolution of the HR role from administrative to strategic. What internal and external factors were involved in this transition? Discuss and provide examples of three different types of skills needed by HR professionals to be effective as strategic business partners.

B) Reflect on the HR function in your current organization or an organization you have worked for. Evaluate the HR role in the organization and discuss the alignment between HR priorities and the organizational strategy (do not name the organization). In other words, did you see evidence of a strategic focus? Why or why not?

Question 2:

A) Select three functional areas of HR (i.e. recruiting, selection, training and development, compensation etc.) and, for each one, discuss how that function supports the HR and organizational strategy. Provide specific examples of goals and outcomes that support organizational success.

B) Consider the organization you work for or one you have worked for in the past. Evaluate the effectiveness of the HR function overall and at least two specific functional areas (do not name the organization). Share at least one HR program or initiative that you found particularly effective and discuss how it supported the organization’s strategy. Why was it effective?

Question 3:

A) Discuss how an organization’s diversity strategy can support the business strategy. Provide at least three specific examples and explain why and how they support organizational success.

B) Consider the organization you work at or one you have worked at in the past and evaluate the diversity program. How was it effective and how did support the strategic goals of the organization? If it was not effective, explain what factors made it ineffective.

Question 4:

A) Discuss how an organization’s culture can impact policies and behaviors related to diversity and multiculturalism. How can HR influence organizational culture to support diversity and multiculturalism? Discuss at least 3 policies or practices that HR can propose and how they should be communicated to senior leaders.

B) Evaluate and discuss the diversity practices and policies of your own organization or one you have worked at. How does the organizational culture influence diversity and multiculturalism? Provide specific examples, but do not name the organization.

Question 5:

Consider the difference between the concepts of diversity and multiculturalism. How would you determine the difference between an organization focused on compliance versus one that promoted multiculturalism? What evidence would you be looking for and why? Discuss at least four ideas.

Question 6:

A) Identify two jobs you have held and share how you were recruited for each of them. Discuss in some detail, the organization’s perspective. What were some pros and cons of recruiting you through these methods?

B) Evaluate your organization’s recruiting and selection processes. Be specific. How would you measure the effectiveness of these processes? Think in terms of reliability, validity, and legal compliance.

Question 7:

Some organizations follow a lengthy, complex selection process, whereas in other organizations the process may be more streamlined. Some may view the longer and more complex selection process to be more valid.

A) What are the advantages and disadvantages of using a lengthier process versus a more streamlined one? Consider the perspectives of both the job seekers and the organization and the tradeoffs between efficiency and effectiveness. As a job seeker, what process would you prefer to follow and why?

B) Consider the selection process for an organization where you were ultimately hired. How would you describe the process from a candidate perspective? Do you believe it was effective? Why or why not?

Question 8:

Consider a job you currently have or have held in the past.

A) Perform a job analysis on that job. What tasks are required? What knowledge, skills, and abilities are necessary to perform those tasks?

B) Prepare a job description based on your analysis.

C) Assuming the role of a human resource manager, how does a job analysis help protect the organization from legal issues? How can a job analysis be used to support recruiting and compensation decisions?

Question 9:

A) Why is retention such a major focus for human resource managers? How does focusing on retention add strategic value to the organization?

B) How would you go about developing a retention program for your organization? Be specific in terms of what steps you would you take. What might be some of your biggest challenges? What type of metrics would you need to obtain and what methods would you use?

Question 10:

A) How are motivation and engagement related to employee retention? What is the difference between job satisfaction and employee engagement? What factors (personal, organizational) might contribute to job satisfaction and engagement? Explain your answer.

B) Think about a job where you have been employed for many years. What factors influenced your job satisfaction? What factors influenced your decision to stay and why? Consider a job where you had a short tenure. What factors influenced your job dissatisfaction? What factors contributed to your resignation and what factors could have made you stay? Which were within the organization’s control?

Question 11:


Discuss the interrelationships between recruiting, selection and retention. Why is it important to consider retention in the selection process? How would you evaluate your recruiting and selection programs to determine the impact on employee retention? What metrics would you use?

B) Consider your organization or one where you have been recently employed. What are some strategies used by human resource managers to retain employees? Are they effective? Why or why not?

Question 12:

A) Assume you are the HR manager of a large organization tasked with evaluating employee retention. What type of metrics would you want to look at? How would you use the HRIS to obtain these metrics?

B) Discuss the relationship between an organization’s total rewards strategy and retention. As a human resource manager, how would you evaluate your total rewards program to make sure it was having a positive impact on employee retention?


Please read ALL directions below before starting your assignment. You
may find it helpful to print a copy and cross off or highlight as you
complete each expectation. Good luck!



Spring 2020



Please submit your
as an attachment in your assignments


cannot be accepted via messages, email or


You must submit to the assignment link by the due date stated in the
syllabus for credit.
A missing
will be assigned a 0


Respond to

all four
questions below on a new, blank word processing
document (such as MS Word).


Develop each answer to the fullest extent possible, discussing the
nuances of each topic and presenting your arguments logically.


In addition, include citations
from the class content resources
n weeks


to support your arguments.


Each answer should
be robust and developed in



You are expected to demonstrate critical thinking skills

as well as
an understanding of the issues identified.
Some questions may
also require personal reflection and practical application.
responses will be evaluat
ed for content as well as grammar and


All writing must be your original work.
PLEASE do not copy or

Sources are just that, a reference. Once you
locate the information, read and interpret the data. What does it
mean to you? Type your own thoughts and own words. Then,
include in

text citations to support your ideas.

This is not a
research paper



Include a Cover Page with Name, Date, and Title of Assignment.


Do not include the original questio
n, only the question number.


Each response should be written in
complete sentences
, double

spaced and spell

checked. Use 12

point Times New Roman font with
Assignment 1
Please read ALL directions below before starting your assignment. You
may find it helpful to print a copy and cross off or highlight as you
complete each expectation. Good luck!
HRMN300 Assignment 1 – Spring 2020

 Please submit your assignment as an attachment in your assignments
 Your assignment cannot be accepted via messages, email or
 You must submit to the assignment link by the due date stated in the
syllabus for credit. A missing assignment will be assigned a 0.
 Respond to all four questions below on a new, blank word processing
document (such as MS Word).
 Develop each answer to the fullest extent possible, discussing the
nuances of each topic and presenting your arguments logically.
 In addition, include citations from the class content resources in weeks
1- 4 to support your arguments.
o Each answer should be robust and developed in-depth.
o You are expected to demonstrate critical thinking skills, as well as
an understanding of the issues identified. Some questions may
also require personal reflection and practical application. Your
responses will be evaluated for content as well as grammar and
o All writing must be your original work. PLEASE do not copy or
quote anything. Sources are just that, a reference. Once you
locate the information, read and interpret the data. What does it
mean to you? Type your own thoughts and own words. Then,
include in-text citations to support your ideas. This is not a
research paper.
o Include a Cover Page with Name, Date, and Title of Assignment.
o Do not include the original question, only the question number.
o Each response should be written in complete sentences, double-
spaced and spell-checked. Use 12-point Times New Roman font with

Chapter 1: The Role of Human Resources

Human Resource Management Day to Day

You have just been hired to work in the human resource department of a small company. You heard about the job through a conference you attended, put on by the Society for Human Resource Management (SHRM). Previously, the owner of the company, Jennifer, had been doing everything related to human resource management (HRM). You can tell she is a bit critical about paying a good salary for something she was able to juggle all on her own. On your first day, you meet the ten employees and spend several hours with the company owner, hoping to get a handle on which human resource processes are already set up.

Shortly after the meeting begins, you see she has a completely different perspective of what HRM is, and you realize it will be your job to educate her on the value of a human resource manager. You look at it as a personal challenge—both to educate her and also to show her the value of this role in the organization.

First, you tell her that HRM is a strategic process having to do with the staffing, compensation, retention, training, and employment law and policies side of the business. In other words, your job as human resources (HR) manager will be not only to write policy and procedures and to hire people (the administrative role) but also to use strategic plans to ensure the right people are hired and trained for the right job at the right time. For example, you ask her if she knows what the revenue will be in six months, and Jennifer answers, “Of course. We expect it to increase by 20 percent.” You ask, “Have you thought about how many people you will need due to this increase?” Jennifer looks a bit sheepish and says, “No, I guess I haven’t gotten that far.” Then you ask her about the training programs the company offers, the software used to allow employees to access pay information online, and the compensation policies. She responds, “It looks like we have some work to do. I didn’t know that human resources involved all of that.” You smile at her and start discussing some of the specifics of the business, so you can get started right away writing the strategic human resource management plan.

What Is Human Resources?

Learning Objectives

1. Explain the role of HRM in organizations.

1. Define and discuss some of the major HRM activities.

Every organization, large or small, uses a variety of


capital to make the business work. Capital includes cash, valuables, or goods used to generate income for a business. For example, a retail store uses registers and inventory, while a consulting firm may have proprietary software or buildings. No matter the industry, all companies have one thing in common: they must have people to make their capital work for them. This will be our focus throughout the text: generation of revenue through the use of people’s skills and abilities.

What Is HRM?

Human resource management (HRM) is the process of employing people, training them, compensating them, developing policies relating to them, and developing strategies to retain them. As a field, HRM has undergone many changes over the last twenty years, giving it an even more important role in today’s organizations. In the past, HRM meant processing payroll, sending birthday gifts to employees, arranging company outings, and making sure forms were filled out correctly—in other words, more of an administrative role rather than a strategic role crucial to the success of the organization. Jack Welch, former CEO of General Electric and management guru, sums up the new role of HRM: “Get out of the parties and birthdays and enrollment forms.… Remember, HR is important in good times, HR is defined in hard times.” [1]

It’s necessary to point out here, at the very beginning of this text, that every manager has some role relating to human resource management. Just because we do not have the title of HR manager doesn’t mean we won’t perform all or at least some of the HRM tasks. For example, most managers deal with compensation, motivation, and retention of employees—making these aspects not only part of HRM but also part of management. As a result, this book is equally important to someone who wants to be an HR manager and to someone who will manage a business.

Human Resource Recall

Have you ever had to work with a human resource department at your job? What was the interaction like? What was the department’s role in that specific organization?

The Role of HRM

Keep in mind that many functions of HRM are also tasks other department managers perform, which is what makes this information important, despite the career path taken. Most experts agree on seven main roles that HRM plays in organizations. These are described in the following sections.


You need people to perform tasks and get work done in the organization. Even with the most sophisticated machines, humans are still needed. Because of this, one of the major tasks in HRM is staffing. Staffing involves the entire hiring process from posting a job to negotiating a salary package. Within the staffing function, there are four main steps:

1. Development of a staffing plan. This plan allows HRM to see how many people they should hire based on revenue expectations.

1. Development of policies to encourage multiculturalism at work.Multiculturalism in the workplace is becoming more and more important, as we have many more people from a variety of backgrounds in the workforce.

1. Recruitment. This involves finding people to fill the open positions.

1. Selection. In this stage, people will be interviewed and selected, and a proper compensation package will be negotiated. This step is followed by training, retention, and motivation.

Development of Workplace Policies

Every organization has policies to ensure fairness and continuity within the organization. One of the jobs of HRM is to develop the verbiage surrounding these policies. In the development of policies, HRM, management, and executives are involved in the process. For example, the HRM professional will likely recognize the need for a policy or a change of policy, seek opinions on the policy, write the policy, and then communicate that policy to employees. It is key to note here that HR departments do not and cannot work alone. Everything they do needs to involve all other departments in the organization. Some examples of workplace policies might be the following:

· Discipline process policy

· Vacation time


· Dress code

· Ethics policy

· Internet usage policy

These topics are addressed further in Chapter 6 “Compensation and Benefits”, Chapter 7 “Retention and Motivation”, Chapter 8 “Training and Development”.

Compensation and Benefits Administration

HRM professionals need to determine that compensation is fair, meets industry standards, and is high enough to entice people to work for the organization.Compensation includes anything the employee receives for his or her work. In addition, HRM professionals need to make sure the pay is comparable to what other people performing similar jobs are being paid. This involves setting up pay systems that take into consideration the number of years with the organization, years of experience, education, and similar aspects. Examples of employee compensation include the following:

· Health Benefits

· Pay

· 401(k) (retirement plans)

· Stock purchase plans

· Vacation time

· Sick leave

· Bonuses

· Tuition reimbursement

Since this is not an exhaustive list, compensation is discussed further in Chapter 6 “Compensation and Benefits”.


Human resource people must be aware of all the laws that affect the workplace. An HRM professional might work with some of thHRM Retention involves keeping and motivating employees to stay with the organization. Compensation is a major factor in employee retention, but there are other factors as well. Ninety percent of employees leave a company for the following reasons:

1. The job they are performing

1. Challenges with their manager

1. Poor fit with organizational culture

1. Poor workplace environment

Despite this, 90 percent of managers think employees leave as a result of pay. [2] As a result, managers often try to change their compensation packages to keep people from leaving, when compensation isn’t the reason they are leaving at all. Chapter 7 “Retention and Motivation” and Chapter 10 “Employee Assessment” discuss some strategies to retain the best employees based on these four factors.

Training and Development

Once we have spent the time to hire new employees, we want to make sure they not only are trained to do the job but also continue to grow and develop new skills in their job. This results in higher productivity for the organization. Training is also a key component in employee motivation. Employees who feel they are developing their skills tend to be happier in their jobs, which results in increased employee retention. Examples of training programs might include the following:

· Job skils training, such as how to run a particular computer program

· Training on communication

· Team-building activities

· Policy and legal training, such as sexual harassment training and ethics training

We address each of these types of training and more in detail in Chapter 8 “Training and Development”.

Dealing with Laws Affecting Employment

Human resource people must be aware of all the laws that affect the workplace. An HRM professional might work with some of these laws:

· Discrimination laws

· Health-care requirements

· Compensation requirements such as the minimum wage

· Worker safety laws

· Labor laws

The legal environment of HRM is always changing, so HRM must always be aware of changes taking place and then communicate those changes to the entire management organization. Rather than presenting a chapter focused on HRM laws, we will address these laws in each relevant chapter.

Worker Protection

Safety is a major consideration in all organizations. Oftentimes new laws are created with the goal of setting federal or state standards to ensure worker safety. Unions and union contracts can also impact the requirements for worker safety in a workplace. It is up to the human resource manager to be aware of worker protection requirements and ensure the workplace is meeting both federal and union standards. Worker protection issues might include the following:

· Chemical hazards

· Heating and ventilation requirements

· Use of “no fragrance” zones

· Protection of private employee information

We take a closer look at these issues in Chapter 11 “Working with Labor Unions” and Chapter 12 “Safety and Health at Work”.


Besides these major roles, good communication skills and excellent management skills are key to successful human resource management as well as general management.

Awareness of External Factors

In addition to managing internal factors, the HR manager needs to consider the outside forces at play that may affect the organization. Outside forces, orexternal factors, are those things the company has no direct control over; however, they may be things that could positively or negatively impact human resources. External factors might include the following:

1. Globalization and offshoring

1. Changes to employment law

1. Health-care costs

1. Employee expectations

1. Diversity of the workforce

1. Changing demographics of the workforce

1. A more highly educated workforce

1. Layoffs and downsizing

1. Technology used, such as HR databases

1. Increased use of social networking to distribute information to employees

For example, the recent trend in flexible work schedules (allowing employees to set their own schedules) and telecommuting (allowing employees to work from home or a remote location for a specified period of time, such as one day per week) are external factors that have affected HR. HRM has to be aware of these outside issues, so they can develop policies that meet not only the needs of the company but also the needs of the individuals. Another example is the Patient Protection and Affordable Care Act, signed into law in 2010. Compliance with this bill has huge implications for HR. For example, a company with more than fifty employees must provide health-care coverage or pay a penalty. Currently, it is estimated that 60 percent of employers offer health-care insurance to their employees. [3] Because health-care insurance will be mandatory, cost concerns as well as using health benefits as a recruitment strategy are big external challenges. Any manager operating without considering outside forces will likely alienate employees, resulting in unmotivated, unhappy workers. Not understanding the external factors can also mean breaking the law, which has a concerning set of implications as well.

An understanding of key external factors is important to the successful HR professional. This allows him or her to be able to make strategic decisions based on changes in the external environment. To develop this undersnding, reading various publications is necessary.

Figure 1.2

One way managers can be aware of the outside forces is to attend conferences and read various articles on the web. For example, the Web site of the Society for Human Resource Management, SHRM Online, [4] not only has job postings in the field but discusses many contemporary human resource issues that may help the manager make better decisions when it comes to people management. In Section 1.3 “Today’s HRM Challenges”, we go into more depth about some recent external issues that are affecting human resource management roles. In Section 1.1.2 “The Role of HRM”, we discuss some of the skills needed to be successful in HRM.

Figure 1.3

Most professionals agree that there are seven main tasks HRM professionals perform. All these need to be considered in relation to external and outside forces.

[1] Kristen B. Frasch, David Shadovitz, and Jared Shelly, “There’s No Whining in HR,” Human Resource Executive Online, June 30, 2009, accessed September 24, 2010,

[2] Leigh Rivenbark, “The 7 Hidden Reasons Why Employees Leave,” HR Magazine, May 2005, accessed October 10, 2010,

[3] Peter Cappelli, “HR Implications of Healthcare Reform,” Human Resource Executive Online,March 29, 2010, accessed August 18, 2011,


[4] Society for Human Resource Management, accessed August 18, 2011,

1.2 Skills Needed for HRM

Learning Objectives

1. Explain the professional and personal skills needed to be successful in HRM.

1. Be able to define human resource management and the certifications that can be achieved in this profession.

One of the major factors of a successful manager or human resource (HR) manager is an array of skills to deal with a variety of situations. It simply isn’t enough to have knowledge of HR, such as knowing which forms need to be filled out. It takes multiple skills to create and manage people, as well as a cutting-edge human resource department.

The first skill needed is organization. The need for this skill makes sense, given that you are managing people’s pay, benefits, and careers. Having organized files on your computer and good time-management skills are crucial for success in any job, but especially if you take on a role in human resources.

Like most jobs, being able to multitask—that is, work on more than one task at a time—is important in managing human resources. A typical person managing human resources may have to deal with an employee issue one minute, then switch and deal with recruiting. Unlike many management positions, which only focus on one task or one part of the business, human resources focuses on all areas of the business, where multitasking is a must.

As trite as it may sound, people skills are necessary in any type of management and perhaps might be the most important skills for achieving success at any job. Being able to manage a variety of personalities, deal with conflict, and coach others are all in the realm of people management. The ability to communicate goes along with people skills. The ability to communicate good news (hiring a new employee), bad news (layoffs), and everything in between, such as changes to policy, makes for an excellent manager and human resource management (HRM) professional.

Keys to a successful career in HRM or management include understanding specific job areas, such as managing the employee database, understanding employment laws, and knowing how to write and develop a strategic plan that aligns with the business. All these skills will be discussed in this book.

A strategic mind-set as an HR professional is a key skill as well. A person with a strategic mind-set can plan far in advance and look at trends that could affect the environment in which the business is operating. Too often, managers focus on their own area and not enough on the business as a whole. The strategic HR professional is able to not only work within his or her area but also understand how HR fits into the bigger picture of the business.

Ethics and a sense of fairness are also necessary in human resources. Ethics is a concept that examines the moral rights and wrongs of a certain situation. Consider the fact that many HR managers negotiate salary and union contracts and manage conflict. In addition, HR managers have the task of ensuring compliance with ethics standards within the organization. Many HR managers are required to work with highly confidential information, such as salary information, so a sense of ethics when managing this information is essential. We discuss ethics from the organizational perspective in Section 1.1.2 “The Role of HRM”.

Finally, while we can list a few skills that are important, understanding the particular business, knowing the business strategy, and being able to think critically about how HR can align itself with the strategy are ways to ensure HR departments are critical parts of the business. HR is a specialized area, much like accounting or finance. However, many individuals are placed in HR roles without having the specific knowledge to do the job. Oftentimes people with excellent skills are promoted to management and then expected (if the company is small) to perform recruiting, hiring, and compensation tasks. This is the reason we will refer to management and HR management interchangeably throughout the chapters. In addition, these skills are important for HRM professionals and managers alike.

Having said that, for those of you wanting a career in HRM, there are three exams you can take to show your mastery of HRM material:

1. Professional in Human Resources (PHR). To take this exam, an HR professional must have at least two years’ experience. The exam is four hours long and consists of 225 multiple-choice questions in a variety of areas. Twelve percent of the test focuses on strategic management, 26 percent on workforce planning, 17 percent on human resource development, 16 percent on rewards, 22 percent on employee and labor relations, and 7 percent on risk management. The application process for taking the exam is given on the Human Resource Certification Institute website at


1. Senior Professional in Human Resources (SPHR). This exam is designed for HR professionals who focus on designing and planning, rather than actual implementation. It is recommended that the person taking this exam has six to eight years of experience and oversees and manages an HR department. In this test, the greater focus is on the strategic aspect of HRM.

1. Global Professional in Human Resources (GPHR). This exam is for HR professionals who perform many of their tasks on a global level and whose companies often work across borders. This exam is three hours long, with 165 multiple-choice questions. A person with two years of professional experience can take the certification test. However, because the test has the international aspect, someone who designs HR-related programs and processes to achieve business goals would be best suited to earn this certification.

The benefits of achieving certifications are great. In addition to demonstrating the abilities of the HR professional, certification allows the professional to be more marketable in a very competitive field.

Most companies need a human resource department or a manager with HR skills. The industries and job titles are so varied that it is possible only to list general job titles in human resources:

1. Recruiter

1. Compensation analyst

1. Human resources assistant

1. Employee relations manager

1. Benefits manager

1. Work-life coordinator

1. Training and development manager

1. Human resources manager

1. Vice president for human resources

This is not an exhaustive list, but it can be a starting point for research on this career path.


1.3 Today’s HRM Challenges

Learning Objective

1. Identify and explain some of the challenges associated with HRM.

All departments within an organization must prove their value and contributions to the overall business strategy, and the same is true with HRM. As companies are becoming more concerned with cutting costs, HRM departments must show the value they add to the organization through alignment with business objectives. Being able to add value starts with understanding some of the challenges of businesses and finding ways to reduce a negative impact on the business. This section will discuss some of the HRM challenges, and the rest of this text will dive into greater detail about how to manage these challenges.

Containing Costs

If you were to ask most business owners what their biggest challenges are, they will likely tell you that cost management is a major factor to the success or failure of their business. In most businesses today, the people part of the business is the most likely place for cuts when the economy isn’t doing well.

Consider the expenses that involve the people part of any business:

1. Health-care benefits

1. Training costs

1. Hiring process costs

1. And many more…

These costs cut into the bottom line of any business. The trick is to figure out how much, how many, or how often benefits should be offered, without sacrificing employee motivation. A company can cut costs by not offering benefits or 401(k) plans, but if its goal is to hire the best people, a hiring package without these items will most certainly not get the best people. Containment of costs, therefore, is a balancing act. An HR manager must offer as much as he or she can to attract and retain employees, but not offer too much, as this can put pressure on the company’s bottom line. We will discuss ways to alleviate this concern throughout this book.

For example, there are three ways to cut costs associated with health care:

1. Shift more of the cost of health care to employees

1. Reduce the benefits offered to cut costs

1. Change or better negotiate the plan to reduce health-care costs

Health care costs companies approximately $4,003 per year for a single employee and $9,764 for families. This equals roughly 83 percent and 73 percent of total health-care costs for single employees and employees with families, [1] respectively. One possible strategy for containment for health-care plans is to implement a cafeteria plan.Cafeteria plans started becoming popular in the 1980s and have become standard in many organizations. [2] This type of plan gives all employees a minimum level of benefits and a set amount to spend on flexible benefits, such as additional health care or vacation time. It creates more flexible benefits, allowing the employee, based on his or her family situation, to choose which benefits are right for them. For example, a mother of two may choose to spend her flexible benefits on health care for her children, while a single, childless female may opt for more vacation days. In other words, these plans offer flexibility, while saving money, too. Cost containment strategies around benefits will be discussed in Chapter 6 “Compensation and Benefits”.

Another way to contain costs is by offering training. While this may seem counterintuitive, as training does cost money up front, it can actually save money in the long run. Consider how expensive a sexual harassment lawsuit or wrongful termination lawsuit might be. For example, a Sonic Drive-In was investigated by the Equal Opportunity Employment Commission (EEOC) on behalf of seventy women who worked there, and it was found that a manager at one of the stores subjected the victims to inappropriate touching and comments. This lawsuit cost the organization $2 million. [3] Some simple training up front (costing less than the lawsuit) likely would have prevented this from happening. Training employees and management on how to work within the law, thereby reducing legal exposure, is a great way for HR to cut costs for the organization as a whole. In  Chapter 8 “Training and Development”, we will further discuss how to organize, set up, and measure the success of a training program.

The hiring process and the cost of turnover in an organization can be very expensive. Turnover refers to the number of employees who leave a company in a particular period of time. By creating a recruiting and selection process with cost containment in mind, HR can contribute directly to cost-containment strategies company wide. In fact, the cost of hiring an employee or replacing an old one (turnover) can be as high as $9,777 for a position that pays $60,000. [4] By hiring smart the first time, HR managers can contain costs for their organization. This will be discussed in Chapter 4 “Recruitment”and Chapter 5 “Selection”. Reducing turnover includes employee motivational strategies. This will be addressed in Chapter 7 “Retention and Motivation”.

In a survey reported on by the Sales and Marketing Management newsletter, [5] 85 percent of managers say that ineffective communication is the cause of lost revenue. E-mail, instant messaging, text messages, and meetings are all examples of communication in business. An understanding of communication styles, personality styles, and channels of communication can help us be more effective in our communications, resulting in cost containment. In HRM, we can help ensure our people have the tools to communicate better, and contain costs and save dollars in doing so.

One cost-containment strategy for US businesses has been offshoring. Offshoringrefers to the movement of jobs overseas to contain costs. It is estimated that 3.3 million US jobs will be moved overseas by 2015. [6] According to the US Census Bureau, most of these jobs are Information Technology (IT) jobs as well as manufacturing jobs. This issue is unique to HR, as the responsibility for developing training for new workers and laying off domestic workers will often fall under the realm of HRM. Training for new workers will be discussed in Chapter 8 “Training and Development”.

Of course, cost containment isn’t only up to HRM and managers, but as organizations look at various ways to contain costs, human resources can certainly provide solutions.


Technology has greatly impacted human resources and will continue to do so as new technology is developed. Through use of technology, many companies have virtual workforces that perform tasks from nearly all corners of the world. When employees are not located just down the hall, management of these human resources creates some unique challenges. For example, technology creates an even greater need to have multicultural or diversity understanding. Since many people will work with individuals from across the globe, cultural sensitivity and understanding is the only way to ensure the use of technology results in increased productivity rather than decreased productivity due to miscommunications.  Chapter 3 “Diversity and Multiculturalism” will discuss some specific diversity issues surrounding a global workforce.

Technology also creates a workforce that expects to be mobile. Because of the ability to work from home or anywhere else, many employees may request and even demand a flexible schedule to meet their own family and personal needs. Productivity can be a concern for all managers in the area of flextime, and another challenge is the fairness to other workers when one person is offered a flexible schedule.  Chapter 6 “Compensation and Benefits” and Chapter 7 “Retention and Motivation” will discuss flextime as a way to reward employees. Many companies, however, are going a step further and creating virtual organizations, which don’t have a physical location (cost containment) and allow all employees to work from home or the location of their choice. As you can imagine, this creates concerns over productivity and communication within the organization.

The use of smartphones and social networking has impacted human resources, as many companies now disseminate information to employees via these methods. Of course, technology changes constantly, so the methods used today will likely be different one year or even six months from now.

The large variety of databases available to perform HR tasks is mind boggling. For example, databases are used to track employee data, compensation, and training. There are also databases available to track the recruiting and hiring processes. We will discuss more about technology in HR in Chapter 4 “Recruitment” through Chapter 8 “Training and Development”.

Of course, the major challenge with technology is its constantly changing nature, which can impact all practices in HRM.

How Would You Handle This?

Too Many Friends

You are the HR manager for a small company, consisting of twenty-three people plus the two owners, Steve and Corey. Every time you go into Steve’s office, you see he is on Facebook. Because he is Facebook friends with several people in the organization, you have also heard he constantly updates his status and uploads pictures during work time. Then, at meetings, Steve will ask employees if they saw the pictures he recently uploaded from his vacation, weekend, or backpacking trip. One employee, Sam, comes to you with a concern about this. “I am just trying to do my job, but I feel if I don’t look at his photos, he may not think I am a good employee,” she says. How would you handle this?

Cyberloafing, a term used to describe lost productivity as a result of an employee using a work computer for personal reasons, is another concern created by technology. One study performed by Nucleus Research found that the average worker uses Facebook for fifteen minutes per day, which results in an average loss of 1.5 percent of productivity.[7] Some workers, in fact, use Facebook over two hours per day during working hours. Restricting or blocking access to the Internet, however, can result in angry employees and impact motivation at work. Motivational factors will be discussed in Chapter 7 “Retention and Motivation”.

Technology can create additional stress for workers. Increased job demands, constant change, constant e-mailing and texting, and the physical aspects of sitting in front of a computer can be not only stressful but also physically harmful to employees. Chapter 12 “Safety and Health at Work” will deal with some of these stress issues, as well as safety issues such as carpal tunnel, which can occur as a result of technology in the workplace. More on health and safety will be covered in Chapter 9 “Managing Employee Performance”.

The Economy

Tough economic times in a country usually results in tough times for business, too. High unemployment and layoffs are clearly HRM and managerial issues. If a human resource manager works for a unionized company, union contracts are the guiding source when having to downsize owing to a tough economy. We will discuss union contracts in greater detail in Chapter 11 “Working with Labor Unions”.

Besides union restrictions, legal restrictions on who is let go and the process followed to let someone go should be on the forefront of any manager’s mind when he or she is required to lay off people because of a poor economy. Dealing with performance issues and measuring performance can be considerations when it is necessary to lay off employees. These issues will be discussed in Chapter 9 “Managing Employee Performance” and Chapter 10 “Employee Assessment”.

Likewise, in a growth economy, the HR manager may experience a different kind of stress. Massive hiring to meet demand might occur if the economy is doing well. For example, McDonald’s restaurants had to fill six hundred positions throughout Las Vegas and held hiring day events in 2010. [8] Imagine the process of hiring this many people in a short period of time The same recruiting and selection processes used under normal circumstances will be helpful in mass hiring situations. Recruiting and selection will be discussed in Chapter 4 “Recruitment” and Chapter 5 “Selection”.

The Changing and Diverse Workforce

Human resources should be aware that the workforce is constantly changing. For example, in the 2010 census, the national population was 308,745,538, with 99,531,000 in 2010 working full time, down from 2008 when 106,648,000 were working full time. [9] For full-time workers, the average weekly salary was higher the more educated the worker. See  Figure 1.6 for details.

Figure 1.6

The average weekly earnings for workers in the United States increase with more education.

Source: Data from US Bureau of Labor Statistics, “Usual Weekly Earnings of Wage and Salary Workers,” Table 5, Economic News Release, July 20, 2010, accessed August 19, 2011,


Fortune 500 Focus

Multigenerational is here to stay, and Xerox is the leader in recruiting of Generation Y talent. This age group has been moving into the labor market over the last six years, and this major demographic change, along with the retirement of baby boomers, has many companies thinking. Fortune 500 companies know they must find out where their new stars are coming from. In recruiting this new talent, Xerox isn’t looking to old methods, because they know each generation is different. For example, Xerox developed the “Express Yourself” recruiting campaign, which is geared around a core value of this generation, to develop solutions and change. Joe Hammill, the director of talent acquisition, says, “Gen Y is very important. Xerox and other companies view this emerging workforce as the future of our organization.” [10] Besides the new recruiting campaign, recruiters are working at what they term “core colleges”—that is, those that produce the kind of talent they need. For example, they developed recruitment campaigns with specific institutions such as the Rochester Institute of Technology because of its strong engineering and printing science programs. On their company website, they have a specific tab for the recent college graduate, emphasizing core values of this generation, including the ability to contribute, support, and build skills. With its understanding of multicultural generations, Xerox has created a talent pool for years to come.

It is expected that over the next ten years, over 40 percent of the workforce will retire, and there will not be enough younger workers to take the jobs once held by the retiring workforce. [11] In fact, the American Society of Training and Development says that in the next twenty years, seventy-six million Americans will retire, and only forty-six million will replace them. As you can imagine, this will create a unique staffing obstacle for human resources and managers alike, as they try to find talented people in a pool that doesn’t have enough people to perform necessary jobs. The reason for this increase in retirement is the aging baby boomers. Baby boomers can be defined as those born between the years 1946 and 1964, according to the Census Bureau. They are called the baby boomers because there was a large increase of babies born after soldiers came back from World War II. Baby boomers account for seventy-six million people in the United States in 2011, the same year in which the first of the baby boomers have started to retire.

The impact of the baby boomer generation on our country and on human resource management is huge. First, the retirement of baby boomers results in a loss of a major part of the working population, and there are not enough people to fill those jobs that are left vacant. Second, the baby boomers’ knowledge is lost upon their retirement. Much of this knowledge isn’t formalized or written down, but it contributes to the success of business. Third, elderly people are living longer, and this results in higher health-care costs for all currently in the workforce. It is estimated that three out of five baby boomers do not have enough money saved for retirement, [12] meaning that many of them will depend on Social Security payments to meet basic needs. However, since the Social Security system is a pay-as-you-go system (i.e., those paying into the system now are paying for current retirees), there may not be enough current workers to cover the current Social Security needs. In fact, in 1950 there were 16 workers to support each Social Security beneficiary, but today there are only 3.3 workers supporting each beneficiary. [13] The implications can mean that more will be paid by current workers to support retirees.

As a result of the aging workforce, human resources should keep abreast of changes in Social Security legislation and health-care costs, which will be discussed in Chapter 6 “Compensation and Benefits”. In addition, human resource managers should review current workers’ skill levels and monitor retirements and skills lost upon those retirements, which is part of strategic planning. This will be discussed in Chapter 2 “Developing and Implementing Strategic HRM Plans”. Having knowledge about current workers and skills, as well as predicting future workforce needs, will be necessary to deal with the challenges of an aging workforce.

Another challenge, besides lack of workers, is the multigenerational workforce. Employees between the ages of seventeen and sixty-eight have different values and different expectations of their jobs. Any manager who tries to manage these workers from varying generations will likely have some challenges. Even compensation preferences are different among generations. For example, the traditional baby boomer built a career during a time of pensions and strongly held values of longevity and loyalty to a company. Compare the benefit needs of this person to someone who is younger and expects to save through a 401(k) plan, and it is clear that the needs and expectations are different. [14] Throughout this book, we will discuss compensation and motivational strategies for the multigenerational workforce.

Awareness of the diversity of the workforce will be discussed in  Chapter 3 “Diversity and Multiculturalism”, but laws regarding diversity will be discussed throughout the book. Diversity refers to age, disability, race, sex, national origin, and religion. Each of these components makes up the productive workforce, and each employee has different needs, wants, and goals. This is why it is imperative for the HRM professional to understand how to motivate the workforce, while ensuring that no laws are broken. We will discuss laws regarding diversity (and the components of diversity, such as disabilities) in  Chapter 3 “Diversity and Multiculturalism”, Chapter 4 “Recruitment”,Chapter 5 “Selection”, Chapter 6 “Compensation and Benefits”, and Chapter 7 “Retention and Motivation”.


Figure 1.8 Demographic Data for the United States by Race

Source: Map courtesy of the US Census Department.

A discussion of ethics is necessary when considering challenges of human resources. Much of the discussion surrounding ethics happened after the early to mid-2000s, when several companies were found to have engaged in gross unethical and illegal conduct, resulting in the loss of billions of dollars from shareholders. Consider the statistics: only 25 percent of employees trusted their CEO to tell the truth, and 80 percent of people said that employers have a moral responsibility to society. [15] Based on these numbers, an ethical workplace is important not only for shareholder satisfaction but for employee satisfaction as well. Companies are seeing the value of implementing ethics codes within the business.

Many human resource departments have the responsibility of designing codes of ethics and developing policies for ethical decision making. Some organizations hire ethics officers to specifically focus on this area of the business. Out of four hundred companies surveyed, 48 percent had an ethics officer, who reported to either the CEO or the HR executive. [16] According to Steve Miranda, chief human resources officer for the Society for Human Resource Management (SHRM), “[the presence of an ethics officer] provides a high-level individual with positional authority who can ensure that policies, practices, and guidelines are effectively communicated across the organization.” [17]

For example, the insurance company Allstate recently hired a chief ethics and compliance officer (CECO) who offers a series of workshops geared toward leaders in the organization, because they believe that maintaining high ethical standards starts at the top of an organization. In addition, the CECO monitors reports of ethics complaints within the organization and trains employees on the code of ethics or code of conduct.[18] A code of ethics is an outline that explains the expected ethical behavior of employees. For example, General Electric (GE) has a sixty-four-page code of conduct that outlines the expected ethics, defines them, and provides information on penalties for not adhering to the code. The code of conduct is presented below. Of course, simply having a written code of ethics does little to encourage positive behavior, so many organizations (such as GE) offer stiff penalties for ethics violations. Developing policies, monitoring behavior, and informing people of ethics are necessary to ensure a fair and legal business.

The following is an outline of GE’s code of conduct: [19]

· Obey the applicable laws and regulations governing our business conduct worldwide.

· Be honest, fair, and trustworthy in all your GE activities and relationships.

· Avoid all conflicts of interest between work and personal affairs.

· Foster an atmosphere in which fair employment practices extend to every member of the diverse GE community.

· Strive to create a safe workplace and to protect the environment.

· Through leadership at all levels, sustain a culture where ethical conduct is recognized, valued, and exemplified by all employees.

[1] “Use Three Strategies to Cut Health Care Costs,” Business Management Daily, September 9, 2010, accessed October 10, 2010,

[2] Mary Allen, “Benefits, Buffet Style—Flexible Plans,” Nation’s Business, January 1997, accessed October 1, 2010,


[3] “LL Sonic Settles EEOC Lawsuit for $2 Million,” Valencia County News Bulletin, June 23, 2011.

[4] James Del Monte, “Cost of Hiring and Turnover,” JDA Professional Services, Inc., 2010, accessed October 1, 2010,


[5] “The Cost of Poor Communications,” Sales and Marketing, December 22, 2006, accessed October 1, 2010,


[6] Vivek Agrawal and Diana Farrell, “Who Wins in Offshoring?” in “Global Directions,” special issue, McKinsey Quarterly, (2003): 36–41,

[7] “Facebook Use Cuts Productivity at Work,” Economic Times, July 25, 2009, accessed October 4, 2010,


[8] “McDonald’s Readies for Massive Hiring Spree,” Fox 5 News, Las Vegas, May 2010, accessed October 5, 2010,

 (site discontinued).

[9] Bureau of Labor Statistics, Current Population Survey Report, accessed July 7, 2011,

[10] Stephanie Armour, “Generation Y: They’ve Arrived at Work with a New Attitude,” USA Today, November 6, 2005.

[11] Alvaro Fernandez, “Training the Aging Workforce,” SharpBrains, August 10, 2007, accessed October 6, 2010,


[12] Joe Weisenthal, “3 of 5 Baby Boomers Don’t Have Enough for Retirement,” Business Insider Magazine, August 16, 2010,


[13] Brenda Wenning, “Baby Boomer Retirement May Be a Bust,” Metrowest News Daily, March 21, 2010.

[14] Michelle Capezza, “Employee Benefits in a Multigenerational Workplace,” EpsteinBeckerGreen, August 12, 2010, accessed October 6, 2010,

[15] Strategic Management Partners, “Unethical Statistics Announced At Business Leaders Event,” news release,

, accessed August 31, 2011.

[16] Mark McGraw, “The HR-Ethics Alliance,” HR Executive Online, June 16, 2011, accessed July 7, 2011,


[17] Mark McGraw, “The HR-Ethics Alliance,” HR Executive Online, June 16, 2011, accessed July 7, 2011,, brackets in the original.

[18] Mark McGraw, “The HR-Ethics Alliance,” HR Executive Online, June 16, 2011, accessed July 7, 2011,

[19] “The Spirit and the Letter,” General Electric Company, accessed August 10, 2011, .

1.4 Case and Summary

Chapter Summary

· Human resource management is the process of employing people, training them, compensating them, developing policies relating to the workplace, and developing strategies to retain employees. Three certification exams, which are offered by the Human Resource Certification Institute, can be taken to show HRM skills and become more marketable.

· Human resource management involves seven main areas: (1) staffing, (2) workplace policies, (3) benefits and compensation, (4) retention, (5) training, (6) employment laws, and (7) employee protection.

· Human resource managers need many different types of skills. Being able to organize, multitask, and communicate effectively, as well as having specific job skills, such as how to run a particular computer program, and a sense of fairness and ethics, is crucial to a successful career in HRM.

· There are many contemporary challenges associated with HRM. First, it is up to everyone in the organization to contain costs. HR managers need to look at their individual departments and demonstrate the necessity and value of their functions to the organization. HR managers can also help contain costs in several ways, such as managing benefits plans and compensation and providing training.

· The fast-changing nature of technology is also a challenge in HRM. As new technologies are developed, employees may be able to implement innovative ways of working such as flextime. HR managers are also responsible for developing policies dealing with cyberloafing and other workplace time wasters revolving around technology. Employee stress and lack of work-life balance are also greatly influenced by technology.

· Awareness of the changes in the economy allows the human resource manager to adequately plan for reductions and additions to the workforce.

· The aging and changing workforce is our final factor. As baby boomers retire, there likely will not be enough people to replace them, and many of the skills the baby boomers have may be lost. In addition, having to work with multiple generations at once can create challenges as different expectations and needs arise from multigenerational workforces.

Chapter Case

Changes, Changes

Jennifer, the owner and manager of a company with ten employees, has hired you to take over the HRM function so she can focus on other areas of her business. During your first two weeks, you find out that the company has been greatly affected by the up economy and is expected to experience overall revenue growth by 10 percent over the next three years, with some quarters seeing growth as high as 30 percent. However, five of the ten workers are expected to retire within three years. These workers have been with the organization since the beginning and provide a unique historical perspective of the company. The other five workers are of diverse ages.

In addition to these changes, Jennifer believes they may be able to save costs by allowing employees to telecommute one to two days per week. She has some concerns about productivity if she allows employees to work from home. Despite these concerns, Jennifer has even considered closing down the physical office and making her company a virtual organization, but she wonders how such a major change will affect the ability to communicate and worker motivation.

Jennifer shares with you her thoughts about the costs of health care on the organization. She has considered cutting benefits entirely and having her employees work for her on a contract basis, instead of being full-time employees. She isn’t sure if this would be a good choice.

Jennifer schedules a meeting with you to discuss some of her thoughts. To prepare for the meeting, you perform research so you can impress your new boss with recommendations on the challenges presented.

1. Point out which changes are occurring in the business that affect HRM.

1. What are some considerations the company and HR should be aware of when making changes related to this case study?

1. What would the initial steps be to start planning for these changes?

1. What would your role be in implementing these changes? What would Jennifer’s role be?

Chapter 2: Developing and Implementing Strategic HRM Plans

The Value of Planning

James stumbled into his position as the human resource manager. He had been working for Techno, Inc. for three years, and when the company grew, James moved from a management position into a human resource management position. Techno, Inc. is a technology and software consulting company for the music industry.

James didn’t have a good handle on how to effectively run a human resources (HR) department, so for much of the time he tried to figure it out as he went. When Techno started seeing rapid growth, he hired thirty people within a one-month period to meet the demand. Proud of his ability to accomplish his task of meeting the business’s current needs, James was rather pleased with himself. He had spent numerous hours mulling over recruitment strategies, putting together excellent compensation plans, and then eventually sifting through résumés as a small part of the hiring process. Now the organization had the right number of people needed to carry out its projects.

Fast forward five months, however, and it turned out the rapid growth was only temporary. James met with the executives of the business who told him the contracts they had acquired were finished, and there wasn’t enough new work coming in to make payroll next month if they didn’t let some people go. James felt frustrated because he had gone through so much effort to hire people, and now they would be laid off. Never mind the costs of hiring and training his department had taken on to make this happen. As James sat with the executives to determine who should be laid off, he felt sad for the people who had given up other jobs just five months before, only to be laid off.

After the meeting, James reflected on this situation and realized that if he had spoken with the executives of the company sooner, they would have shared information on the duration of the contracts, and he likely would have hired people differently, perhaps on a contract basis rather than on a full-time basis. He also considered the fact that the organization could have hired an outsourcing company to recruit workers for him. As Jason mulled this over, he realized that he needed a strategic plan to make sure his department was meeting the needs of the organization. He vowed to work with the company executives to find out more about the company’s strategic plan and then develop a human resource management (HRM) strategic plan to make sure Techno, Inc. has the right number of workers with the right skills, at the right time in the future.

2.1  Strategic Planning

Learning Objectives

1. Explain the differences been HRM and personnel management.

1. Be able to define the steps in HRM strategic planning.

In the past, human resource management (HRM) was called the personnel department. In the past, the personnel department hired people and dealt with the hiring paperwork and processes. It is believed the first human resource department was created in 1901 by the National Cash Register Company (NCR). The company faced a major strike but eventually defeated the union after a lockout. (We address unions in  Chapter 11 “Working with Labor Unions”.) After this difficult battle, the company president decided to improve worker relations by organizing a personnel department to handle grievances, discharges, safety concerns, and other employee issues. The department also kept track of new legislation surrounding laws impacting the organization. Many other companies were coming to the same realization that a department was necessary to create employee satisfaction, which resulted in more productivity. In 1913, Henry Ford saw employee turnover at 380 percent and tried to ease the turnover by increasing wages from $2.50 to $5.00, even though $2.50 was fair during this time period. [1] Of course, this approach didn’t work for long, and these large companies began to understand they had to do more than hire and fire if they were going to meet customer demand.

More recently, however, the personnel department has divided into human resource management and human resource development, as these functions have evolved over the century. HRM is not only crucial to an organization’s success, but it should be part of the overall company’s strategic plan, because so many businesses today depend on people to earn profits. Strategic planning plays an important role in how productive the organization is.

Table 2.1 Examples of Differences between Personnel Management and HRM

Personnel Management Focus

HRM Focus

Administering of policies

Helping to achieve strategic goals through people

Stand-alone programs, such as training

HRM training programs that are integrated with company’s mission and values

Personnel department responsible for managing people

Line managers share joint responsibility in all areas of people hiring and management

Creates a cost within an organization

Contributes to the profit objectives of the organization

Most people agree that the following duties normally fall under HRM. Each of these aspects has its own part within the overall strategic plan of the organization:

1. Staffing. Staffing includes the development of a strategic plan to determine how many people you might need to hire. Based on the strategic plan, HRM then performs the hiring process to recruit and select the right people for the right jobs. We discuss staffing in greater detail in  Chapter 4 “Recruitment”, Chapter 5 “Selection”, and Chapter 6 “Compensation and Benefits”.

1. Basic workplace policies. Development of policies to help reach the strategic plan’s goals is the job of HRM. After the policies have been developed, communication of these policies on safety, security, scheduling, vacation times, and flextime schedules should be developed by the HR department. Of course, the HR managers work closely with supervisors in organizations to develop these policies. Workplace policies will be addressed throughout the book.

1. Compensation and benefits. In addition to paychecks, 401(k) plans, health benefits, and other perks are usually the responsibility of an HR manager. Compensation and benefits are discussed in  Chapter 6 “Compensation and Benefits” and Chapter 7 “Retention and Motivation”.

1. Retention. Assessment of employees and strategizing on how to retain the best employees is a task that HR managers oversee, but other managers in the organization will also provide input.  Chapter 9 “Managing Employee Performance” and Chapter 10 “Employee Assessment” cover different types of retention strategies, from training to assessment.

1. Training and development. Helping new employees develop skills needed for their jobs and helping current employees grow their skills are also tasks for which the HRM department is responsible. Determination of training needs and development and implementation of training programs are important tasks in any organization. Succession planning includes handling the departure of managers and making current employees ready to take on managerial roles when a manager does leave.

1. Regulatory issues and worker safety. Keeping up to date on new regulations relating to employment, health care, and other issues is generally a responsibility that falls on the HRM department. While various laws are discussed throughout the book, unions and safety and health laws in the workplace are covered in Chapter 11 “Working with Labor Unions” and Chapter 12 “Safety and Health at Work”.

In smaller organizations, the manager or owner is likely performing the HRM functions. [2] They hire people, train them, and determine how much they should be paid. Larger companies ultimately perform the same tasks, but because they have more employees, they can afford to employ specialists, or human resource managers, to handle these areas of the business. As a result, it is highly likely that you, as a manager or entrepreneur, will be performing HRM tasks, hence the value in understanding the strategic components of HRM.

HRM vs. Personnel Management

Human resource strategy is an elaborate and systematic plan of action developed by a human resource department. This definition tells us that an HR strategy includes detailed pathways to implement HRM strategic plans and HR plans. Think of theHRM strategic plan as the major objectives the organization wants to achieve, and the HR plan as the specific activities carried out to achieve the strategic plan. In other words, the strategic plan may include long-term goals, while the HR plan may include short-term objectives that are tied to the overall strategic plan. As mentioned at the beginning of this chapter, human resource departments in the past were called personnel departments. This term implies that the department provided “support” for the rest of the organization. Companies now understand that the human side of the business is the most important asset in any business (especially in this global economy), and therefore HR has much more importance than it did twenty years ago. While personnel management mostly involved activities surrounding the hiring process and legal compliance, human resources involves much more, including strategic planning, which is the focus of this chapter. The Ulrich HR model, a common way to look at HRM strategic planning, provides an overall view of the role of HRM in the organization. His model is said to have started the movement that changed the view of HR; no longer merely a functional area, HR became more of a partnership within the organization. While his model has changed over the years, the current model looks at alignment of HR activities with the overall global business strategy to form a strategic partnership. [3] His newly revised model looks at five main areas of HR:

1. Strategic partner. Partnership with the entire organization to ensure alignment of the HR function with the needs of the organization.

1. Change agent. The skill to anticipate and respond to change within the HR function, but as a company as a whole.

1. Administrative expert and functional expert. The ability to understand and implement policies, procedures, and processes that relate to the HR strategic plan.

1. Human capital developer. Means to develop talent that is projected to be needed in the future.

1. Employee advocate. Works for employees currently within the organization.

According to Ulrich, [4] implementation of this model must happen with an understanding of the overall company objectives, problems, challenges, and opportunities. For example, the HR professional must understand the dynamic nature of the HRM environment, such as changes in labor markets, company culture and values, customers, shareholders, and the economy. Once this occurs, HR can determine how best to meet the needs of the organization within these five main areas.

HRM as a Strategic Component of the Business

Keeping the Ulrich model in mind, consider these four aspects when creating a good HRM strategic plan:

1. Make it applicable. Often people spend an inordinate amount of time developing plans, but the plans sit in a file somewhere and are never actually used. A good strategic plan should be the guiding principles for the HRM function. It should be reviewed and changed as aspects of the business change. Involvement of all members in the HR department (if it’s a larger department) and communication among everyone within the department will make the plan better.

Figure 2.1

To be successful in writing an HRM strategic plan, one must understand the dynamic external environment.

1. Be a strategic partner. Alignment of corporate values in the HRM strategic plan should be a major objective of the plan. In addition, the HRM strategic plan should be aligned with the mission and objectives of the organization as a whole. For example, if the mission of the organization is to promote social responsibility, then the HRM strategic plan should address this in the hiring criteria.

1. Involve people. An HRM strategic plan cannot be written alone. The plan should involve everyone in the organization. For example, as the plan develops, the HR manager should meet with various people in departments and find out what skills the best employees have. Then the HR manager can make sure the people recruited and interviewed have similar qualities as the best people already doing the job. In addition, the HR manager will likely want to meet with the financial department and executives who do the budgeting, so they can determine human resource needs and recruit the right number of people at the right times. In addition, once the HR department determines what is needed, communicating a plan can gain positive feedback that ensures the plan is aligned with the business objectives.

1. Understand how technology can be used. Organizations oftentimes do not have the money or the inclination to research software and find budget-friendly options for implementation. People are sometimes nervous about new technology. However, the best organizations are those that embrace technology and find the right technology uses for their businesses. There are thousands of HRM software options that can make the HRM processes faster, easier, and more effective. Good strategic plans address this aspect.

HR managers know the business and therefore know the needs of the business and can develop a plan to meet those needs. They also stay on top of current events, so they know what is happening globally that could affect their strategic plan. If they find out, for example, that an economic downturn is looming, they will adjust their strategic plan. In other words, the strategic plan needs to be a living document, one that changes as the business and the world changes.

The Steps to Strategic Plan Creation

As we addressed in Section 2.1.2 “The Steps to Strategic Plan Creation”, HRM strategic plans must have several elements to be successful. There should be a distinction made here: the HRM strategic plan is different from the HR plan. Think of the HRM strategic plan as the major objectives the organization wants to achieve, while the HR plan consists of the detailed plans to ensure the strategic plan is achieved. Oftentimes the strategic plan is viewed as just another report that must be written. Rather than jumping in and writing it without much thought, it is best to give the plan careful consideration.

The goal of Section 2 “Conduct a Strategic Analysis”is to provide you with some basic elements to consider and research before writing any HRM plans.

Conduct a Strategic Analysis

A strategic analysis looks at three aspects of the individual HRM department:

1. Understanding of the company mission and values. It is impossible to plan for HRM if one does not know the values and missions of the organization. As we have already addressed in this chapter, it is imperative for the HR manager to align department objectives with organizational objectives. It is worthwhile to sit down with company executives, management, and supervisors to make sure you have a good understanding of the company mission and values.

Another important aspect is the understanding of the organizational life cycle. You may have learned about the life cycle in marketing or other business classes, and this applies to HRM, too. An organizational life cycle refers to the introduction, growth, maturity, and decline of the organization, which can vary over time. For example, when the organization first begins, it is in the introduction phase, and a different staffing, compensation, training, and labor/employee relations strategy may be necessary to align HRM with the organization’s goals. This might be opposed to an organization that is struggling to stay in business and is in the decline phase. That same organization, however, can create a new product, for example, which might again put the organization in the growth phase. Table 2.2 “Lifecycle Stages and HRM Strategy” explains some of the strategies that may be different depending on the organizational life cycle.

1. Understanding of the HRM department mission and values. HRM departments must develop their own departmental mission and values. These guiding principles for the department will change as the company’s overall mission and values change. Often the mission statement is a list of what the department does, which is less of a strategic approach. Brainstorming about HR goals, values, and priorities is a good way to start. The mission statement should express how an organization’s human resources help that organization meet the business goals. A poor mission statement might read as follows: “The human resource department at Techno, Inc. provides resources to hiring managers and develops compensation plans and other services to assist the employees of our company.”

A strategic statement that expresses how human resources help the organization might read as follows: “HR’s responsibility is to ensure that our human resources are more talented and motivated than our competitors’, giving us a competitive advantage. This will be achieved by monitoring our turnover rates, compensation, and company sales data and comparing that data to our competitors.” [5] When the mission statement is written in this way, it is easier to take a strategic approach with the HR planning process.

1. Understanding of the challenges facing the department. HRM managers cannot deal with change quickly if they are not able to predict changes. As a result, the HRM manager should know what upcoming challenges may be faced to make plans to deal with those challenges better when they come along. This makes the strategic plan and HRM plan much more usable.

Table 2.2 Lifecycle Stages and HRM Strategy

Life Cycle Stage



Training and Development

Labor / Employee Relations


Attract best technical and professional talent.

Meet or exceed labor market rates to attract needed talent.

Define future skill requirements and begin establishing career ladders.

Set basic employee-relations philosophy of organization.


Recruit adequate numbers and mix of qualifying workers. Plan management succession. Manage rapid internal labor market movements.

Meet external market but consider internal equity effects. Establish formal compensation structures.

Mold effective management team through management development and organizational development.

Maintain labor peace, employee motivation, and morale.


Encourage sufficient turnover to minimize layoffs and provide new openings. Encourage mobility as reorganizations shift jobs around.

Control compensation costs.

Maintain flexibility and skills of an aging workforce.

Control labor costs and maintain labor peace. Improve productivity.


Plan and implement workforce reductions and reallocations; downsizing and outplacement may occur during this stage.

Implement tighter cost control.

Implement retraining and career consulting services.

Improve productivity and achieve flexibility in work rules. Negotiate job security and employment-adjustment policies

Source: Seattle University Presentation, accessed July 11, 2011,


Identify Strategic HR Issues

In this step, the HRM professionals will analyze the challenges addressed in the first step. For example, the department may see that it is not strategically aligned with the company’s mission and values and opt to make changes to its departmental mission and values as a result of this information.

Many organizations and departments will use a strategic planning tool that identifies strengths, weaknesses, opportunities, and threats (SWOT analysis) to determine some of the issues they are facing. Once this analysis is performed for the business, HR can align itself with the needs of the business by understanding the business strategy. See Table 2.3 “Sample HR Department SWOT Analysis for Techno, Inc.” for an example of how a company’s SWOT analysis can be used to develop a SWOT analysis for the HR department.

Once the alignment of the company SWOT is completed, HR can develop its own SWOT analysis to determine the gaps between HR’s strategic plan and the company’s strategic plan. For example, if the HR manager finds that a department’s strength is its numerous training programs, this is something the organization should continue doing. If a weakness is the organization’s lack of consistent compensation throughout all job titles, then the opportunity to review and revise the compensation policies presents itself. In other words, the company’s SWOT analysis provides a basis to address some of the issues in the organization, but it can be whittled down to also address issues within the department.

Table 2.3 Sample HR Department SWOT Analysis for Techno, Inc.


Hiring talented people

Company growth

Technology implementation for business processes

Excellent relationship between HRM and management/executives


No strategic plan for HRM

No planning for up/down cycles

No formal training processes

Lacking of software needed to manage business processes, including go-to-market staffing strategies


Development of HRM staffing plan to meet industry growth

HRM software purchase to manage training, staffing, assessment needs for an unpredictable business cycle

Continue development of HRM and executive relationship by attendance and participation in key meetings and decision-making processes

Develop training programs and outside development opportunities to continue development of in-house marketing expertise



Changing technology

Prioritize Issues and Actions

Based on the data gathered in the last step, the HRM manager should prioritize the goals and then put action plans together to deal with these challenges. For example, if an organization identifies that they lack a comprehensive training program, plans should be developed that address this need. (Training needs are discussed in  Chapter 8 “Training and Development” .) An important aspect of this step is the involvement of the management and executives in the organization. Once you have a list of issues you will address, discuss them with the management and executives, as they may see other issues or other priorities differently than you. Remember, to be effective, HRM must work with the organization and assist the organization in meeting goals. This should be considered in every aspect of HRM planning.

Draw Up an HRM Plan

Once the HRM manager has met with executives and management, and priorities have been agreed upon, the plans are ready to be developed. Detailed development of these plans will be discussed in Section 2.2 “Writing the HRM Plan”. Sometimes companies have great strategic plans, but when the development of the details occurs, it can be difficult to align the strategic plan with the more detailed plans. An HRM manager should always refer to the overall strategic plan before developing the HRM strategic plan and HR plans.

Even if a company does not have an HR department, HRM strategic plans and HR plans should still be developed by management. By developing and monitoring these plans, the organization can ensure the right processes are implemented to meet the ever-changing needs of the organization. The strategic plan looks at the organization as a whole, the HRM strategic plan looks at the department as a whole, and the HR plan addresses specific issues in the human resource department.

[1] Michael Losey, “HR Comes of Age,” HR Magazine, March 15, 1998, accessed July 11, 2011,

[2] Jan de Kok and Lorraine M. Uhlaner, “Organization Context and Human Resource Management in the Small Firm” (Tinbergen Institute Discussion Papers 01-038/3, Tinbergen Institute, 2001), accessed August 13, 2011,


[3] David Ulrich and Wayne Brockbank, The HR Value Proposition (Boston: Harvard Business Press, 2005), 9–14.

[4] David Ulrich, “Evaluating the Ulrich Model,” Acerta, 2011, accessed July 11, 2011,

[5] Gary Kaufman, “How to Fix HR,” Harvard Business Review, September 2006, accessed July 11, 2011,


2.2  Writing the HRM Plan

Learning Objective

1. Describe the steps in the development of an HRM plan.

As addressed in Section 2.1 “Strategic Planning”, the writing of an HRM strategic plan should be based on the strategic plans of the organization and of the department. Once the strategic plan is written, the HR professional can begin work on the HR plan. This is different from the strategic plan in that it is more detailed and more focused on the short term. The six parts described here are addressed in more detail in Chapter 4 “Recruitment”, Chapter 5 “Selection”, Chapter 6 “Compensation and Benefits”, Chapter 7 “Retention and Motivation”, Chapter 8 “Training and Development”, Chapter 9 “Managing Employee Performance”, and Chapter 10 “Employee Assessment”.

The six parts of the HRM plan include the following:

Figure 2.3

As you can see from this figure, the company strategic plan ties into the HRM strategic plan, and from the HRM strategic plan, the HR plan can be developed.

1. Determine human resource needs. This part is heavily involved with the strategic plan. What growth or decline is expected in the organization? How will this impact your workforce? What is the economic situation? What are your forecasted sales for next year?
1. Determine recruiting strategy. Once you have a plan in place, it’s necessary to write down a strategy addressing how you will recruit the right people at the right time.
1. Select employees. The selection process consists of the interviewing and hiring process.
1. Develop training. Based on the strategic plan, what training needs are arising? Is there new software that everyone must learn? Are there problems in handling conflict? Whatever the training topics are, the HR manager should address plans to offer training in the HRM plan.
1. Determine compensation. In this aspect of the HRM plan, the manager must determine pay scales and other compensation such as health care, bonuses, and other perks.
1. Appraise performance. Sets of standards need to be developed so you know how to rate the performance of your employees and continue with their development.
Each chapter of this text addresses one area of the HR plan, but the next sections provide some basic knowledge of planning for each area.
Determine Human Resource Needs
The first part of an HR plan will consist of determining how many people are needed. This step involves looking at company operations over the last year and asking a lot of questions:
1. Were enough people hired?
1. Did you have to scramble to hire people at the last minute?
1. What are the skills your current employees possess?
1. What skills do your employees need to gain to keep up with technology?
1. Who is retiring soon? Do you have someone to replace them?
1. What are the sales forecasts? How might this affect your hiring?
These are the questions to answer in this first step of the HR plan process. As you can imagine, this cannot be done alone. Involvement of other departments, managers, and executives should take place to obtain an accurate estimate of staffing needs for now and in the future. We discuss staffing in greater detail in Chapter 4 “Recruitment”.
Many HR managers will prepare an inventory of all current employees, which includes their educational level and abilities. This gives the HR manager the big picture on what current employees can do. It can serve as a tool to develop employees’ skills and abilities, if you know where they are currently in their development. For example, by taking an inventory, you may find out that Richard is going to retire next year, but no one in his department has been identified or trained to take over his role. Keeping the inventory helps you know where gaps might exist and allows you to plan for these gaps. This topic is addressed further in Chapter 4 “Recruitment”.
HR managers will also look closely at all job components and will analyze each job. By doing this analysis, they can get a better picture of what kinds of skills are needed to perform a job successfully. Once the HR manager has performed the needs assessment and knows exactly how many people, and in what positions and time frame they need to be hired, he or she can get to work on recruiting, which is also called astaffing plan. This is addressed further in Chapter 4 “Recruitment”.
Recruitment is an important job of the HR manager. More detail is provided in Chapter 4 “Recruitment”. Knowing how many people to hire, what skills they should possess, and hiring them when the time is right are major challenges in the area of recruiting. Hiring individuals who have not only the skills to do the job but also the attitude, personality, and fit can be the biggest challenge in recruiting. Depending on the type of job you are hiring for, you might place traditional advertisements on the web or use social networking sites as an avenue. Some companies offer bonuses to employees who refer friends. No matter where you decide to recruit, it is important to keep in mind that the recruiting process should be fair and equitable and diversity should be considered. We discuss diversity in greater detail in Chapter 3 “Diversity and Multiculturalism”.
Depending on availability and time, some companies may choose to outsource their recruiting processes. For some types of high-level positions, a head hunter will be used to recruit people nationally and internationally. A head hunter is a person who specializes in matching jobs with people, and they usually work only with high-level positions. Another option is to use an agency that specializes in hiring people for a variety of positions, including temporary and permanent positions. Some companies decide to hire temporary employees because they anticipate only a short-term need, and it can be less expensive to hire someone for only a specified period of time.
No matter how it is done, recruitment is the process of obtaining résumés of people interested in the job. In our next step, we review those résumés, interview, and select the best person for the job.
After you have reviewed résumés for a position, now is the time to work toward selecting the right person for the job. Although we discuss selection in great detail in Chapter 6 “Compensation and Benefits”, it is worth a discussion here as well. Numerous studies have been done, and while they have various results, the majority of studies say it costs an average of $45,000 to hire a new manager. [1] While this may seem exaggerated, consider the following items that contribute to the cost:
1. Time to review résumés
1. Time to interview candidates
1. Interview expenses for candidates
1. Possible travel expenses for new hire or recruiter
1. Possible relocation expenses for new hire
1. Additional bookkeeping, payroll, 401(k), and so forth
1. Additional record keeping for government agencies
1. Increased unemployment insurance costs
1. Costs related to lack of productivity while new employee gets up to speed
Because it is so expensive to hire, it is important to do it right. First, résumés are reviewed and people who closely match the right skills are selected for interviews. Many organizations perform phone interviews first so they can further narrow the field. The HR manager is generally responsible for setting up the interviews and determining the interview schedule for a particular candidate. Usually, the more senior the position is, the longer the interview process takes, even up to eight weeks. [2] After the interviews are conducted, there may be reference checks, background checks, or testing that will need to be performed before an offer is made to the new employee. HR managers are generally responsible for this aspect. Once the applicant has met all criteria, the HR manager will offer the selected person the position. At this point, salary, benefits, and vacation time may be negotiated. Compensation is the next step in HR management.
Determine Compensation
What you decide to pay people is much more difficult than it seems. This issue is covered in greater detail in Chapter 6 “Compensation and Benefits”. Pay systems must be developed that motivate employees and embody fairness to everyone working at the organization. However, organizations cannot offer every benefit and perk because budgets always have constraints. Even governmental agencies need to be concerned with compensation as part of their HR plan. For example, in 2011, Illinois State University gave salary increases of 3 percent to all faculty, despite state budget cuts in other areas. They reasoned that the pay increase was needed because of the competitive nature of hiring and retaining faculty and staff. The university president said, “Our employees have had a very good year and hopefully this is a good shot in the arm that will keep our morale high.” [3]
The process in determining the right pay for the right job can have many variables, in addition to keeping morale high. First, as we have already discussed, the organization life cycle can determine the pay strategy for the organization. The supply and demand of those skills in the market, economy, region, or area in which the business is located is a determining factor in compensation strategy. For example, a company operating in Seattle may pay higher for the same job than their division in Missoula, Montana, because the cost of living is higher in Seattle. The HR manager is always researching to ensure the pay is fair and at market value. In Chapter 6 “Compensation and Benefits”, we get into greater detail about the variety of pay systems, perks, and bonuses that can be offered. For many organizations, training is a perk. Employees can develop their skills while getting paid for it. Training is the next step in the HR planning process.
Develop Training
Once we have planned our staffing, recruited people, selected employees, and then compensated them, we want to make sure our new employees are successful. Training is covered in more detail in Chapter 8. One way we can ensure success is by training our employees in three main areas:
1. Company culture. A company culture is the organization’s way of doing things. Every company does things a bit differently, and by understanding the corporate culture, the employee will be set up for success. Usually this type of training is performed at an orientation, when an employee is first hired. Topics might include how to request time off, dress codes, and processes.
1. Skills needed for the job. If you work for a retail store, your employees need to know how to use the register. If you have sales staff, they need to have product knowledge to do the job. If your company uses particular software, training is needed in this area.
1. Human relations skills. These are non-job-specific skills your employees need not only to do their jobs but also to make them all-around successful employees. Skills needed include communication skills and interviewing potential employees.
Perform a Performance Appraisal
The last thing an HR manager should plan is the performance appraisal. While we discuss performance appraisals in greater detail in Chapter 10 “Employee Assessment”, it is definitely worth a mention here, since it is part of the strategic plan. Aperformance appraisal is a method by which job performance is measured. The performance appraisal can be called many different things, such as the following:
1. Employee appraisal
1. Performance review
1. 360 review
1. Career development review
No matter what the name, these appraisals can be very beneficial in motivating and rewarding employees. The performance evaluation includes metrics on which the employee is measured. These metrics should be based on the job description, both of which the HR manager develops. Various types of rating systems can be used, and it’s usually up to the HR manager to develop these as well as employee evaluation forms. The HR manager also usually ensures that every manager in the organization is trained on how to fill out the evaluation forms, but more importantly, how to discuss job performance with the employee. Then the HR manager tracks the due dates of performance appraisals and sends out e-mails to those managers letting them know it is almost time to write an evaluation.
[1] Susan Herman, Hiring Right: A Practical Guide (Thousand Oaks, CA: Sage, 1993), xv.
[2] John Crant, “How Long Does an Interview Process Take?”, December 2, 2009, accessed October 28, 2010,
[3] Stephanie Pawlowski, “Illinois State University to Get Salary Bump,” WJBC Radio, July 11, 2011, accessed July 11, 2011,

2.3  Tips in HRM Planning

Learning Objective
1. Explain the aspects needed to create a usable and successful HRM plan.
As you have learned from this chapter, human resource strategic planning involves understanding your company’s strategic plan and HR’s role in the organization. The planning aspect meets the needs of the strategic plan by knowing how many people should be hired, how many people are needed, and what kind of training they need to meet the goals of the organization. This section gives some tips on successful HR strategic planning.
Fortune 500 Focus
Like many Fortune 500 companies throughout the world, IBM in India finds that picking the best prospects for job postings isn’t always easy. By using advanced analytics, however, it aims to connect the strategic plan, staffing needs, and the hiring process using a simple tool. The project was originally developed to assign people to projects internally at IBM, but IBM found this tool able to not only extract essential details like the number of years of experience but also make qualitative judgments, such as how good the person actually is for the job. [1] This makes the software unique, as most résumé-scanning software programs can only search for specific keywords and are not able to assess the job fit or tie the criteria directly to the overall strategic plan. The project uses IBM India’s spoken web technology, in which the prospective employee answers a few questions, creating the equivalent of voice résumé. Then using these voice résumés, the hiring manager can easily search for those prospects who meet the needs of the organization and the objectives of the strategic plan.
Some of the challenges noted with this software include the recognition of language and dialect issues. However, the IBM human resources solution is still one of the most sophisticated of such tools to be developed. “Services is very people-intensive. Today, there is talk of a war for talent, but attracting the right kind of people is a challenge, yet unemployment is very high. Our solution applies sophisticated analytics to workforce management,” says Manish Gupta, director at IBM Research-India. [2]
It is likely that this is only the beginning of the types of technology that allow HR professionals to tie their HR plans directly to a strategic plan with the touch of a few buttons.

Link HRM Strategic Plan to Company Plan
Understanding the nature of the business is key to being successful in creating a strategic plan for HRM. Because every business is different, the needs of the business may change, depending on the economy, the season, and societal changes in our country. HR managers need to understand all these aspects of the business to better predict how many people are needed, what types of training are needed, and how to compensate people, for example. The strategic plan that the HR manager writes should address these issues. To address these issues, the HR manager should develop the departmental goals and HR plans based on the overall goals of the organization. In other words, HR should not operate alone but in tandem with the other parts of the organization. The HRM plan should reflect this.
Monitor the Plan Constantly
Oftentimes a great strategic plan is written, taking lots of time, but isn’t actually put into practice for a variety of reasons, such as the following:
1. The plan wasn’t developed so that it could be useful.
1. The plan wasn’t communicated with management and others in the HRM department.
1. The plan did not meet the budget guidelines of the organization.
1. The plan did not match the strategic outcomes of the organization.
1. There was lack of knowledge on how to actually implement it.
There is no point in developing a plan that isn’t going to be used. Developing the plan and then making changes as necessary are important to making it a valuable asset for the organization. A strategic plan should be a living document, in that it changes as organizational or external factors change. People can get too attached to a specific plan or way of doing things and then find it hard to change. The plan needs to change constantly or it won’t be of value.
Measure It
A good strategic plan and HR plan should discuss the way “success” will be measured. For example, rather than writing, “Meet the hiring needs of the organization,” be more specific: “Based on sales forecasts from our sales department, hire ten people this quarter with the skills to meet our ten job openings.” This is a goal that is specific enough to be measured. These types of quantitative data also make it easier to show the relationship between HR and the organization, and better yet, to show how HR adds value to the bottom line. Likewise, if a company has a strategic objective to be a safe workplace, you might include a goal to “develop training to meet the needs of the organization.” While this is a great goal, how will this be measured? How will you know if you did what you were supposed to do? It might be difficult to measure this with such a general statement. On the other hand, a goal to “develop a safety training workshop and have all employees complete it by the end of the year” is specific and can be measured at the end to determine success.
Sometimes Change Is Necessary
It can be difficult to base an entire plan on forecasted numbers. As a result, an HRM department that is willing to change quickly to meet the needs of the organization proves its worthiness. Consider a sales forecast that called for fifteen new hires, but you find out months later the organization is having a hard time making payroll. Upon digging deeper, you find the sales forecasts were overexaggerated, and now you have fifteen people you don’t really need. By monitoring the changes constantly (usually done by asking lots of questions to other departments), you can be sure you are able to change your strategic plan as they come.
Be Aware of Legislative Changes
One of the major challenges in HRM, as we discuss in Chapter 1 “The Role of Human Resources”, is having an awareness of what is happening from a legal perspective. Because most budgets are based on certain current laws, knowing when the law changes and how it will affect department budgets and planning (such as compensation planning) will create a more solid strategic plan. For example, if the minimum wage goes up in your state and you have minimum wage workers, reworking the budget and communicating this change to your accounting team is imperative in providing value to the organization. We will discuss various legislation throughout this book.
[1] Sridhar Chari, “IBM Automates Parsing of Resumes,” iStock Analyst, July 11, 2011, accessed July 11, 2011,
[2] Sridhar Chari, “IBM Automates Parsing of Resumes,” iStock Analyst, July 11, 2011, accessed July 11, 2011,

2.4   Case and Summary

Chapter Summary
· Human resource management was once called the personnel department. In the past, hiring people and working with hiring paperwork was this department’s job. Today, the HRM department has a much broader role, and as a result, HR managers must align their strategies with the company’s strategies.
· Functions that fall under HRM today include staffing, creation of workplace policies, compensation and benefits, retention, training and development, and working with regulatory issues and worker protection.
· Human resource strategy is a set of elaborate and systematic plans of action. The company objectives and goals should be aligned with the objectives and goals of the individual departments.
· The steps to creating an HRM strategic plan include conducting a strategic analysis. This entails having an understanding of the values and mission of the organization, so you can align your departmental strategy in the same way.
· The second step is to identify any HR issues that might impact the business.
· The third step, based on the information from the first and second steps, is to prioritize issues and take action. Finally, the HRM professional will draw up the HRM plan.
· The HRM plan consists of six steps. The first is to determine the needs of the organization based on sales forecasts, for example. Then the HR professional will recruit and select the right person for the job. HRM develops training and development to help better the skills of existing employees and new employees, too. The HR manager will then determine compensation and appraise performance of employees. Each of these parts of the HRM plan is discussed in its own separate chapter in greater detail.
· As things in the organization change, the strategic plan should also change.
· To make the most from a strategic plan, it’s important to write the goals in a way that makes them measurable.
Chapter Case
We Merged…Now What?
Earlier this month, your company, a running equipment designer and manufacturer called Runners Paradise, merged with a smaller clothing design company called ActiveLeak. Your company initiated the buyout because of the excellent design team at ActiveLeak and their brand recognition, specifically for their MP3-integrated running shorts. Runners Paradise has thirty-five employees and ActiveLeak has ten employees. At ActiveLeak, the owner, who often was too busy doing other tasks, handled the HRM roles. As a result, ActiveLeak has no strategic plan, and you are wondering if you should develop a strategic plan, given this change. Here are the things you have accomplished so far:
· Reviewed compensation and adjusted salaries for the sake of fairness. Communicated this to all affected employees.
· Developed job requirements for current and new jobs.
· Had each old and new employee fill out a skills inventory Excel document, which has been merged into a database.
From this point, you are not sure what to do to fully integrate the new organization.
1. Why should you develop an HRM strategic plan?
1. Which components of your HR plan will you have to change?
1. What additional information would you need to create an action plan for these changes?

Chapter 3: Diversity and Multiculturalism

Hiring Multicultural

On a Tuesday afternoon, as you are getting ready to go to lunch, you receive an e-mail from your human resources (HR) manager about the need to hire a new project manager, and there is a $500 bonus for referring a friend who successfully joins the company. Immediately, you e-mail your friend Daniel, because you know he would be great for the job. Daniel is eventually hired for the position, and a few months later a new e-mail goes out asking for friend recommendations for a new position. You and Daniel both recommend someone, and eventually that person gets hired. Over the next year, hiring notices are not advertised externally as the organization has had good luck with this hiring practice. Seems like a great way to recruit new people, doesn’t it? It can be, but it also can be a detriment to the diversity and multiculturalism of the workplace. How, you might wonder?

While not true across the board, people have a tendency to spend time with people who are like themselves, in race, income level, and other aspects of diversity such as sexual orientation. In fact, according to the National Institute of Child Health and Human Development and a study published in the American Journal of Sociology, it is much more likely that someone will name a person in their own race as a friend than someone of a different race. [1] Likewise, even from a young age, people tend to choose friends who are of the same race. As a result, when you recommend Daniel for a position, it is highly likely that Daniel is similar, from a diversity perspective, to you. Then, when Daniel recommends someone for a job, it is highly likely that he, too, is recommending someone with similar characteristics as you both. This obviously creates a lack of multicultural diversity in the workplace, which can mean lost profits for companies.

[1] James Moody, “Race, School Integration, and Friendship Segregation in America,” American Journal of Sociology 107, no. 3 (2001): 679–719.

3.1  Diversity and Multiculturalism

Learning Objectives

1. Define, explain, and identify your own power and privilege.

1. Provide reasoning as to why diversity is important to maintain profitability.

Many people use the terms diversity and multiculturalism interchangeably, when in fact, there are major differences between the two. Diversity is defined as the differences between people. These differences can include race, gender, sexual orientation, religion, background, socioeconomic status, and much more. Diversity, when talking about it from the human resource management (HRM) perspective, tends to focus more on a set of policies to meet compliance standards. The Equal Employment Opportunity Commission (EEOC) oversees complaints in this area. We discuss the EEOC in Section 3.3.1 “Equal Employment Opportunity Commission (EEOC)” and in greater detail in Chapter 4 “Recruitment” and Chapter 5 “Selection”.

Multiculturalism goes deeper than diversity by focusing on inclusiveness, understanding, and respect, and also by looking at unequal power in society. In a report called “The 2007 State of Workplace Diversity Management Report,” [1] most HR managers said that diversity in the workplace is

1. not well defined or understood at work,

1. focuses too much on compliance, and

1. places too much emphasis on gender and ethnicity.

This chapter focuses on the advantages of a diverse workplace and discusses multiculturalism at work and the compliance aspect of diversity.

Power and Privilege

As defined in this chapter, diversity focuses on the “otherness” or differences between individuals and has a goal of making sure, through policies, that everyone is treated the same. While this is the legal and the right thing to do, multiculturalism looks at a system of advantages based on race, gender, and sexual orientation calledpower and privilege. In this system, the advantages are based on a system in which one race, gender, and sexual orientation is predominant in setting societal rules and norms.

The interesting thing about power and privilege is that if you have it, you may not initially recognize it, which is why we can call it invisible privilege. Here are some examples:

1. Race privilege. Let’s say you (a Caucasian) and your friend (an African American) are having dinner together, and when the bill comes, the server gives the check to you. While this may not seem like a big issue, it assumes you (being Caucasian) are the person paying for the meal. This type of invisible privilege may not seem to matter if you have that privilege, but if you don’t, it can be infuriating.

1. Social class privilege. When Hurricane Katrina hit New Orleans in 2005, many people from outside the storm area wondered why so many people stayed in the city, not even thinking about the fact that some people couldn’t afford the gas to put in their car to leave the city.

1. Gender privilege. This refers to privileges one gender has over another—for example, the assumption that a female will change her name to her husband’s when they get married.

1. Sex

ual orientation privilege. If I am heterosexual, I can put a picture of my partner on my desk without worrying about what others think. I can talk about our vacations together or experiences we’ve had without worrying what someone might think about my relationship. This is not the case for many gay, lesbian, and transgendered people and their partners.

Oftentimes the privilege we have is considered invisible, because it can be hard to recognize one’s own privilege based on race, gender, or social class. Many people utilize the color-blind approach, which says, “I treat everyone the same” or “I don’t see people’s skin color.” In this case, the person is showing invisible privilege and thus ignoring the privileges he or she receives because of race, gender, or social class. While it appears this approach would value all people equally, it doesn’t, because people’s different needs, assets, and perspectives are disregarded by not acknowledging differences. [2]

Another important aspect of power and privilege is the fact that we may have privilege in one area and not another. For example, I am a Caucasian female, which certainly gives me race privilege but not gender privilege. Important to note here is that the idea of power and privilege is not about “white male bashing” but understanding our own stereotypes and systems of advantage so we can be more inclusive with our coworkers, employees, and managers.

So what does this all mean in relation to HRM? It means we can combine the understanding of certain systems that allow for power and privilege, and by understanding we may be able to eliminate or at least minimize these issues. Besides this, one of the best things we can do for our organizations is to have a diverse workforce, with people from a variety of perspectives. This diversity leads to profitability and the ability to better serve customers. We discuss the advantages of diversity in Section 3.1.2 “Why Diversity and Multiculturalism?”.

Stereotypes and the Effect on Privilege

Why Diversity and Multiculturalism?

When many people look at diversity and multiculturalism, they think that someone’s gender, skin color, or social class shouldn’t matter. So diversity can help us with policies to prevent discrimination, while multiculturalism can help us gain a deeper understanding of the differences between people. Hopefully, over time, rather than look at diversity as attaining numerical goals or complying with the law, we can combine the concepts to create better workplaces. Although many books discuss laws relating to diversity, not many actually describe why diversity is necessary in the workplace. Here are a few main reasons:

1. It is the law.

1. We can better serve customers by offering a broader range of services, such as being able to speak a variety of languages and understanding other cultures.

1. We can better communicate with one another (saving time and money) and customers.

1. With a multicultural perspective, we can create better ideas and solutions.

Fortune 500 Focus

Hilton is one of the most recognized names in the hotel industry. Hilton employs 130,000 people in 3,750 hotels in 84 countries. The hotel chain, with some locations franchised, focuses on diversity and inclusion as part of its operations. First, it has a director of global diversity and inclusion, who plays a key role in executing the Hilton global diversity and inclusion efforts, which are focused on culture, talent, workplace, and marketplace diversity strategies. Each Hilton brand must establish its own diversity performance goals and initiatives, which are monitored by the diversity council. The diversity council is made up of the company board of directors, the CEO, and vice president of human resources. At any given time, Hilton has thirty or more diversity initiatives in place, [3] which are managed by the diversity council.

Hilton has created several diversity programs within the communities in which the hotels operate. For example, Hilton was one of the first hotel chains to develop an outreach program to educate minority and female entrepreneurs for franchise investments. One part of the program includes invitation-only seminars that discuss what it takes to be a successful hotel owner. Hilton says its diversity seminars are driven by the fact that it wants employees to reflect the diversity of the customers.

In addition to the outreach program, Hilton partners with historically black colleges and universities for recruiting, which creates an effective tie to jobs once students graduate. It has developed a supplier tracking system, so it knows the total number of supplier payments made and how many of those suppliers are female or minorities. William A. Holland, the vice president for workforce planning and analysis says, “It takes leadership to make diversity work, and our diversity initiative comes from the highest levels of our organization.” [4]

Promoting a multicultural work environment isn’t just the law. Through a diverse work environment and multicultural understanding, organizations can attain greater profitability. A study by Cedric Herring called Does Diversity Pay? [5] reveals that diversity does, in fact, pay. The study found those businesses with greater racial diversity reporter higher sales revenues, more customers, larger market shares, and greater relative profits than those with more homogeneous workforces. Other research on the topic by Scott Page, the author of The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies [6] ended up with similar results. Page found that people from varied backgrounds are more effective at working together than those who are from similar backgrounds, because they offer different approaches and perspectives in the development of solutions. Often people believe that diversity is about checking a box or only providing window dressing to gain more customers, but this isn’t the case. As put by Eric Foss, chairperson and CEO of Pepsi Beverages Company, “It’s not a fad. It’s not an idea of the month. It’s central and it’s linked very directly to business strategy.” [7] A study by the late Roy Adler of Pepperdine University shows similar results. His 19-year study of 215 Fortune 500 companies shows a strong correlation between female executives and high profitability. [8] Another study, conducted by Project Equality, found that companies that rated low on equal opportunity issues earned 7.9 percent profit, while those who rated highest with more equal opportunities resulted in 18.3 percent profit. [9] These numbers show that diversity and multiculturalism certainly is not a fad, but a way of doing business that better serves customers and results in higher profits.

As managers, we need to recognize this and develop policies that recognize not only the importance of diversity but the importance of nurturing multicultural understanding in the workplace. Many employees, however, may be resistant to a discussion on diversity and multiculturalism. Much of this may have to do with their own power and privilege, but some resistance may be related to the discomfort people may feel when faced with the realization that change is a necessity and the cultural makeup of the workplace is changing. Some people may feel “We’ve always done it this way” and are less willing to change to the new ways of doing things.

Perhaps one of the best diversity statements by a Fortune 500 company was made by Jose Manuel Souto, the CFO for Visa in Latin America. He says, “A diverse workforce is critical to providing the best service to our global clients, supporting our business initiatives, and creating a workplace environment that promotes respect and fairness.”[10]

Now that you have an understanding of the meaning of diversity, power, and privilege, as well as the importance of diversity, we will discuss specific diversity strategies inSection 3.2 “Diversity Plans”.

[1] Society for Human Resource Management, The 2007 State of Workplace Diversity Management Report, March 2008, accessed August 3, 2011,

[2] Victoria C. Plaut, Kecia M. Thomas, and Matt J. Goren, “Is Multiculturalism or Color Blindness Better for Minorities?” Psychological Science 20, no. 4 (2009): 444–46.

[3] Jason Forsythe, “Leading with Diversity,” New York Times, 2005, accessed July 13, 2011,

[4] Jason Forsythe, “Leading with Diversity,” New York Times, 2005, accessed July 13, 2011,

[5] Cedric Herring, “Does Diversity Pay? Racial Composition of Firms and the Business Case for Diversity” (paper presented at the annual meeting of the American Sociological Association, Montreal, Canada, August 11, 2006), accessed May 5, 2009,

[6] Scott E. Page, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies (Princeton, NJ: Princeton University Press, 2007).

[7] William J. Holstein, “Diversity is Even More Important in Hard Times,” New York Times, February 13, 2009, accessed August 25, 2011,

[8] Roy Adler, “Women in the Executive Suite Correlate to High Profits,” Glass Ceiling Research Center.

[9] Melissa Lauber, “Studies Show That Diversity in Workplace Is Profitable,” Project Equality, n.d., accessed July 11, 2011,


[10] National Latina Business Women Association, “Women and Minorities on Corporate Boards Still Lags Far Behind National Population,” accessed August 24, 2011,

3.2  Diversity Plans

Learning Objectives

1. Be able to apply strategies to create a multicultural work environment and diversity plans.

1. Be able to create an HR plan with diversity considerations.

While state and federal laws must be followed to ensure multiculturalism, the culture of the company and the way the organization operates can contribute to the nurturing of a multicultural environment (or not). Most companies have a formalized and written antidiscrimination and harassment policy. For example, Zappos’s policy states, “The diversity of Zappos’ employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment. Examples of such behavior include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. Please refer to the applicable sections of the Employee Handbook for further guidance.”[1]

Implementing a policy is an excellent first step, but what is important is how the company acts on those formalized processes and written policies. Let’s say, for example, an organization has a published policy on inclusion of those with physical disabilities, but much “schmoozing” and relationship development with managers takes place on the golf course on Friday afternoons. While the policy states the company doesn’t discriminate, their actions and “traditions” show otherwise and do discriminate against those with disabilities. If this is where the informal work and relationship building take place, an entire group could be left out of this process, likely resulting in lower pay and promotion rates. Likewise, organizations that have a “beer Friday” environment may discriminate against those whose religions do not condone drinking alcohol. While none of these situations are examples of blatant discrimination, a company’s culture can contribute to an environment that is exclusive rather than inclusive.

Many organizations have developed diversity management plans that are tied to the written diversity policy of the organization. In fact, in many larger organizations, such as Hilton, manager- or director-level positions have been created to specifically manage diversity plans and programs. Josh Greenberg, a researcher in the area of workplace diversity, contends that organizations with specific diversity plans tend to be able to facilitate changes more quickly than companies without diversity plans. [2] He says there are three main steps to creating diversity plans:

1. Assessment of diversity. Employee satisfaction surveys, discussions, and open forums that can provide insight into the challenges and obstacles to diversity. Inclusion of all workers for input is necessary to create a useful plan.

1. Development of the diversity plan. Based on step 1, a series of attainable and measurable goals should be developed regarding workplace diversity.

1. Implementation of the plan. The commitment of executives and management is necessary. Formulating action plans based on the goals developed in step 2 and assignment of implementation and measurement of those plans must follow. The action plan should be the responsibility of the entire organization, not just the director of diversity or human resources.

In Section 3.2.1 “Recruitment and Selection”, we discuss some of the HR plan considerations in company culture and “our way of doing things” that are worth considering when creating a diversity plan.

Recruitment and Selection

As you saw in the opening of Chapter 3 “Diversity and Multiculturalism”, sometimes organizations do not mean to be exclusive or discriminatory, but their practices are discriminatory and illegal. For example, the Equal Employment Opportunity Commission (EEOC) says it is illegal to publish a job advertisement that shows a preference for a particular type of person or discourages someone from applying for a job. For example, a Facebook post that says “recent college graduates wanted” might be inclusive to a younger group and discouraging to a diverse (older) workforce, not making the post multicultural. Another example might be the reliance on word-of-mouth advertisement for job openings. Suppose you have a mostly Hispanic workforce and use word of mouth for recruitment. It is likely that most new hires will also be Hispanic. This is also illegal, but perhaps a consideration is the lack of diversity you will have in your workplace with these recruitment methods.

Make sure that job announcements aren’t posted only for your Facebook friends to see; post them in a variety of places to gain the largest and most diverse response.

We address discrimination in the selection process in Chapter 5 “Selection”. However, a mention of the four-fifths rule here is important to determine how we can quantitatively evaluate discrimination in our selection practices. One way to calculate possible discrimination is by using the four-fifths rule, or 80 percent rule. The rule states that a selection rate for any race, sex, or ethnic group that is less than four-fifths of the rate for the group with the highest rate could be regarded as adverse impact.Adverse impact refers to employment practices that may appear to be neutral but have a discriminatory effect on a protected group. For example, let’s assume 100 women and 500 men applied to be firefighters. Let’s say 20 of those women were hired and 250 men were hired. To determine adverse impact based on the four-fifths rule, calculate the following:

· Selection rate for women: 20 percent

· Selection rate for men: 50 percent

· Then divide the highest selection rate: .20/.50 = .4

Because .4, or 40 percent, is less than four-fifths, there may be adverse impact in the selection process for firefighters.


If employment tests are required, a test must be in direct relation to the job. For example, an organization that uses a personality test in hiring must be able to show that the personality test results are nondiscriminatory and do not exclude a population.

In addition, if a reasonable accommodation is needed, such as an interpreter, and it does not cause financial difficulty for the organization, this should be granted.

Also consider the type of test and how it might exclude a certain group of people, such as those who don’t speak English as a first language. We will discuss multiculturalism and testing further in Chapter 5 “Selection”.

Pay and Promotion

Development of policies related to pay and promotion is key to fairness in a multicultural situation. It is widely published that women make about 77 percent of what men earn for similar jobs. [3] Many studies have tried to determine a cause for this pay inequity, and here are some of the possible reasons studied and researched:

1. Hours worked. Studies have said that women tend to work fewer hours because of child-care and housework expectations.

1. Occupational choice. A study performed by Anne York at Meredith College [4]found that women tend to choose careers that pay less because they are worried about balancing family and career. In addition, numerous studies show that women choose careers on the basis of gender stereotypes (e.g., nurse, teacher) and that this leads to lower pay.

1. Stereotypes. The concept of male bias is a possibility. In many studies, people were more likely to choose male doctors over female doctors, even when experience and education were the same. [5] There appears to be a perception that men may be more competent in certain types of jobs.

1. Maternity and family leave. Women leaving the workforce for a short or extended period of time may affect the perception of promotability in the workplace.

1. Salary negotiation. A study performed by Bowles and Babcock [6] showed that men were eight times more likely to negotiate salary than women. In addition, when women did negotiate, they received lower monetary returns. Consider a study performed by Cornell University, which found that women were often negatively affected in their job when they negotiated salary, as compared to men not being viewed negatively after negotiations.

Whatever the reason for pay difference, all managers should be aware of these differences when hiring and promoting. Allowing managers to determine the pay for their employees can also bring out negative stereotypes—and lead to breaking of the law. Determining a set pay schedule for all new and promoted employees can help remedy this situation.

A factor in promotions can also be the mentor-mentee relationship. Most individuals in organizations will have an informal mentor who helps them “through the ranks.” Traditionally, this informal mentor relationship results in someone “pairing up” with another who has similar physical characteristics, is the same gender, or has a similar mind-set. As a result, if the organization has, for example, mostly men, it is likely the female will not be informally mentored, which can result in lack of promotion. Likewise, if the workforce consists of mostly Caucasian females, it is likely the African American male may not develop an informal mentor relationship with his female counterparts. Development of a formal mentorship program to ensure that everyone has a mentor is one way to alleviate this situation. Mentorship programs are discussed inChapter 8 “Training and Development”.

Now What?

Now that you have an awareness of the aspects of HR that could be affected by multiculturalism, you may consider what steps you can take to create a more multicultural workplace. The first step would be to create a diversity plan, as discussed earlier in this section. The second step would be to look at the operation of the HR department and to figure out what departmental measures can be taken to promote diversity.

HR, for example, can provide a training series on power and privilege and how it relates to the workplace. Awareness is the first step to creating a truly multicultural environment. Once employees recognize their own power and privilege, the training could be developed to include laws related to diversity, and discussions on bias can take place. Then discussions can be held on how to improve HR plans such as job analysis, recruitment, and selection to create a multicultural work environment. Rather than thinking about this training as one of many objectives that must be accomplished, think about the training from the conversation perspective. Getting the conversation started is the first step in this personal and professional development process for employees.

Some of the aspects to creating a training focused on multiculturalism might include the following:

1. Build a cultural knowledge about customs, religions, and histories.

1. Discuss treatment of people based on them as individuals, rather than as part of a “group,” which can result in stereotyping.

1. Teach employees to listen actively, which can help raise cultural awareness.

1. Train employees to rethink current policies and how those policies might be exclusive to a certain group.

1. Work on resistance to change. Many employees think, “This is the way we have always done it, and now we have to change it because we have a group of ____ working here now.”

1. Does your leadership team have a multiculturalism perspective? Are many ethnic backgrounds and other multicultural traits represented?

While these suggestions may not eliminate power and privilege, the ability to talk about differences and expectations can be a key ingredient to creating a more inclusive environment. Sometimes this type of training can help people evaluate their perceptions. For example, suppose a complaint came through that a woman was making derogatory sexual comments to only one group of men in an organization. When talked to about it, she said she made comments to the “techies” because she thought the comments would provide them a needed confidence boost, but she generally wouldn’t make those types of comments. This is an example of her perception (“techies” need confidence boosts from women) followed by her action (the comments) on this perception. When we assume our perceptions are correct, we are usually wrong. Training can get people to consider their emotions, stereotypes, and expectations. Besides training, asking ourselves a series of important questions can be the start to making diversity and multiculturalism work. The University of California, San Francisco human resource department lists some of these questions, which are shown in the sidebar.

Things to Consider When Creating a Multicultural and Diverse Work Environment

· Do you test your assumptions before acting on them?

· Do you believe there is only one right way of doing things, or that there are a number of valid ways that accomplish the same goal? Do you convey that to staff?

· Do you have honest relationships with each staff member you supervise? Are you comfortable with each of them? Do you know what motivates them, what their goals are, and how they like to be recognized?

· Are you able to give negative feedback to someone who is culturally different from you?

· When you have open positions, do you insist on a diverse screening committee and make additional outreach efforts to ensure that a diverse pool of candidates has applied?

· When you hire a new employee, do you not only explain job responsibilities and expectations clearly but orient the person to the campus and department culture and unwritten rules?

· Do you rigorously examine your unit’s existing policies, practices, and procedures to ensure that they do not differentially impact different groups? When they do, do you change them?

· Are you willing to listen to constructive feedback from your staff about ways to improve the work environment? Do you implement staff suggestions and acknowledge their contribution?

· Do you take immediate action with people you supervise when they behave in ways that show disrespect for others in the workplace, such as inappropriate jokes and offensive terms?

· Do you make good faith efforts to meet your affirmative action goals?

· Do you have a good understanding of institutional isms such as racism and sexism and how they manifest themselves in the workplace?

· Do you ensure that assignments and opportunities for advancement are accessible to everyone?

· What policies, practices, and ways of thinking have differential impact on different groups?

· What organizational changes should be made to meet the needs of a diverse workforce?

Source: University of California, San Francisco, “Managing Diversity in the Workplace,” chap. 12 in Guide to Managing Human Resources, accessed July 11, 2011,


[1], accessed August 25, 2011,


[2] Josh Greenberg, “Diversity in the Workplace: Benefits, Challenges, Solutions,” The Multicultural Advantage, 2004, accessed July 12, 2011,

[3] National Committee on Pay Equity, accessed August 25, 2011,

[4] E. Anne York, “Gender Differences in the College and Career Aspirations of High School Valedictorians,” Journal of Advanced Academics 19, no. 4 (Summer 2008): 578–600,

[5] David R. Hekman, Karl Aquino and Brad P. Owens, “An Examination of Whether and How Racial and Gender Biases Influence Customer Satisfaction,” Academy of Management Journal53, no. 2 (April 2010): 238–264.

[6] Hannah Riley Bowles and Linda Babcock, “When Doesn’t It Hurt Her to Ask? Framing and Justification Reduce the Social Risks of Initiating Compensation” (paper presented at IACM 21st Annual Conference, December 14, 2008): accessed August 25, 2011,

3.3  Multiculturalism and the Law

Learning Objectives

1. Define the role of the Equal Employment Opportunity Commission (EEOC).

1. Explain the various types of laws covered by the EEOC.

As we already know, it is in an organization’s best interest to hire and promote a multicultural and diverse workforce. Sometimes though, people are still discriminated against at work. As a result, a federal agency has been established to ensure employees have a place to file complaints should they feel discriminated against. This is the topic of Section 3.1 “Diversity and Multiculturalism”. However, please note that each of these topics is discussed in Chapter 4 “Recruitment” as well, but they are also worth mentioning here.

Equal Employment Opportunity Commission (EEOC)

The Equal Employment Opportunity Commission (EEOC) is a federal agency charged with the task of enforcing federal employment discrimination laws. The laws include those that protect people from discrimination in all areas of employment, such as discrimination based on race, color, religion, sex, national origin, age, and disability. People who have filed a discrimination charge are also protected against discrimination under the EEOC. Employers with at least fifteen employees (twenty for age discrimination) are covered under the EEOC. This agency covers not only discrimination in hiring but also discrimination in all types of work situations such as firing, promotions, harassment, training, wages, and benefits. The EEOC has the authority to investigate charges of discrimination against employers. The agency investigates the claims, makes a finding, and then tries to settle the charge. If they are unsuccessful in settling the charge, the EEOC has the right to file a lawsuit on behalf of the complainants. The EEOC has headquarters in Washington, DC, with fifty-three field offices throughout the United States.

If a company has more than one hundred employees, a form called the EEO-1 must be filled out yearly. This form confirms the demographics of an organization based on different job categories. [1] An organization that employs more than fifty people and works for the federal government must also file an EEO-1 yearly, with the deadline normally in September. In addition, organizations must post the EEOC notice, which you have probably seen before, perhaps in the company break room. Finally, organizations should keep on file records such as hiring statistics in the event of an EEOC investigation.

It is necessary to mention here that while there is a legal compliance concern, as discussed before, it is in the company’s best interest to hire a diverse workforce. So while we can discuss the legal aspects, remember that the purpose of having a diverse workforce is not just to meet EEOC requirements but to create a better, more profitable workplace that better serves customers.

Table 3.1 How the EEOC Process Works and Requirements for Employers

Requirements by EEOC

Post Federal and State EEOC notices

File yearly report called EEO-1

Keep copies of documents on file

Process for Investigation

1. The EEOC complaint is filed.

2. The EEOC notifies the organization of the charges.

3. The EEOC acts as a mediator between the employee and the employer to find a solution.

4. If step 3 is unsuccessful, the EEOC will initiate an investigation.

5. The EEOC makes a determination, and then the employer has the option of remedying the situation or face a potential lawsuit.

EEOC Federal Legislation

While the EEOC is the larger governing body, many pieces of legislation relating to multicultural practices are part of the EEOC family of laws. Many of these laws began with Title VII of the Civil Rights Act in 1964. This act, enforced by the EEOC, covers several areas in which discrimination was rampant. However, abona fide occupational qualification (BFOQ) is a quality or attribute employers are allowed to consider when making decisions during the selection process. Examples of BFOQs are a maximum age limit for airline pilots for safety reasons and a Christian college’s requirement that the president of the college be Christian.

EEOC laws relate specifically to the following and are discussed in detail in Chapter 4 “Recruitment” and Chapter 5 “Selection”:

1. Age

1. Disability

1. Equal pay

1. Genetic information

1. National origin

1. Pregnancy

1. Race/color

1. Religion

1. Retaliation

1. Sex

1. Sexual harassment


Age discrimination involves treating someone less favorably because of his or her age. Created in 1967, the Age Discrimination in Employment Act (ADEA) is enforced by the EEOC. This law covers people who are age forty or older. It does not cover favoring an older worker over a younger worker, if the older worker is forty years or older. The law covers any aspect of employment such as hiring, firing, pay, job assignments, promotions, layoffs, training, fringe benefits, and any other condition or term of employment.

The law also goes deeper by forbidding harassment of someone based on age. While simple teasing or offhand comments are not covered, more serious offensive remarks about age are covered by this EEOC law.


The Americans with Disabilities Act (ADA) prohibits discrimination against those with disabilities and is enforced by the EEOC. Discrimination based on disability means treating a qualified person unfavorably because of a disability. For example, if someone has AIDS that is controlled, the employee cannot be treated unfavorably. The law requires an employer to provide reasonable accommodation to an employee or applicant with a disability, unless this accommodation would cause significant difficulty or expense for the employer. A reasonable accommodation is defined by the EEOC as any change in the work environment or in the way things are customarily done that enables an individual with a disability to enjoy equal employment opportunities. A reasonable accommodation might include making the workplace accessible for wheelchair use or providing equipment for someone who is hearing or vision impaired.

This law does not mean that organizations are required to hire unqualified people. The law specifically states the person must be qualified for the job and have a disability defined by the law. A disability defined by the law can include the following:

1. Physical or mental condition that limits a major life activity (walking, talking, seeing, hearing, or learning)

1. History of a disability (e.g., cancer that is in remission)

1. Physical or mental impairment that is not transitory (lasting or expected to last less than six months)

The law places limits on employers when it comes to asking job applicants questions about medical history or asking a person to take a medical exam.

Equal Pay/Compensation

The basis of this law is that people are paid the same for the same type of work, and the law specifically addresses gender pay differences. Rather than job title, job content is used to determine if the job is the same work. In addition to covering salary, it deals with overtime pay, bonus, stock options, profit sharing, and other types of bonus plans such as vacation and holiday pay. If inequality in pay is found, the employer cannot reduce the wages of either sex to equalize the pay.

An employee who files an equal pay charge has the option to go directly to court rather than the EEOC.

Genetic Information

This law is one of the newer EEOC laws, which took effect in November 2009. The EEOC’s definition of genetic information includes family medical information or information about the manifestation of a disease or disorder in an individual’s family. For example, an employer cannot discriminate against an employee whose family has a history of diabetes or cancer. This information could be used to discriminate against an employee who has an increased risk of getting a disease and may make health-care costs more expensive for the organization.

In addition, the employer is not allowed to seek out genetic information by requesting, requiring, or purchasing this information. However, there are some situations in which receiving this information would not be illegal:

1. A manager or supervisor overhears an employee talking about a family member’s illness.

1. Information is received based on wellness programs offered on a voluntary basis.

1. If the information is required as documentation to receive benefits for the Family and Medical Leave Act (FMLA). FMLA is discussed in Section 3 “Pregnancy”.

1. If the information is commercial, such as the appearance of information in a newspaper, as long as the employer is not specifically searching those sources for the purpose of finding genetic information.

1. If genetic information is required through a monitoring program that looks at the biological effects of toxic substances in the workplace.

1. For those professions that require DNA testing, such as law enforcement agencies. In this case, the genetic information may only be used for analysis in relation to the specific case at hand.

This law also covers how information about genetics should be kept. For example, genetic information must be kept separate from an employee’s regular file.

National Origin

It is illegal to treat people unfavorably because they are from a particular country or part of the world, because of their accent, or because they appear to be of a particular descent (even if they are not). The law protecting employees based on national origin refers to all aspects of employment: hiring, firing, pay, job assignments, promotions, layoffs, training, and fringe benefits. An employer can require an employee to speak English only if it is necessary to perform the job effectively. An English-only policy is allowed only if it is needed to ensure the safe or efficient operations of the employer’s business. An employer may not base an employment decision on a foreign accent, unless the accent seriously interferes with job performance.


This section of the EEOC refers to the unfavorable treatment of a woman because of pregnancy, childbirth, or a medical condition related to pregnancy or childbirth. The Pregnancy Discrimination Act of 1978, added to the Civil Rights Act of 1964, is enforced by the EEOC. The female who is unable to perform her job owing to pregnancy must be treated the same as other temporarily disabled employees. For example, modified tasks or alternative assignments should be offered. This law refers not only to hiring but also to firing, pay, job assignments, promotions, layoffs, training, and fringe benefits. In addition to this law against discrimination of pregnant women, theFamily and Medical Leave Act (FMLA) is enforced by the US Department of Labor. [2] The FMLA requires companies with fifty or more employees to provide twelve weeks of unpaid leave for the following:

1. Birth and care of a newborn child

1. Care of an adopted child

1. Care for immediate family members (spouse, child, or parent) with a serious health condition

1. Medical leave for the employee who is unable to work because of a serious health condition

In addition to the company size requirement, the employee must have worked at least 1,250 hours over the past 12 months.


This type of discrimination refers to treating someone unfavorably because he or she is of a certain race or because of certain characteristics associated with race. These characteristics might include hair texture, skin color, or facial features. Discrimination can occur when the person discriminating is the same race or color of the person who is being discriminated against. EEOC law also protects people who are married to or associated with someone of a certain race or color. As with the other types of antidiscrimination laws we have discussed, this law refers not only to the initial hiring but also to firing, pay, job assignments, promotions, layoffs, training, and fringe benefits.


This part of the EEOC refers to treating a person unfavorably because of their religious beliefs. This law requires a company to reasonably accommodate an employee’s religious beliefs or practices, unless doing so would burden the organization’s operations. For example, allowing flexible scheduling during certain religious periods of time might be considered a reasonable accommodation. This law also covers accommodations in dress and grooming, such as a headscarf, religious dress, or uncut hair and a beard in the case of a Sikh. Ideally, the employee or applicant would notify the employer that he or she needs such an accommodation for religious reasons, and then a discussion of the request would occur. If it wouldn’t pose hardship, the employer should honor the request. If the request might cause a safety issue, decrease efficiency, or infringe on the rights of other employees, it may not be honored.

Sex and Sexual Harassment

Sex discrimination involves treating someone unfavorably because of their sex. As with all EEOC laws, this relates to hiring, firing, pay, job assignments, promotions, layoffs, training, and fringe benefits. This law directly ties into sexual harassment laws, which include unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. The victim can be male or female, and sexual harassment can occur female to female, female to male, male to female, and male to male. We discuss more details of harassment in Chapter 10 “Managing Employee Performance”.


In all the laws mentioned, the EEOC set of laws makes it illegal to fire, demote, harass, or retaliate against people because they filed a charge of discrimination, complained about discrimination, or participated in employment discrimination proceedings. Perhaps one of the most high-profile sexual harassment and retaliation cases was that of Sanders v. Thomas. Isiah Thomas, then coach of the New York Knicks, fired Anucha Browne Sanders because she hired an attorney to file sexual harassment claims charges. The jury awarded Browne Sanders $11.6 million in punitive charges because of the hostile work environment Thomas created and another $5.6 million because Browne Sanders was fired for complaining. [3] A portion of the lawsuit was to be paid by Madison Square Garden and James Dolan, chairman of Cablevision, the parent company of Madison Square Garden and the Knicks. Browne Sanders’s lawyers successfully argued that the inner workings of Madison Square Garden were hostile and lewd, and that the former marketing executive of the organization subjected her to hostility and sexual advances. Thomas left the organization as coach and president in 2008. As in this case, there are large financial and public relations penalties not only for sexual harassment but for retaliation after a harassment suit has been filed.

All types of discrimination and laws affecting multiculturalism are a key aspect for HR managers and managers to understand. These types of discrimination are discussed inChapter 4 “Recruitment”, specifically, how they pertain to recruiting and hiring.

Military Service

The Uniformed Services Employment and Reemployment Rights Act (USERR) protects people who serve or have served in the armed forces, Reserves, National Guard, or other uniformed services. The act ensures these individuals are not disadvantaged in their civilian careers because of their service. It also requires they be reemployed in their civilian jobs upon return to service and prohibits discrimination based on past, present, or future military service.

[1] Equal Opportunity Employment Commission, 2011 EEO-1 Survey, accessed December 20, 2010,


[2] US Department of Labor, Leave Benefits: Family and Medical Leave, US Department of Labor, accessed December 20, 2010,


[3] Michael Schmidt, “Jury Awards $11.6 Million to Former Knicks Executive,” New York Times,October 2, 2007, accessed July 12, 2011,


3.4  Case and Summary

Chapter Summary

· Diversity is the real or perceived differences between individuals. Diversity can include race, gender, sexual orientation, size, cultural background, and many other differences. Multiculturalism is similar to diversity but focuses on the development of a greater understanding of how power in society can be unequal because of race, gender, sexual orientation, power, and privilege.

· Power and privilege is a system of advantages based on one’s race, gender, and sexual orientation. This system can often be invisible (to those who have it), which results in one race or gender having unequal power in the workplace. Of course, this unequal power results in unfairness, which may be a legal concern.

· Diversity is important to the success of organizations. Many studies have shown a direct link between the amount of diversity in a workplace and the success of the company.

· Oftentimes there are cultural aspects to an organization that make it resistant to an inclusive environment. These are often not obvious, but awareness of how your own company culture impacts multiculturalism is important. Job announcements, testing, and pay differences are company culture components that can create exclusive environments.

· In recruitment, awareness of how and where you post announcements is crucial. Development of a set pay scale can alleviate some of the issues surrounding unfair pay, especially between men and women.

· Formal mentorship programs can create multicultural understanding and ensure people do not stick with their own race or gender when helping someone move up the ranks in an organization.

· The Equal Employment Opportunity Commission (EEOC) is a federal agency charged with development and enforcement of laws relating to multiculturalism and diversity in the workplace.

· The EEOC covers discrimination based on several areas. Companies cannot discriminate based on age—that is, against someone who is forty or older. They also can’t discriminate against people with disabilities or on the basis of race, genetic information, national origin, gender, or religion.

· Retaliation is also illegal, based on EEOC laws. An organization cannot retaliate against anyone who has filed a complaint with the EEOC or a discrimination lawsuit.

· The US Department of Labor oversees some aspects of EEOC laws, such as theFamily and Medical Leave Act (FMLA). This act requires organizations to give twelve weeks of unpaid leave in the event of an adoption, birth, or caregiving of sick family members.

Chapter Case

But…It’s Our Company Culture!

You are the HR manager for a fifty-person firm that specializes in the development and marketing of plastics technologies. When you were hired, you felt the company had little idea what you should be paid and just made up a number, which you were able to negotiate to a slightly higher salary. While you have been on the job for three months, you have noticed a few concerning things in the area of multiculturalism, besides the way your salary was offered. The following are some of those items:

1. You know that some of the sales team, including the sales manager, get together once a month to have drinks at a strip club.

1. A Hispanic worker left the organization, and in his exit interview, he complained of not seeing a path toward promotion.

1. The only room available for breast-feeding mothers is the women’s restroom.

1. The organization has a policy of offering $200 to any employee who refers a friend, as long as the friend is hired and stays at least six months.

1. The manufacturing floor has an English-only policy.

1. You have heard managers refer to those wearing turbans in a derogatory way.

What do you think needs to be done to create a more inclusive environment, without losing the culture of the company? What suggestions would you make to those involved in each of the situations?

Chapter 6: Compensation and Benefits

Matching Compensation with Core Values

As you sit down to review the compensation package your company offers, one thing that stands out is that your compensation package no longer matches the core values of your organization. When your organization merged five years ago with a similar firm that specializes in online shoe retailing, your company had to hire hundreds of people to keep up with growth. As a result—and what happens with many companies—the compensation plans are not revised and revisited as they should be. The core values your company adopted from the merging company focused on customer service, freedom to work where employees felt they could be most productive, and continuing education of employees, whether or not the education was related to the organization. The compensation package, providing the basic salary, health benefits, and 4



(k) plans, seems a bit old-fashioned for the type of company yours has become.

After reviewing your company’s strategic plan and your human resource management (HRM) strategic plan, you begin to develop a compensation plan that includes salary, health benefits, and


1(k) plans, but you feel it might be smart to better meet the needs of your employees by making some changes to these existing plans. For example, you are considering implementing a team bonus program for high customer service ratings and coverage for alternative forms of medicine, such as acupuncture and massage. Instead of guessing what employees would like to see in their compensation packages, you decide to develop a compensation survey to assess what benefits are most important to your employees. As you begin this task, you know it will be a lot of work, but it’s important to the continued recruitment, retention, and motivation of your current employees.

6.1  Goals of a Compensation Plan

Learning Objective

1. Be able to explain the goals of a compensation plan.

So far, we have discussed the process for strategic plan development and the recruitment and selection process. The next aspect of HRM is to develop compensation plans that will help in the recruitment and retention of employees. This is the topic of this chapter.

Most of us, no matter how much we like our jobs, would not do them without a compensation package. When we think of compensation, often we think of only our paycheck, but compensation in terms of HRM is much broader. A compensation package can include pay, health-care benefits, and other benefits such as 401(k) plans, which will all be discussed in this chapter. Before we discuss specifics, you should be aware of courses and certifications that can be earned through the WorldatWork Society of Certified Professionals, specifically related to compensation (other certifications will be discussed in their respective chapters).

WorldatWork offers several certifications in the area of compensation:

· Certified Compensation Professional (CCP)

· Certified Benefits Professional (CBP)

· Certified Sales Compensation Professional (CSCP)

· Certified Executive Compensation Professional (CECP)

These certifications involve taking a multiple-choice exam online or at one of the WorldatWork testing locations. The exams test for knowledge, experience, and skills in each of the compensation certification areas and can be a valuable asset to you when applying for HR positions.

The certifications are based on many of the aspects of this chapter, including understanding the goals of compensation packages for employees, which is our focus for this section.

First, the compensation package should be positive enough to attract the best people for the job. An organization that does not pay as well as others within the same industry will likely not be able to attract the best candidates, resulting in a poorer overall company performance.

Once the best employees and talent come to work for your organization, you want the compensation to be competitive enough to motivate people to stay with your organization. Although we know that compensation packages are not the only thing that motivates people, compensation is a key component. We discuss other motivations in Chapter 9 “Managing Employee Performance”.

Third, compensation can be used to improve morale, motivation, and satisfaction among employees. If employees are not satisfied, this can result not only in higher turnover but also in poor quality of work for those employees who do stay. A proper compensation plan can also increase loyalty in the organization.


systems can also be used to reward individual or team performance and encourage employees to work at their own peak performance. In fact, in the


011 list of the Best Companies to Work For by Fortune magazine, all the companies who topped the list (SAS and Boston Consulting Group, for example) had satisfied employees—not only with their pay, but their entire benefits package. [1]

With an appropriate pay system, companies find that customer service is better because employees are happier. In addition, having fairly compensated, motivated employees not only adds to the bottom line of the organization but also facilitates organizational growth and expansion. Motivated employees can also save the company money indirectly, by not taking sick days when the employee isn’t really sick, and companies with good pay packages find fewer disability claims as well.

So far, our focus on HRM has been a strategic focus, and the same should be true for development of compensation packages. Before the package is developed for employees, it’s key to understand the role compensation plays in the bottom line of the organization. For example, in 20


, the US military spent 22 percent of its budget on personnel salaries. [2] One-fifth of the total budget—or more—is not uncommon for most US organizations, depending on the industry. As a result, it is easy to see why the compensation plan should be an important aspect of the overall HRM strategic plan. The next few sections will detail the aspects of creating the right compensation packages: for your organization, including legal considerations.

[1] “100 Best Companies to Work For,” C


N Money, accessed February 11, 2011,

[2] US Department of Defense, Financial Summary Tables, May 2009, accessed February 11, 2011,


6.2  Developing a Compensation Package

Learning Objectives

1. Be able to explain the internal and external considerations of compensation package development.

1. Know how to develop a compensation philosophy.

There are a few basic aspects of compensation packages we should discuss before moving into the specific aspects of compensation. These foundations can assist in the development of a compensation strategy that meets the goals of your organization and is in line with your strategic plan.

Before beginning work on your compensation packages, some analysis should be done to determine your organization’s philosophy in regard to compensation. Before development of your compensation philosophies, there are some basic questions to address on your current compensation packages.

1. From the employee’s perspective, what is a fair wage?

1. Are wages too high to achieve financial health in your organization?

1. Do managers and employees know and buy-into your compensation philosophy?

1. Does the pay scale reflect the importance of various job titles within the organization?

1. Is your compensation good enough to retain employees?

1. Are state and federal laws being met with your compensation package?

1. Is your compensation philosophy keeping in line with labor market changes, industry changes, and organizational changes?

Once these basic questions are addressed, we can see where we might have “holes” in our compensation package and begin to develop new philosophies in line with our strategic plan, which benefits the organization. Some possible compensation policies might include the following:

1. Are salaries higher or lower depending on the location of the business? For example, orthopedic surgeons are paid higher in the North Central states ($5


,000) than in Hawaii ($2


,000), according to the Medscape Physical report of 2011. [1] Reasons could include cost of living in the area and fewer qualified people in a given area, giving them leverage to ask for a higher salary.

1. Are salaries lower or higher than the average in your region or area? If the salary is lower, what other benefits will the employee receive to make up for this difference? For example, wages might not be as high, but offering flextime or free day care might offset the lower salary.

1. Should there be a specific pay scale for each position in the organization, or should salaries be negotiated on an individual basis? If there is no set pay scale, how can you ensure individual salary offers are fair and nondiscriminatory?

1. What balance of salary and other rewards, such as bonuses, should be part of your compensation package? For example, some organizations prefer to offer a lower salary, but through bonuses and profit sharing, the employee has the potential to earn more.

1. When giving raises, will the employee’s tenure be a factor, or will pay increases be merit based only, or a combination of both?

Let’s discuss some internal and external factors in determining compensation in more detail.

Internal and External Pay Factors

One major internal factor is the compensation strategy the company has decided to use. Sixty-two percent of organizations have a written, documented compensation policy. [2]

Some organizations choose a market compensation policy, market plus, or market minus philosophy. A market compensation policy is to pay the going rate for a particular job, within a particular market based on research and salary studies. The organization that uses a market plus philosophy will determine the going rate and add a percentage to that rate, such as 5 percent. So if a particular job category median pays $


,000, the organization with a market plus of 5 percent philosophy will pay $59,850. A market minus philosophy pays a particular percentage less than the market; so in our example, if a company pays 5 percent less, the same job would pay $


,150. The University of Arizona, for example, posts its compensation philosophy on its website: [3]

In order to fulfill its mission, the University of Arizona shall maintain a compensation program directed toward attracting, retaining, and rewarding a qualified and diverse workforce. Within the boundaries of financial feasibility, employee compensation shall be externally competitive and internally equitable, and shall be based upon performance as recognized within the work unit.

In addition to their compensation philosophy, the university lists compensation objectives, such as “average salaries will be targeted at the average salary levels of employees in comparable positions in our various labor markets.” This is an example of a market compensation policy.

An example of an organization with a market plus philosophy is Cisco Systems, listed as one of the top-paying companies on Fortune’s annual list. [4] For example, they pay $


1,716 for software engineers, while at


ahoo! software engineers are paid an average of $101,


9, using a market philosophy. The pay at Cisco reflects its compensation philosophy and objectives:

Cisco operates in the extremely competitive and rapidly changing high-technology industry. The Board’s Compensation Committee believes that the compensation programs for the executive officers should be designed to attract, motivate, and retain talented executives responsible for the success of Cisco and should be determined within a framework based on the achievement of designated financial targets, individual contribution, customer satisfaction, and financial performance relative to that of Cisco’s competitors. Within this overall philosophy, the Compensation Committee’s objectives are to do the following:

· Offer a total compensation program that is flexible and takes into consideration the compensation practices of a group of specifically identified peer companies and other selected companies with which Cisco competes for executive talent

· Provide annual variable cash incentive awards that take into account Cisco’s overall financial performance in terms of designated corporate objectives, as well as individual contributions and a measure of customer satisfaction

· Align the financial interests of executive officers with those of shareholders by providing appropriate long-term, equity-based incentives

An example of an organization with a market minus philosophy is Whole Foods. The executive compensation for Whole Foods is a maximum of nineteen times the average store worker (or $608,000), very low by Fortune 500 executive pay standards, which average 343 times. [5] According to John Mackey, Whole Foods CEO, paying on a market minus philosophy makes good business sense: “Fewer things harm an organization’s morale more than great disparities in compensation. When a workplace is perceived as unfair and greedy, it begins to destroy the social fabric of the organization.” [6] Another example of an organization with a market minus philosophy is Southwest Airlines. Despite the lower pay (and more hours), the organization boasts just a 1.4 percent turnover rate, which can be attributed not to pay but to the workplace culture and, as a result, loyalty to the company. [7]

There are many reasons why an organization would choose one philosophy over another. A market minus philosophy may tie into the company’s core values, as in Whole Foods, or it may be because the types of jobs require an unskilled workforce that may be easier and less expensive to replace. A company may use a market plus philosophy because the industry’s cutting-edge nature requires the best and the brightest.

Other internal pay factors might include the employer’s ability to pay, the type of industry, and the value of the employee and the particular job to the organization. In addition, the presence of a union can lead to mandated pay scales. Unions are discussed in Chapter 12 “Working with Labor Unions”.

External pay factors can include the current economic state. For example, in June 2011, the US unemployment rate was 9.2 percent, which is quite high for the country. As a result of surplus workers, compensation may be reduced within organizations because of oversupply of workers. Inflation and cost of living in a given area can also determine compensation in a given market.

Once an organization has looked at the internal and external forces affecting pay, it can begin to develop a pay system within the organization. We discuss how to develop a pay system in   Section 6.3 “Types of Pay Systems”.

[1] Laura Miller, “9 Statistics on Orthopedic Surgeon Compensation by Location,” OS Review, May


, 2011, accessed August 3, 2011,



[2] Dow Scott, “Survey of Compensation Policies and Practices,” WorldatWork, accessed July 23, 2011,


[3] University of Arizona, “Compensation Philosophy,” accessed July 23, 2011,

[4] “Top 25 Paying Companies,” Fortune, accessed July 23, 2011,

[5] Ted Allen, “AFL-CIO Defends Pay Equality Disclosure Mandate,” ISS (blog), July 19, 2011, accessed July 23, 2011,


[6] Susanna Hamner and Tom McNichol, “Ripping Up the Rules of Management,” CNN Money, n.d., accessed July 23, 2011,

[7] Kelly Eggers, “Why It’s OK to Be Paid Less,” Fins Technology, n.d., accessed July 23, 2011,








3/Why-It-s-Okay -to-Get-Paid-Less.

6.3  Types of Pay Systems

Learning Objectives

1. Explain types of job evaluation systems and their uses.

1. Be able to define and discuss the types of pay systems and factors determining the type of pay system used.

1. Know the laws relating to compensation.

Once you have determined your compensation strategy based on internal and external factors, you will need to evaluate jobs, develop a pay system, and consider pay theories when making decisions. Next, you will determine the mix of pay you will use, taking into consideration legal implications.

Figure 6.2 The Process for Implementing Compensation Strategy

Job Evaluation Systems

As mentioned when we discussed internal and external factors, the value of the job is a major factor when determining pay. There are several ways to determine the value of a job through job evaluation. Job evaluation is defined as the process of determining the relative worth of jobs to determine pay structure. Job evaluation can help us determine if pay is equitable and fair among our employees. There are several ways to perform a job evaluation. One of the simplest methods, used by smaller companies or within individual departments, is a job ranking system. In this type of evaluation, job titles are listed and ranked in order of importance to the organization. Apaired comparison can also occur, in which individual jobs are compared with every other job, based on a ranking system, and an overall score is given for each job, determining the highest-valued job to the lowest-valued job. For example, in   Table 6.1 “Example of a Paired Comparison for a Job Evaluation”, four jobs are compared based on a ranking of 0, 1, or 2. Zero indicates the job is less important than the one being compared, 1 means the job is about the same, and 2 means the job is more important. When the scores are added up, it is a quick way to see which jobs are of more importance to the organization. Of course, any person creating these rankings should be familiar with the duties of all the jobs. While this method may provide reasonably good results because of its simplicity, it doesn’t compare differences between jobs, which may have received the same rank of importance.

Table 6.1 Example of a Paired Comparison for a Job Evaluation







Account Manager










Project Manager

Account Manager





0 = 4th

Project Administrative Assistant


1 = 3rd


3 = 2nd

Sales Director

6 = 1st

Based on the paired ranking system, the sales director should have a higher salary than the project administrative assistant, because the ranking for that job is higher. Likewise, a receptionist should be paid less than the project administrative assistant because this job ranks lower.

In a job classification system, every job is classified and grouped based on the knowledge and skills required for the job, years of experience, and amount of authority for that job. The US military is perhaps the best known for this type of classification system. The navy, for example, has job classification codes, such as HM (hospitalman). Then the jobs are divided into specialties, such as HM-8


3, the classification for surgical technologist, and HM-84


for a hospitalman-X-ray technician. The federal government and most state governments use this type of system. Tied to each job are the basic function, characteristics, and typical work of that job classification, along with pay range data. A sample of a job classification system is shown in Table 6.2 “Example of a Job Classification System at the University of Washington”.

Table 6.2 Example of a Job Classification System at the University of Washington

SEIU Local 925 Clerical Nonsupervisory








SEIU Local 925 Clerical Nonsupervisory


SEIU Local 925 Clerical Nonsupervisory








SEIU Local 925 Clerical Nonsupervisory



SEIU Local 925 Clerical Supervisory



SEIU Local 925 Clerical Supervisory



SEIU Local 925 Clerical Nonsupervisory



SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory








Classified Non-Union



Classified Non-Union










SEIU Local 925-HMC Technical





SEIU LOCAL 925 Medical/Laboratory Tech






SEIU Local 925-HMC Technical




SEIU LOCAL 925 Medical/Laboratory Tech






Classified Non-Union


Classified Non-Union







SEIU LOCAL 925 Medical/Laboratory Tech








Classified Non-Union




1199NW-HMC Respiratory/Anesthesiology



SEIU Local 925 Clerical Nonsupervisory




SEIU Local 925 Clerical Nonsupervisory



SEIU Local 925 Clerical Nonsupervisory




Classified Non-Union


Classified Non-Union






WFSE Campuswide



Classified Non-Union



Classified Non-Union



Classified Non-Union



Classified Non-Union



Classified Non-Union




WFSE Skilled Trades



SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory




SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory



SEIU Local 925 Clerical Nonsupervisory




SEIU Local 925 Clerical Supervisory




SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory





SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Supervisory



SEIU Local 925 Clerical Supervisory





SEIU Local 925 Clerical Nonsupervisory




SEIU Local 925 Clerical Supervisory





Classified Non-Union



Classified Non-Union




SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory






SEIU Local 925 Clerical Nonsupervisory





Job Code

Job Title

State Job Class Code Reference

Representative Group

Pay Table

Pay Range

Minimum Mo. Rate

Maximum Mo. Incremental Rate

OT Eligible



SEIU Local 925 Clerical Nonsupervisory
































SEIU Local 925 Clerical Supervisory






































Classified Non-Union



















SEIU Local 925-HMC Technical










L 925 Medical/Laboratory Tech



















CA 61




















1199NW-HMC Respiratory/Anesthesiology








































WFSE Skilled Trades







WFSE Campuswide








































































































Source: Reprinted from The University of Washington website, Compensation: A Division of Human Resources, (accessed September 14, 2011).

Another type of job evaluation system is the point-factor system, which determines the value of a job by calculating the total points assigned to it. The points given to a specific job are called compensable factors. These can range from leadership ability to specific responsibilities and skills required for the job. Once the compensable factors are determined, each is given a weight compared to the importance of this skill or ability to the organization. When this system is applied to every job in the organization, expected compensable factors for each job are listed, along with corresponding points to determine which jobs have the most relative importance within the organization. Tompkins County in New York uses a point-factor system. Some of their compensable factors include the following:

1. Knowledge

1. Autonomy

1. Supervision

1. Psychological demands

1. Interpersonal skills

1. Internal and external contacts

In this point-factor system, autonomy ranks the highest and is given a weight of twenty-nine, while knowledge is given a rate of twenty, for example. Each of the compensable factors has a narrative that explains how points should be distributed for each factor. In this system, one hundred points are given for knowledge for a bachelor’s degree and two to three years of experience, and eighty points are given if an employee has an associate’s degree or high school diploma and two to three years of experience. The points are then multiplied by the weight (for knowledge, the weight is twenty) to give a final score on that compensable factor. After a score is developed for each, the employee is placed on the appropriate pay level for his or her score, as illustrated in Figure 6.3 “Example of a Point-Factor System”.

Figure 6.3 Example of a Point-Factor System

Another option for job evaluation is called the Hay Profile Method. This proprietary job evaluation method focuses on three factors called know-how, problem solving, and accountability. Within these factors are specific statements such as “procedural proficiency.” Each of these statements is given a point value in each category of know-how, problem solving, and accountability. Then job descriptions are reviewed and assigned a set of statements that most accurately reflect the job. The point values for each of the statements are added for each job description, providing a quantitative basis for job evaluation and eventually, compensation. An advantage of this method is its quantitative nature, but a disadvantage is the expense of performing an elaborate job evaluation.

Pay Systems

Once you have performed a job evaluation, you can move to the third step, which we call pay grading. This is the process of setting the pay scale for specific jobs or types of jobs.

Figure 6.4 Sample Pay Scale for General Federal Jobs

The first method to pay grade is to develop a variety of pay grade levels.  Figure 6.4 “Sample Pay Scale for General Federal Jobs”shows an example. Then once the levels are developed, each job is assigned a pay grade. When employees receive raises, their raises stay within the range of their individual pay grade, until they receive a promotion that may result in a higher pay grade. The advantage of this type of system is fairness. Everyone performing the same job is within a given range and there is little room for pay discrimination to occur. However, since the system is rigid, it may not be appropriate for some organizations in hiring the best people. Organizations that operate in several cities might use a pay grade scale, but they may add percentages based on where someone lives. For example, the cost of living in Spokane, Washington, is much lower than in New York City. If an organization has offices in both places, it may choose to add a percentage pay adjustment for people living within a geographic area—for example, 10 percent higher in New York.

One of the downsides to pay grading is the possible lack of motivation for employees to work harder. They know even if they perform tasks outside their job description, their pay level or pay grade will be the same. This can incubate a stagnant environment. Sometimes this system can also create too many levels of hierarchy. For large companies, this may work fine, but smaller, more agile organizations may use other methods to determine pay structure. For example, some organizations have moved to adelayering and banding process, which cuts down the number of pay levels within the organization. General Electric delayered pay grades in the mid-1990s because it found that employees were less likely to take a reassignment that was at a lower pay grade, even though the assignment might have been a good development opportunity.[1] So, delayering enables a broader range of pay and more flexibility within each level. Sometimes this type of process also occurs when a company downsizes. Let’s assume a company with five hundred employees has traditionally used a pay grade model but decided to move to a more flexible model. Rather than have, say, thirty pay levels, it may reduce this to five or six levels, with greater salary differentials within the grades themselves. This allows organizations to better reward performance, while still having a basic model for hiring managers to follow.

Rather than use a pay grade scale, some organizations use a going rate model. In this model, analysis of the going rate for a particular job at a particular time is considered when creating the compensation package. This model can work well if market pressures or labor supply-and-demand pressures greatly impact your particular business. For example, if you need to attract the best project managers, but more are already employed (lack of supply)—and most companies are paying $75,000 for this position—you will likely need to pay the same or more, because of labor supply and demand. Many tools are available, such as, to provide going rate information on particular jobs in every region of the United States.

Another pay model is the management fit model. In this model, each manager makes a decision about who should be paid what when that person is hired. The downside to this model may be potential discrimination, halo effects, and resentment within the organization. Of course, these factors can create morale issues, the exact thing we want to avoid when compensating employees.

In addition to the pay level models we just looked at, other considerations might include the following:

1. Skill-based pay. With a skill-based pay system, salary levels are based on an employee’s skills, as opposed to job title. This method is implemented similarly to the pay grade model, but rather than job title, a set of skills is assigned a particular pay grade.

1. Competency-based pay. Rather than looking at specific skills, the competency-based approach looks at the employee’s traits or characteristics as opposed to a specific skills set. This model focuses more on what the employee can become as opposed to the skills he or she already has.

1. Broadbanding. Broadbanding is similar to a pay grade system, except all jobs in a particular category are assigned a specific pay category. For example, everyone working in customer service, or all administrative assistants (regardless of department), are paid within the same general band. McDonald’s uses this compensation philosophy in their corporate offices, stating that it allows for flexibility in terms of pay, movement, and growth of employees. [2]

1. Variable pay system. This type of system provides employees with a pay basis but then links the attainment of certain goals or achievements directly to their pay. For example, a salesperson may receive a certain base pay but earn more if he or she meets the sales quota.

Pay Theories

Now that we have discussed pay systems, it is important to look at some theories on pay that can be helpful to know when choosing the type of pay system your organization will use.

The equity theory is concerned with the relational satisfaction employees get from pay and inputs they provide to the organization. It says that people will evaluate their own compensation by comparing their compensation to others’ compensation and their inputs to others’ inputs. In other words, people will look at their own compensation packages and at their own inputs (the work performed) and compare that with others. If they perceive this to be unfair, in that another person is paid more but they believe that person is doing less work, motivational issues can occur. For example, people may reduce their own inputs and not work as hard. Employees may also decide to leave the organization as a result of the perceived inequity. In HR, this is an important theory to understand, because even if someone is being paid fairly, they will always compare their own pay to that of others in the organization. The key here is perception, in that the fairness is based entirely on what the employee sees, not what may be the actual reality. Even though HR or management may feel employees are being paid fairly, this may not be the employee’s belief. In HR, we need to look at two factors related to pay equity: external pay equity and internal pay equity. External pay equity refers to what other people in similar organizations are being paid for a similar job. Internal pay equity focuses on employees within the same organization. Within the same organization, employees may look at higher level jobs, lower level jobs, and years with the organization to make their decision on pay equity. Consider Walmart, for example. In 2010, Michael Duke, CEO of Walmart, earned roughly $35 million in salary and other compensation, [3] while employees earned minimum wage or slightly higher in their respective states. While Walmart contends that its wages are competitive in local markets, the retail giant makes no apologies for the pay difference, citing the need for a specialized skill set to be able to be the CEO of a Fortune 500 company. There are hundreds of articles addressing the issue of pay equity between upper level managers and employees of an organization. To make a compensation strategy work, the perceived inputs (the work) and outputs (the pay) need to match fairly.

The expectancy theory is another key theory in relation to pay. The expectancy theory says that employees will put in as much work as they expect to receive. In other words, if the employee perceives they are going to be paid favorably, they will work to achieve the outcomes. If they believe the rewards do not equal the amount of effort, they may not work as hard.

The reinforcement theory, developed by Edward L. Thorndike, [4] says that if high performance is followed by some reward, that desired behavior will likely occur in the future. Likewise, if high performance isn’t followed by a reward, it is less likely the high performance will occur in the future. Consider an extreme example of the reinforcement theory in the world of finance. On Wall Street, bonuses for traders and bankers are a major part of their salary. The average bonus in 2010 was $128,530, [5] which does not take into account specific commissions on trades, which can greatly increase total compensation. One interesting consideration is the ethical implications of certain pay structures, particularly commission and bonus plans. For example, after the US government bailed out American International Group (AIG) with $170 billion in 2009, it was reported AIG would still provide some $165 million in bonuses to the same business unit that brought the company to near collapse, because of contractual issues. Traditionally, a bonus structure is designed to reward performance, rather than be a guaranteed part of the compensation plan, as was the case with AIG. Bonus and commission plans should be utilized to drive desired behavior and act as a reward for the desired behavior, as the reinforcement theory states.

All these theories provide us information to make better decisions when developing our own pay systems. Other considerations are discussed next.

Pay Decision Considerations

Besides the motivational aspect of creating a pay structure, there are some other considerations. First, the size of the organization and the expected expansion of the organization will be a factor. For example, if you are the HR manager for a ten-person company, you likely use a going rate or management fit model. While this is appropriate for your company today, as your organization grows, it may be prudent to develop a more formal pay structure. Ascentium Corporation, based in Seattle, Washington, found this to be the case. When the company started with fewer than fifteen employees, a management fit model was used. As the company ballooned to over five hundred employees in four cities, a pay banding model had to be put into place for fairness.

If your organization also operates overseas, a consideration is how domestic workers will be paid in comparison to the global market. One strategy is to develop a centralized compensation system, which would be one pay system for all employees, regardless of where they live. The downside to this is that the cost of living may be much less in some countries, making the centralized system possibly unfair to employees who live and work in more expensive countries. Another consideration is in what currency employees will be paid. Most US companies pay even their overseas workers in dollars, and not in the local currency where the employee is working. Currency valuation fluctuations could cause challenges in this regard. [6] 

How you communicate your pay system is extremely important to enhance the motivation that can be created by fair and equitable wage. In addition, where possible, asking for participation from your employees through the use of pay attitude surveys, for example, can create a transparent compensation process, resulting in higher performing employees.

Organizations should develop market pay surveys and review their wages constantly to ensure the organization is within expected ranges for the industry.

Table 6.3 Types of Pay






Fixed compensation calculated on a weekly, biweekly, or monthly basis. No extra pay for overtime work.

Hourly Wage

Employees are paid on the basis of number of hours worked.

Piecework System

Employees are paid based on the number of items that are produced.

Types of Incentive Plans

Commission Plans

An employee may or may not receive a salary but will be paid extra (e.g., a percentage for every sale made).

Bonus Plans

Extra pay for meeting or beating some goal previously determined. Bonus plans can consist of monetary compensation, but also other forms such as time off or gift certificates.

Profit-Sharing Plans

Annual bonuses paid to employees based on the amount of profit the organization earned.

Stock Options

When an employee is given the right to purchase company stock at a particular rate in time. Please note that a stock “option” is different from the actual giving of stock, since the option infers the employee will buy the stock at a set rate, obviously, usually cheaper than the going rate.

Other Types of Compensation

Fringe Benefits

This can include a variety of options. Sick leave, paid vacation time, health club memberships, daycare services.

Health Benefits

Most organizations provide health and dental care benefits for employees. In addition, disability and life insurance benefits are offered.

401(k) Plans

Some organizations provide a retirement plan for employees. The company would work with a financial organization to set up the plan so employees can save money, and often, companies will “match” a percentage of what the employee contributes to the plan.

Types of Pay

After a pay system has been developed, we can begin to look at specific methods of paying our employees. Remember that when we talk about compensation, we are referring to not only an actual paycheck but additional types of compensation, such as incentive plans that include bonuses and profit sharing. We can divide our total pay system into three categories: pay, incentives, and other types of compensation. Pay is the hourly, weekly, or monthly salary an employee earns. An incentive, often called a pay-for-performance incentive, is given for meeting certain performance standards, such as meeting sales targets. The advantage to incentive pay is that company goals can be linked directly to employee goals, resulting in higher pay for the employee and goal achievement by the organization. The following are desirable traits of incentive plans:

· Clearly communicated

· Attainable but challenging

· Easily understandable

· Tied to company goals

Table 6.3 “Types of Pay”  illustrates the three types of compensation.

Most organizations use a combination of pay, incentives, and other compensation, as outlined in Table 6.3 “Types of Pay” , to develop the total compensation package.

Laws Relating to Pay

As you have already guessed from our earlier chapter discussions, people cannot be discriminated against when it comes to development of pay systems. One issue hotly debated is the issue of comparable worth. Comparable worth states that people should be given similar pay if they are performing the same type of job. Evidence over the years shows this isn’t the case, with women earning less than men in many industries. On average, a woman earns 79 cents for every $1.00 a man earns. For women of color, the gap is wider at 69 cents for African-American women and 59 cents for Latina women. [7] Many publications state that women earn less than men for a few reasons:

1. Women work fewer hours because of family care and maternity leave.

1. The career path or job choice of women tends to be lower as a whole.

1. There is a bias favoring men as the “breadwinners,” and therefore they are paid more.

1. Women are valued less than men in the workplace.

1. Women don’t negotiate salaries as well as men do.

While the reasons are certainly debatable, there is evidence that young women (without children) entering the workforce actually earn more than their male counterparts, owing to higher levels of education. [8] As you may remember from  Chapter 3 “Diversity and Multiculturalism”, the EEOC covers discrimination in the workplace, including pay discrimination based on race, color, religion, sex, and national origin. The Equal Pay Act of 1963 makes it illegal to pay different wages to men and women if they perform equal work in the same workplace.

More recent legislation on pay includes the Lilly Ledbetter Fair Pay Act of 2009, the first law signed by President Obama. This bill amends the Civil Rights Act stating that the 180-day statute of limitations for filing an equal pay lawsuit regarding pay discrimination resets with each discriminatory paycheck. The bill stemmed from a lawsuit against Goodyear Tire and Rubber Company by Lilly Ledbetter, who claimed that her nineteen-year career at the company consisted of unfair pay, compared to male workers in the organization. Her complaint was time barred by the US Supreme Court, and the new act addressed the time (180 days) constraint in which people have to file claims.

The Fair Labor Standards Act, or FLSA, was established in 1938 and set a minimum wage for jobs, overtime laws, and child labor laws. FLSA divides workers into exempt and nonexempt status, and jobs under exempt status do not fall under the FLSA guidelines. An exempt employee is usually paid a salary and includes executive, professional, outside sales, and administrative positions. A nonexempt employee is usually an hourly employee. For nonexempt employees, some states may implement a higher minimum wage than that established by the federal government. For example, in 2011, the minimum wage is $8.67 per hour in Washington State, while the federal minimum wage is $7.25 per hour. Obviously, as an HR manager or manager, it is your responsibility to ensure everyone is being paid the minimum wage. This law also requires overtime pay if employees work over forty hours per week. Organizations must also post the FLSA poster in a visible part of the workplace, outlining these laws.

Child labor also falls under FLSA. The goal of these laws is to protect the education of children, prohibit the employment of children in dangerous jobs, and limit the number of working hours of children during the school year and other times of the year. [9]

According to the FLSA, tipped employees are those earning $30 or more per month in tips, such as servers in a restaurant. Employers whose employees receive more than $30 in tips may consider tips as part of wages, but they also must pay $2.12 an hour in direct wages. They must also be able to show that the employee receives at least the applicable minimum wage. If the tips and direct wage do not meet the minimum wage, the employer must pay the difference.

Also relating to pay is the Federal Unemployment Tax Act (FUTA). FUTA provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay a federal and a state unemployment tax, and portions of these funds go toward unemployment benefits should the worker lose his or her job. TheFederal Employees Compensation Act (FECA) provides federal employees injured in the performance of their jobs compensation benefits, such as disability. Please note that this is elective for private companies but required of federal agencies.

[1] Gerald Ferris, Handbook of Human Resource Management (Cambridge, MA: Blackwell, 1995).

[2] McDonald’s Corporation, “Your Pay and Rewards,” accessed July 23, 2011,

[3] Alice Gomstyn, “Walmart CEO Pay,” ABC News Money, July 2, 1010, accessed July 23, 2011,

[4] Indiana University, “Edward L. Thorndike,” accessed February 14, 2011,

[5] Aaron Smith, “The 2010 Wall Street Bonus,” CNN Money, February 24, 2011, accessed July 23, 2011,


[6] Bobby Watson, “Global Pay Systems, Compensation in Support of a Multinational Strategy,” Compensation Benefits Review 37, no. 1 (2005): 33–36.

[7] National Organization for Women, “Facts about Pay Equity,” accessed February 15, 2011,

[8] Conor Dougherty, “Young Women’s Pay Exceeds Male Peers,” Wall Street Journal, September 1, 2010.

[9] US Department of Labor, “Child Labor,” accessed February 15, 2011,

6.4  Other Types of Compensation

Learning Objective

1. Explain the various types of benefits that can be offered to employees.

As you already know, there is more to a compensation package than just pay. There are many other aspects to the creation of a good compensation package, including not only pay but incentive pay and other types of compensation. First, we will discuss benefits that are mandated by the federal government, and then we will discuss types of voluntary benefits, including both incentive pay and other types of compensation.

Mandated: Social Security and Medicare

The Social Security Act of 1935 requires employers to withdraw funds from workers’ paychecks to pay for retirement benefits. This is called a payroll tax. Please note that all organizations are legally compelled to offer this benefit. After several revisions, we now call this OASDHI or the Old Age, Survivors, Disability, and Health Insurance Program. To be insured, employees must work forty quarters, with a minimum of $1,000 earned per quarter. Once this money is put aside, anyone born after 1960 will receive benefits at 67. The OASDHI tax in 2011 is 4.2 percent on earnings for employees, up to $106,800 and 6.2 percent for the employer up to the same limits. This covers both retirement income as well as medical benefits, called Medicare, once the employee reaches retirement age.

Mandated: Unemployment Insurance and Workers’ Compensation

Unemployment insurance is required under the Social Security Act of 1935 and is also called the Federal Unemployment Tax Act (FUTA). This program’s goals include providing some lost income for employees during involuntary unemployment, helping workers find a new job, incentivizing employers to continue employment, and developing worker skills if they are laid off. The majority of this plan is funded by employers’ payroll taxes, which account for .8 percent per employee. The rate is actually 6.2 percent of compensation, but employers are allowed a tax credit for these payments, which results in the net .8 percent. With this benefit, employees receive unemployment benefits and/or job training when they are laid off or let go from a current job. However, employees would be ineligible to receive these benefits if they quit their job, as it must be involuntary. Just like Social Security, this payroll tax on employers is required.

Some employers also offer workers’ compensation benefits. If an employee is hurt on the job, he or she would receive certain benefits, such as a percentage of pay. Jobs are classified into risk levels, and obviously the higher the risk level, the higher the cost of insurance. This is not a federally mandated program, but for some occupations in some states, it may be a requirement.

Mandated: COBRA

While the government does not require companies to provide health-care and medical benefits to employees, theConsolidated Omnibus Budget Reconciliation Act (COBRA) requires companies to allow employees to extend their group coverage for up to thirty-six months. The restrictions for this plan include the requirement of a qualifying event that would mean a loss of benefits, such as termination or reduction in hours. For example, if an employee works forty hours a week with medical insurance, but the schedule is reduced to twenty hours, no longer qualifying him or her for benefits, COBRA would be an option.

Voluntary: Incentive Pay Systems

As we discussed earlier, there are several types of incentive pay systems that can be tied directly to business objectives and the employees’ ability to help the company meet those objectives. They include commissions, bonuses, profit sharing, stock options, team pay, and merit pay.

Commissions are usually calculated on the basis of a percentage and earned based on the achievement of specific targets that have been agreed upon by the employee and employer. For example, many salespeople receive commissions from each item sold. Many commission incentive plans require employees to meet a minimum level of sales, who then are paid a comission on each sale beyond the minimum. Astraight commission plan is one in which the employee receives no base pay and entire pay is based on meeting sales goals. Many plans, however, include a base payand commission for each sale. Base pay is the guaranteed salary the employee earns.

Several types of bonuses can be given to employees as incentive pay. Meeting certain company goals or successfully completing a project or other objectives can be tied to a bonus, which is a one-time payment to an employee. A spot bonus is an unplanned bonus given to an employee for meeting a certain objective. These types of bonuses do not always have to be money; they can be other forms such as a gift certificate or trip. Fifty-eight percent of WorldatWork members [1] said that they provide spot bonuses to employees for special recognition above and beyond work performance.

Some organizations choose to reward employees financially when the organization as a whole performs well, through the use of profit sharing as an incentive. For example, if an organization has a profit-sharing program of 2 percent for employees, the employees would earn 2 percent of the overall profit of the company. As you have guessed, this can be an excellent incentive for employees to both work as a team and also monitor their own personal performance so as not to let down the team. For example, in 2011, US automaker General Motors gave one of its highest profit-sharing payouts ever. Forty-five thousand employees received $189 million in a profit-sharing bonus, which equaled about $4,200 per person. [2] While profit sharing can be a great incentive, it can also be a large expense that should be carefully considered.

Employee ownership of the organization is similar to profit sharing but with a few key differences. In this type of plan, employees are granted stock options, which allow the employees to buy stock at a fixed price. Then if the stock goes up in value, the employee earns the difference between what he or she paid and the value of the stock. With this type of incentive, employees are encouraged to act in the best interest of the organization. Some plans, called employee stock ownership plans, are different from stock options, in that in these plans the employee is given stock as reward for performance.

In a smaller organization, team pay or group incentives can be popular. In this type of plan, if the group meets a specified goal, such as the increase of sales by 10 percent, the entire group receives a reward, which can consist of additional pay or bonus. Please note that this is different from individualized bonuses, discussed earlier, since the incentive is a reward for the group as opposed for the individual.

Merit pay is a pay program that links pay to how well the employee performs within the job, and it is normally tied to performance appraisals. Performance appraisals are discussed further in Chapter 10 “Managing Employee Performance”. Merit base is normally an annual pay increase tied to performance. The problem with merit pay is that it may only be received once per year, limiting incentive flexibility. To make merit pay work, performance guidelines should be predetermined. Some organizations offer cost of living annual increases (COLAs), which is not tied to merit but is given to employees as an annual inflationary increase.

Fortune 500 Focus

While the cost of health insurance premiums may be going up for most Americans, these premiums do not hit the individual employee’s pocketbook at Microsoft. Microsoft, based in Redmond, Washington, finds itself once again on the Fortune500 Best Companies to Work For list in several areas, including paying for 100 percent of employees’ health-care premiums. [3] In addition to cutting this cost for employees, Microsoft also offers domestic partner benefits, one of the first Fortune500 companies to do so. In 2005, Microsoft also began to offer partial coverage for transgender surgery to its existing health-care coverage, which earned Microsoft the highest attainable score by the Human Rights Campaign (HRC) Equality Index. [4] Microsoft also promotes fitness and wellness as part of its health-care plan, providing an on-site fitness center and subsidized gym memberships.

Voluntary: Medical Insurance

According to the Bureau of Labor Statistics, 62 percent of companies in 2010 offered health-care benefits to employees. [5] The yearly cost for employee medical insurance averages $9,552, according to the 2009 Towers Perrin survey. [6] With such a significant cost to companies, it is up to HR managers to contain these costs, while not negatively affecting employee motivation. Medical insurance usually includes hospital expenses, surgical expenses, and routine health-care visits. Most insurance plans also allow for wellness visits and other alternative care (e.g., massage and acupuncture) within the plans. Many employers also offer vision and dental care benefits as part of their benefits packages. Disability insurance is also provided by some employers as well. We will discuss each of these in detail next.

One important law to keep in mind regarding medical insurance is the Health Insurance Portability and Accountability Act (HIPAA) of 1996. It provides federal protections for personal health information held by covered entities, such as employers. In other words, employers cannot divulge or share health care information they may have on an employee.

As the HR professional, it will likely be your responsibility to choose the health-care plan that best meets the needs of your employees. Some options include the following:

Figure 6.6

As you can see from MetLife’s 9th annual study in 2010, cost containment is an important aspect to health-care plans.

Source: MetLife, “9th Annual Study of Employee Benefits Trends,” 2010,

 (accessed July 23, 2011).

1. Fee-for-service plans. In this type of plan, people pay for medical expenses out of pocket, and then are reimbursed for the benefit level. For example, if your insurance plan covers doctor visits, you could see any doctor, pay the bill, and then submit payment to your insurer for reimbursement. Most companies will have a base plan, which covers more serious issues requiring hospitalization, while the major medical part of the plan would cover routine services, such as doctor’s visits. As you can imagine, the disadvantage of this type of plan can be twofold: first, the initial expense for the employee, and second, the time it may take to receive reimbursement for employees. Remember that medical insurance can help retain and motivate employees and help you recruit new employees, so consideration of the disadvantages is important.

1. Health maintenance organizations (HMOs). The HMO will likely have greater coverage than the fee-for-service plan, but it limits the ability of employees to see the doctors they choose. There may be a limited number of physicians and specialists for the employee to see, and going outside the plan and seeing another doctor may result in an out-of-pocket expense for the employee. Most HMOs cover a wide range of medical issues and will usually require a copayment by the employee. Some may have minimum deductibles they must meet before the HMO will cover in full. For example, if you are part of an HMO with a deductible of $500 and copayments of $25, you would need to see the doctor for a value of $500 (paid out of pocket) before you can begin to just make the $25 copayment for visits. Some HMOs will not allow members to see a specialist, such as a dermatologist, without prior approval from the primary care physician.

1. Preferred provider organization (PPO). This type of medical plan is similar to HMOs but allows employees to see a physician outside the network. They will likely still have to pay a deductible as mentioned above, but PPOs do allow employees more freedom to see specialists, such as dermatologists.

Figure 6.7 Considerations When Choosing Medical Insurance

When choosing the best type of plan for your organization, the following aspects should be considered:

1. The cost of the plan

1. The type of coverage

1. The quality of the care

1. Administration of the plan

First, the cost is usually a major consideration for the HR professional. Developing a budget for health-care costs, initiating bids from possible providers, and then negotiating those bids is a key factor in controlling this cost for employers.

Second, asking for employees’ opinions about the type of coverage they would prefer is a way to ensure your plan meets the needs of your employees. Next, consider the quality of care your employees will receive and, finally, how simple will the plan be for your HR department to administer. For example, many HMO plans offer fully automated and online services for employees, making them easy to administer.

Disability insurance provides income to individuals (usually a portion of their salary) should they be injured or need long-term care resulting from an illness. Short-term disability insurance (STD) provides benefits to someone if they are unable to work for six months or less, while long-term disability insurance (LTD) covers the employee for a longer period of time. Normally, disability insurance provides income to the employee that is 60–80 percent of their normal salary.

Figure 6.8

One of the biggest challenges in health-care benefits planning is to manage the growing cost of health insurance premiums for employees while still managing cost containment for the organization.

Source: Economic Policy Institute, “The State of Working America: Health Premiums,”
 (accessed July 23, 2011).

Voluntary: 401(K) Plans
As the scenery of the workforce has changed, benefits have changed, too. One such recent change is the movement of employee pension plans to 401(k) plans. While some organizations still offer pension plans, such plans are far more rare. A pension plan is a set dollar amount an employee will receive when they retire from their organization. This type of plan was popular when most people worked their entire life at the same company. However, many pension plans have gone bankrupt, and the United States has an agency to protect people from losing pension benefits. ThePension Benefit Guaranty Corporation (PBGC) was created by the Employee Retirement Income Security Act (ERISA) to protect pension benefits in private sector pension plans. If a pension plan ends or isn’t able to pay all benefits, PBGC’s insurance program pays the benefit that should have been provided. Financing for this plan comes from insurance premiums paid by the companies whose plans PBGC protects.
As more mobility in the workplace has occurred, most organizations no longer offer pension plans, but instead, they offer 401(k) plans. While a pension plan can motivate employee loyalty, 401(k) plans are far more popular. According to the US Bureau of Labor Statistics, employer-provided retirement plans, such as 401(k) plans, were available to 74 percent of all full-time workers in the United States, [7] while 39 percent of part-time workers had access to retirement benefits.
A 401(k) plan is a plan set up by the organization in which employees directly deposit money from their paycheck. The funds are tax deferred for the employee until retirement. If an employee leaves the job, their 401(k) plan goes with them. As an extra incentive, many organizations offer to match what the employee puts into the plan, usually based on a percentage. For example, an employee can sign up to contribute 5 percent of salary into a 401(k) plan, and the company will contribute the same amount. Most companies require a vesting period—that is, a certain time period, such as a year, before the employer will match the funds contributed.
Usually, 401(k) plans are easy to administer, after the initial setup has occurred. If the employer is matching employee contributions, the expense of such a plan can be great, but it also increases employee retention. Some considerations when choosing a 401(k) plan are as follows:
1. Is the vendor trustworthy?
1. Does the vendor allow employees to change their investments and account information online?
1. How much are the management fees?
It is first important to make sure the vendor you are considering for administration of your 401(k) plan has a positive reputation and also provides ease of access for your employees. For example, most 401(k) plans allow employees to change their address online and move investments from a stock to a bond. Twenty-four-hour access has become the expectation of most employees, and as a result, this is a major consideration before choosing a plan. Most 401(k) plans charge a fee to manage the investments of your employees. The management fees can vary greatly, so receiving a number of bids and comparing these fees is important to ensure your employees are getting the best deal.
It is important to mention the Employee Retirement Income Security Act (ERISA) here, as this relates directly to administration of your 401(k) plan. First, ERISA does not require employers to offer a pension or 401(k) plan, but for those who do, it requires them to meet certain standards when administering this type of plan. Some of these standards include the following:
1. Requires participants receive specific information about the plan, such as plan features and funding
1. Sets minimum standards for participation and vesting
1. Requires accountability of plan’s fiduciary responsibilities
1. Requires payment of certain benefits, should the plan be terminated
Voluntary: Paid Time Off
Time off is a benefit we should address, since this type of benefit varies greatly, especially in other parts of the world. French companies, for example, are mandated by law to provide five weeks of paid vacation time to employees. [8] In the United States, the number of days off provided is a major budget item worth considering. Here are the general types of time off:
Paid Holidays
Many companies offer a set number of paid holidays, such as New Year’s Day, Memorial Day, Christmas, Independence Day, and Thanksgiving.
Sick Leave
The number of sick leave days can vary greatly among employers. The average in the United States is 8.4 paid sick days offered to employees per year. [9]
Paid Vacation
With full-time employment, many organizations also offer paid vacation to employees, and it is generally expected as part of the compensation package. According to a survey performed by, the average number of paid vacation days in the United States is nine days for one year of service, fourteen days for five years of service, and seventeen days for ten years of service to the organization. [10]
Organizations vary greatly in how vacation time is accrued. Some organizations give one hour for a certain number of days worked, while others require a waiting period before earning any paid time off (PTO). In addition, some organizations allow their employees to carry over unused vacation time from one year to the next, while other employees must use their vacation every year or risk losing it.
Paid Time Off (PTO)
One option is to provide a set number of days off, which can be used for vacation time, holidays, and/or sick leave.
To promote longevity, some organizations offer paid (or for example, 60 percent of salary paid) sabbaticals. For example, after five years of employment, the employee may take a paid sabbatical for one month.
A Final Note on Compensation and Benefits Strategy
When creating your compensation plan, of course the ability to recruit and retain should be an important factor. But also, consideration of your workforce needs is crucial to any successful compensation plan. The first step in development of a plan is to ask the employees what they care about. Some employees would rather receive more pay with fewer benefits or better benefits with fewer days off. Surveying the employees allows you, as the HR professional, to better understand the needs of your specific workforce. Once you have developed your plan, understand that it may change to best meet the needs of your business as it changes over time.
Once the plan is developed, communicating the plan with your employees is also essential. Inform your employees via an HR blog, e-mails, and traditional methods such as face to face. Your employees might not always be aware of the benefits cost to the company, so making sure they know is your responsibility. For example, if you pay for 80 percent of the medical insurance premiums, let your employees know. This type of communication can go a long way to allowing the employees to see their value to you within the organization.
[1] WorldatWork, “Spot Bonus Survey,” July 2000, accessed July 23, 2011,
[2] Nick Bunkley, “GM Workers to Get $189 Million in Profit Sharing,” New York Times, February 14, 2011, accessed February 21, 2011,
[3] “100 Best Companies to Work For,” Fortune, accessed July 21, 2011,
[4] Gay, Lesbian, Bisexual, and Transgender Employees at Microsoft (GLEAM), Microsoft website, accessed July 21, 2011,
[5] Bureau of Labor Statistics, “Employee Benefits Survey,” 2010, accessed July 23, 2011,
[6] Towers Watson, “2009 Health Care Cost Survey Reveals High-Performing Companies Gain Health Dividend,”
[7] US Bureau of Labor Statistics, “Employee Benefits in the United States: March 2010,” news release, July 27, 2010, accessed September 12, 2011,
[8] Rebecca Leung, “France: Less Work, More Time Off,” CBS News, February 11, 2009, accessed July 23, 2011,
[9] HRM Guide, “Sick Day Entitlement Survey,” accessed February 21, 2011,
[10] Jessica Yang, “Paid Time Off from Work Survey,”, accessed September 15, 2011,

6.5  Case and Summary

Chapter Summary
· A compensation package is an important part of the overall strategic HRM plan, since much of the company budget is for employee compensation.
· A compensation package can include salary, bonuses, health-care plans, and a variety of other types of compensation.
· The goals of compensation are first to attract people to work for your organization. Second, they can be used to retain people who are already working in the organization.
· Compensation is also used to motivate employees to work at their peak performance and improve morale of the organization.
· Employees who are fairly compensated tend to provide better customer service, which can result in organizational growth and development.
· Several types of pay systems can be implemented. A pay grade system sets up specific pay levels for particular jobs, while a going rate system looks at the pay throughout the industry for a certain job title. Management fit gives maximum flexibility for managers to pay what they think someone should earn.
· HR managers can also develop pay systems based on skills and competency and utilize a broadbanding approach, which is similar to pay grades. Another option might include variable pay.
· There are several motivational theories in regard to pay. First, the equity theory says that people will evaluate their own satisfaction with their compensation by comparing it to others’ compensation. The expectancy theory says people will put in only as much work as they expect to receive in rewards. Finally, the reinforcement theory says that if high performance is followed by a reward, high performance is likely to happen in the future.
· Other pay considerations include the size of the organization, whether the company is global, and the level of communication and employee involvement in compensation. HR managers should always be aware of what others are paying in the industry by performing market surveys.
· There are several laws pertaining to pay. Of course, the Equal Employment Opportunity Commission (EEOC) ensures that pay is fair for all and does not discriminate. The Fair Labor Standards Act (FLSA) sets a minimum wage and establishes standards for child labor. The Federal Unemployment Tax Act (FUTA) requires employers to pay unemployment taxes on employees. TheFederal Employees Compensation Act (FECA) ensures that federal employees receive certain benefits.
· Besides salary, one of the biggest expenses for compensation is medical benefits. These can include health benefits, vision, dental, and disability benefits.
· The Consolidated Omnibus Budget Reconciliation Act(COBRA) was enacted to allow employees to continue their health insurance coverage, even if they leave their job.
· There are three main types of health-care plans. A fee-based plan allows the insured to see any doctor and submit reimbursement after a visit. An HMO plan restricts employees to certain doctors and facilities and may require a copayment and/or deductibles. A PPO plan is similar to the HMO but allows for more flexibility in which providers the employee can see.
· Pension funds were once popular, but as people tend to change jobs more, 401(k) plans are becoming more popular, since they can move with the employee.
· Profit sharing is a benefit in which employees receive a percentage of profit the organization earns. Stock ownership plans are plans in which employees can purchase stock or are granted stock and become an owner in the organization.
· Team rewards are also a popular way to motivate employees. These can be in the form of compensation if a group or the company meets certain target goals.
· Social Security and unemployment insurance are both required by federal law. Both are paid as a percentage of income by the employee and employer.
· Depending on the state, workers’ compensation might be a requirement. A percentage is paid on behalf of the employee in case he or she is hurt on the job.
· Paid time off, or PTO, can come in the form of holidays, vacation time, and sick leave. Usually, employees earn more days as they stay with the company.
· Communication with employees is key to a successful benefits strategy. This includes communication before implementing the plan as well as communication about the plan.
Chapter Case
PTO: Too Little or Too Much?
You just finished analyzing information for the current compensation and benefits program. You find that some changes should be made, as the majority of employees (you have 120 employees) are not happy with what is being offered. In fact, the plan had not been revised in over fifteen years, making it dated and definitely ready for some changes.
One of the major points of contention is the PTO the organization offers. Employees feel the current system of sick time and vacation time offers too few options. For example, one employee says, “I often come to work sick, so I can still have my vacation time for my vacation.” Another employee says, “I have given nine years to this organization, but I receive only three days more than someone who has just started.” Here is the current PTO offering:

1+ year

7 days


10 days

10+ years

14 days

1. What cost considerations would you take into account when revising this part of your compensation plan?
1. What other considerations would you take into account when developing a new PTO plan?
1. Propose a new plan and estimate the cost of your plan on an Excel spreadsheet. Be prepared to present to the board of directors.

Chapter 7: Retention and Motivation

Dissatisfaction Isn’t Always about Pay

As an HR consultant, your job normally involves reviewing HR strategic plans and systems of small to medium size companies, then making recommendations on how to improve. Most of the companies you work with do not have large HR departments, and they find it less expensive to hire you than to hire a full-time person.

Your current client, Pacific Books, is a small online retailer with forty-seven employees. Pacific Books has had some challenges, and as the economy has improved, several employees have quit. They want you to look into this issue and provide a plan to improve retention.

Pacific Books currently has just one person managing payroll and benefits. The individual managers in the organization are the ones who handle other HR aspects, such as recruiting and developing compensation plans. As you speak with the managers and the payroll and benefits manager, it is clear employees are not happy working for this organization. You are concerned that if the company does not improve its employee retention, they will spend an excessive amount of time trying to recruit and train new people, so retention of the current employees is important.

As with most HR issues, rather than just guessing what employees want, you develop a survey to send to all employees, including management. You developed the survey on SurveyMonkey and asked employee satisfaction questions surrounding pay and benefits. However, you know that there are many other things that can cause someone to be unhappy at work, so to take this survey a step further, you decide to ask questions about the type of work employees are doing, management style, and work-life balance. Then you send out a link to all employees, giving them one week to take the survey.

When the results come in, they are astounding. Out of the forty-seven employees, forty-three selected “dissatisfied” on at least four or more areas of the five-question survey. While some employees are not happy with pay and benefits, the results say that other areas of the organization are actually what are causing the dissatisfaction. Employees are feeling micromanaged and do not have freedom over their time. There are also questions of favoritism by some managers for some employees, who always seem to get the “best” projects. When you sit down with the CEO to discuss the survey results, at first she defends the organization by saying the company offers the highest salaries and best benefits in the industry, and she doesn’t understand how someone can be dissatisfied. You explain to her that employee retention and motivation is partly about pay and benefits, but it includes other aspects of the employee’s job, too. She listens intently and then asks you to develop a retention and motivation plan that can improve the organization.

7.1  The Costs of Turnover

Learning Objectives

1. Be able identify the difference between direct and indirect turnover costs.

1. Describe some of the reasons why employees leave.

1. Explain the components of a retention plan.

According to the book Keeping the People Who Keep You in Business by Leigh Branham, [1] the cost of losing an employee can range from 25 percent to 200 percent of that employee’s salary. Some of the costs cited revolve around customer service disruption and loss of morale among other employees, burnout of other employees, and the costs of hiring someone new. Losing an employee is called turnover.

There are two types of turnover, voluntary turnover and involuntary turnover. Voluntary turnover is the type of turnover that is initiated by the employee for many different reasons. Voluntary turnover can be somewhat predicted and addressed in HR, the focus of this chapter. Involuntary turnover is where the employee has no choice in their termination—for example, employer-initiated due to nonperformance.

It has been suggested that replacement of an employee who is paid $8 per hour can range upwards of $4,000. [2] Turnover can be calculated by separations during the time period (month)/total number of employees midmonth × 100 = the percentage of turnover. For example, let’s assume there were three separations during the month of August and 115 employees midmonth. We can calculate turnover in this scenario by 3/115 × 100 = 2.6% turnover rate.

 This gives us the overall turnover rate for our organization. We may want to calculate turnover rates based on region or department to gather more specific data. For example, let’s say of the three separations, two were in the accounting department. We have ten people in the accounting department. We can calculate that by accounting: 2/10 × 100 = 20% turnover rate.

The turnover rate in accounting is alarmingly high compared to our company turnover rate. There may be something happening in this department to cause unusual turnover. Some of the possible reasons are discussed in Section 7.1.1 “Reasons for Voluntary Turnover”.

Figure 7.1 United States Yearly Turnover Statistics, 2001–11

Source: Data from Bureau of Labor Statistics, “Job Openings and Labor Turnover Survey,” accessed August 11, 2011,


In HR, we can separate the costs associated with turnover into indirect costs and direct costs. Direct turnover costs include the cost of leaving, replacement costs, and transition costs, while indirect turnover costs include the loss of production and reduced performance. The following are some examples of turnover costs: [3]

· Recruitment of replacements

· Administrative hiring costs

· Lost productivity associated with the time between the loss of the employee and hiring of replacement

· Lost productivity due to a new employee learning the job

· Lost productivity associated with coworkers helping the new employee

· Costs of training

· Costs associated with the employee’s lack of motivation prior to leaving

· Sometimes, the costs of trade secrets and proprietary information shared by the employee who leaves

· Public relations costs

To avoid these costs, development of retention plans is an important function of the HR strategic plan. Retention plans outline the strategies the organization will use to reduce turnover and address employee motivation.

Table 7.1 Turnover Costs



Recruitment costs

Lost knowledge

Advertising costs for new position

Loss of productivity while new employee is brought up to speed

Orientation and training of new employee

Cost associated with lack of motivation prior to leaving

Severance costs

Cost associated with loss of trade secrets

Testing costs

Time to interview new replacements

Time to recruit and train new hires

Reasons for Voluntary Turnover

Before we discuss specific details on retention planning, it is important to address the reasons why people choose to leave an organization to begin with. One mistake HR professionals and managers make is to assume people leave solely on the basis of their unhappiness with their compensation packages. Many factors can cause demotivated employees, which we discuss in Section 7.2.1 “Theories on Job Dissatisfaction”.

Once we find out what can cause voluntary turnover, we can develop retention strategies to reduce turnover. Some of the common reasons employees leave organizations can include the following:

1. A poor match between the job and the skills of the employee. This issue is directly related to the recruitment process. When a poor match occurs, it can cause frustration for the employee and for the manager. Ensuring the recruitment phase is viable and sound is a first step to making sure the right match between job and skills occurs.

1. Lack of growth. Some employees feel “stuck” in their job and don’t see a way to have upward mobility in the organization. Implementing a training plan and developing a clearly defined path to job growth is a way to combat this reason for leaving.

1. Internal pay equity. Some employees, while they may not feel dissatisfied with their own pay initially, may feel dissatisfaction when comparing their pay with others. Remember the pay equity theory discussed in Chapter 6 “Compensation and Benefits”? This theory relates to one reason why people leave.

1. Management. Many employees cite management as their reason for leaving. This can be attributed to overmanaging (micromanaging) people, managers not being fair or playing favorites, lack of or poor communication by managers, and unrealistic expectations of managers.

1. Workload. Some employees feel their workloads are too heavy, resulting in employees being spread thin and lacking satisfaction from their jobs, and possibly, lack of work-life balance as a result.

We know that some people will move or perhaps their family situation changes. This type of turnover is normal and expected. Figure 7.2 “Common Reasons for Employee Turnover” shows other examples of why people leave organizations.

As HR professionals and managers, we want to be sure we have plans in place to keep our best people. One such plan is the retention plan, which we will discuss inSection 7.2 “Retention Plans”.

Figure 7.2 Common Reasons for Employee Turnover

[1] Leigh Branham, Keeping the People Who Keep You in Business (New York: American Management Association, 2000), 6.

[2] Noel Paiement “It Will Cost You $4,000 to Replace Just One $8 per Hour Employee,” Charity Village, July 13, 2009, accessed August 30, 2011,

[3] Carl. P. Maertz, Jr. and M. A. Campion, “25 Years of Voluntary Turnover Research: A Review and Critique,” in International Review of Industrial and Organizational Psychology, vol. 13, ed. Cary L. Cooper and Ivan T. Robertson (London: John Wiley, 1998), 49–86.

7.2  Retention Plans

Learning Objectives

1. Be able to discuss some of the theories on job satisfaction and dissatisfaction.

1. Explain the components of a retention plan.

Effective high-performance work systems (HPWS) is the name given to a set of systematic HR practices that create an environment where the employee has greater involvement and responsibility for the success of the organization. A high-performance work system is a strategic approach to many of the things we do in HR, including retention. Generally speaking, a HPWS gets employees involved in conceiving, designing, and implementing processes that are better for the company and better for the employee, which increases retention. Figure 7.4 “HR Components of a HPWS”gives an example of HR’s part in creating these systems.

Figure 7.4 HR Components of a HPWS

Keeping HPWS in mind, we can begin to develop retention plans. The first step in this process is to understand some of the theories on job satisfaction and dissatisfaction. Next, we can gather data as to the satisfaction level of our current employees. Then we can begin to implement specific strategies for employee retention.

Theories on Job Dissatisfaction

There are a number of theories that attempt to describe what makes a satisfied employee versus an unsatisfied employee. While you may have learned about these theories in another class, such as organizational behavior, they are worth a review here to help us better understand employee satisfaction from an HR perspective.

Progression of Job Withdrawal

The first step to developing a retention plan is understanding some of the theories surrounding job satisfaction. One of the basic theories is the progression of job withdrawal theory, developed by Dan Farrell and James Petersen. [1] It says that people develop a set of behaviors in succession to avoid their work situation. These behaviors include behavior change, physical withdrawal, and psychological withdrawal.

Within the behavior change area, an employee will first try to change the situation that is causing the dissatisfaction. For example, if the employee is unhappy with the management style, he or she might consider asking for a department move. In the physical withdrawal phase, the employee does one of the following:

· Leaves the job

· Takes an internal transfer

· Starts to become absent or tardy

If an employee is unable to leave the job situation, he or she will experience psychological withdrawal. They will become disengaged and may show less job involvement and commitment to the organization, which can create large costs to the organization, such as dissatisfied customers.

Figure 7.5 Process of Job Withdrawal

The Hawthorne Stuides
Between 1927 and 1932, a series of experiments were conducted by Elton Mayo in the Western Electric Hawthorne Works company in Illinois. [2] Mayo developed these experiments to see how the physical and environmental factors of the workplace, such as lighting and break times, would affect employee motivation.
This was some of the first research performed that looked at human motivation at work. His results were surprising, as he found that no matter which experiments were performed, worker output improved. His conclusion and explanation for this was the simple fact the workers were happy to receive attention from researchers who expressed interest in them. As a result, these experiments, scheduled to last one year, extended to five years to increase the knowledge base about human motivation.
The implication of this research applies to HR and managers even today. It tells us that our retention plans must include training and other activities that make the employee feel valued.

Maslow’s Hierarchy of Needs
In 1943, Abraham Maslow developed what was known as the theory of human motivation. [3] His theory was developed in an attempt to explain human motivation. According to Maslow, there is a hierarchy of five needs, and as one level of need is satisfied, it will no longer be a motivator. In other words, people start at the bottom of the hierarchy and work their way up. Maslow’s hierarchy consists of the following:
· Self-actualization needs
· Esteem needs
· Social needs
· Safety needs
· Physiological needs
Physiological needs are our most basic needs, including food, water, and shelter. Safety needs at work might include feeling safe in the actual physical environment, or job security. As humans, we have the basic need to spend time with others. Esteem needs refer to the need we have to feel good about ourselves. Finally, self-actualization needs are the needs we have to better ourselves.
The implications of his research tell us, for example, that as long as an employee’s physiological needs are met, increased pay may not be a motivator. Likewise, employees should be motivated at work by having all needs met. Needs might include, for example, fair pay, safety standards at work, opportunities to socialize, compliments to help raise our esteem, and training opportunities to further develop ourselves.
Herzberg Two-Factor Theory
In 1959, Frederick Herzberg published The Motivation to Work, [4] which described his studies to determine which aspects in a work environment caused satisfaction or dissatisfaction. He performed interviews in which employees were asked what pleased and displeased them about their work. From his research, he developed the motivation-hygiene theory to explain these results.
The things that satisfied the employees were motivators, while the dissatisfiers were the hygiene factors. He further said the hygiene factors were not necessarily motivators, but if not present in the work environment, they would actually cause demotivation. In other words, the hygiene factors are expected and assumed, while they may not necessarily motivate.
His research showed the following as the top six motivation factors:
1. Achievement
1. Recognition
1. The work itself
1. Responsibility
1. Advancement
1. Growth
The following were the top six hygiene factors:
1. Company policies
1. Supervision
1. Relationship with manager
1. Work conditions
1. Salary
1. Relationship with peers
The implication of this research is clear. Salary, for example, is on the hygiene factor list. Fair pay is expected, but it doesn’t actually motivate someone to do a better job. On the other hand, programs to further develop employees, such as management training programs, would be considered a motivator. Therefore, our retention plans should be focused on the area of fair salary of course, but if they take the direction of Herzberg’s motivational factors, the actual motivators tend to be the work and recognition surrounding the work performed.
Douglas McGregor proposed the X-Y theory in his 1960 book called The Human Side of Enterprise. [5] McGregor’s theory gives us a starting point to understanding how management style can impact the retention of employees. His theory suggests two fundamental approaches to managing people. Theory X managers, who have an authoritarian management style, have the following fundamental management beliefs:
· The average person dislikes work and will avoid it.
· Most people need to be threatened with punishment to work toward company goals.
· The average person needs to be directed.
· Most workers will avoid responsibility.
Theory Y managers, on the other hand, have the following beliefs:
· Most people want to make an effort at work.
· People will apply self-control and self-direction in pursuit of company objectives.
· Commitment to objectives is a function of expected rewards received.
· People usually accept and actually welcome responsibility.
· Most workers will use imagination and ingenuity in solving company problems.
As you can see, these two belief systems have a large variance, and managers who manage under the X theory may have a more difficult time retaining workers and may see higher turnover rates. As a result, it is our job in HR to provide training opportunities in the area of management, so our managers can help motivate the employees. Training is a large part of the retention plan. This will be addressed in more detail in Section 7.3 “Implementing Retention Strategies”.
Carrot and Stick
It is unknown for sure where this term was first used, although some believe it was coined in the 1700s during the Seven Years’ War. In business today, the stick approach refers to “poking and prodding” to get employees to do something. The carrot approach refers to the offering of some reward or incentive to motivate employees. Many companies use the stick approach, as in the following examples:
· If you don’t increase your sales by 10 percent, you will be fired.
· Everyone will have to take a pay cut if we don’t produce 15 percent more than we are currently producing.
As you can see, the stick approach takes a punitive look at retention, and we know this may motivate for a short period of time, but not in the long term.
The carrot approach might include the following:
· If you increase sales by 10 percent, you will receive a bonus.
· If production increases by 15 percent, the entire team will receive an extra day off next month.
The carrot approach takes a much more positive approach to employee motivation but still may not be effective. For example, this approach can actually demotivate employees if they do not feel the goal is achievable. Also, if organizations use this as the only motivational technique, ignoring physiological rewards such as career growth, this could be a detriment as well. This approach is used as a retention method, usually as part of a compensation plan.
All the employee satisfaction theories we have discussed have implications for the development of our retention plans and reduction of turnover. These theories can be intertwined into the specific retention strategies we will implement. This is discussed in Section 7.3.1 “Salaries and Benefits”.
Sources of Employee Satisfaction Data
After we have an understanding of why employees leave and employee satisfaction theories, research is our next step in developing a retention plan that will work for your organization. There isn’t a “one size fits all” approach to retention planning, so the research component is essential to formulate a plan that will make a difference in turnover rates.
Research can be performed in two ways. First, exit interviews of employees who are leaving the organization can provide important retention information. Anexit interview is an interview performed by HR or a manager that seeks information as to what the employee liked at the organization and what they see should be improved. Exit interviews can be a valuable way to gather information about employee satisfaction and can serve as a starting point for determining any retention issues that may exist in the organization. However, the exit survey data should be reviewed over longer periods of time with several employees, so we can be sure we are not making retention plans based on the feedback of only a few people.
Sample Exit Interview Questions
1. What is your primary reason for leaving?
1. What did you like most about your job?
1. What did you like least about your job?
1. Did you feel there was room for growth in your job?
1. What incentives did you utilize while at our company?
1. Which incentives would you change and why?
1. Did you have enough training to do your job effectively?
The second way to perform research is through employee satisfaction surveys. A standardized and widely used measure of job satisfaction is thejob descriptive index (JDI) survey. While JDI was initially developed in 1969 at Bowling Green State University, it has gone through extensive revisions, the most recent one in 2009. JDI looks at five aspects of job satisfaction, including present job, present pay, opportunities for promotion, supervision, and coworkers. [6] Each of the five facets contains nine or eighteen questions; the survey can be given in whole or measure only one facet. The value of the scale is that an HR manager can measure job satisfaction over a period of time and compare current results to past results and even compare job satisfaction at their company versus their industry. This allows the HR manager to consider changes in the organization, such as a change in compensation structure, and see how job satisfaction is impacted by the change.
Any type of survey can provide information on the employee’s satisfaction with their manager, workload, and other satisfaction and motivational issues. An example of a general employee satisfaction survey is shown in Figure 7.7 “A Sample Employee Satisfaction Survey”. However, a few things should be considered when developing an employee satisfaction survey:
1. Communicate the purpose and goal of the survey.
1. Once the survey is complete, communicate what changes have been made as a result of the survey.
1. Assure employees their responses will be anonymous and private.
1. Involve management and leadership in the survey development.
1. Ask clear, concise questions that get at the root of morale issues.
Once data have been gathered and analyzed, we can formulate our retention plans. Our plan should always be tied to the strategic goals of the organization and the HPWS previously developed, and awareness of motivational theories should be coupled with the plans. Here are the components of a retention plan:
1. JDI survey results, other survey results, and exit interview findings
1. Current retention plans, strengths, and weaknesses
1. Goals of a retention plan (e.g., reduce turnover by 10 percent)
1. Individual strategies to meet retention and turnover reduction goals.
1. Budgeting. An understanding of how your retention plans will impact the payroll budget is important. See Video 7.2 for an example on how to calculate turnover costs and compare those to costs saved with an effective retention strategy.
In Section 7.3 “Implementing Retention Strategies”, we will discuss the implementation of specific retention strategies.

Figure 7.7 A Sample Employee Satisfaction Survey

Source: “Sample Employee Satisfaction Surveys,” Zarca Interactive, accessed August 18, 2011,

[1] Dan Farrell and James C. Petersen, “Commitment, Absenteeism and Turnover of New Employees: A Longitudinal Study,” Human Relations 37, no. 8 (August 1984): 681–692, accessed August 26, 2011, .
[2] Elton Mayo, The Social Problems of an Industrial Civilization (1949; repr., New York: Arno Press, 2007).
[3] Abraham Maslow, Toward a Psychology of Being, 3rd ed. (New York: Wiley, 1999).
[4] Frederick Herzberg, Bernard Mausner, and Barbara Bloch Snyderman, The Motivation to Work (New Brunswick, NJ: Transaction Publishers, 1993).
[5] Douglas McGregor, The Human Side of Enterprise (1960; repr., New York: McGraw-Hill, 2006).
[6] “Job Descriptive Index,” JDI Research Group, Bowling Green State University, accessed July 29, 2011,
[7] “Job Descriptive Index,” JDI Research Group, Bowling Green State University, accessed July 29, 2011,

7.3  Implementing Retention Strategies

Learning Objective
1. Explain the strategies and considerations in development of a retention plan.
As we have addressed so far in this chapter, retention and reduction of turnover is paramount to a healthy organization. Performing research, such as calculating turnover rates, doing exit interviews, and surveying employees’ satisfaction, are the first steps. Once this is done, understanding motivational theories and the application of them in the retention plan can help reduce turnover. Next, we can apply specific retention strategies to include in our plans, while keeping our budget in mind. Some of the retention strategies discussed have already or will be discussed in their own chapters, but they are certainly worth a mention here as part of the overall plan.
Salaries and Benefits
As we know from Chapter 6 “Compensation and Benefits”, a comprehensive compensation plan that includes not only pay but things such as health benefits and paid time off (PTO) is the first retention strategy that should be addressed. The compensation plan should not only help in recruitment of the right people but also help retain employees. Utilizing a pay banding system, in which the levels of compensation for jobs are clearly defined, is one way to ensure fairness exists within internal pay structures.
As we know from this chapter, compensation is not everything. An employee can be well paid and have great benefits but still not be satisfied with the organization. Some of the considerations surrounding pay as a way to retain employees include the following:
1. Instituting a standard process. Many organizations do not have set pay plans, which can result in unfairness when onboarding (the process of bringing someone “on board” with the company, including discussion and negotiation of compensation) or offering pay increases. Make sure the process for receiving pay raises is fair and defensible, so as not to appear to be discriminatory. This can be addressed in both your compensation planning process as well as your retention plan.
1. A pay communication strategy. Employees deserve to know how their pay rates are being determined. Transparency in the process of how raises are given and then communicating the process can help in your retention planning process.[1]
1. Paid time off. Is your organization offering competitive PTO? Consider implementing a PTO system that is based on the amount of hours an employee works. For example, rather than developing a policy based on hours worked for the company, consider revising the policy so that for every X number of hours worked, PTO is earned. This can create fairness for the salaried employee, especially for those employees who may work more than the required forty hours.
Please refer to Chapter 6 “Compensation and Benefits” for more information on pay and benefits, and analyze how your compensation plans could be negatively affecting your retention.
Training and Development
To meet our higher level needs, humans need to experience self-growth. HR professionals and managers can help this process by offering training programs within the organization and paying for employees to attend career skill seminars and programs. In addition, many companies offer tuition reimbursement programs to help the employee earn a degree. Dick’s Drive-In, a local fast food restaurant in Seattle, Washington, offers $18,000 in scholarships over four years to employees working twenty hours per week. There is a six-month waiting period, and the employee must continue to work twenty hours per week. In a high turnover industry, Dick’s Drive-In boasts one of the highest retention rates around.
Performance Appraisals
Chapter 10 “Employee Assessment” addresses performance appraisals. The performance appraisal is a formalized process to assess how well an employee does his or her job. The effectiveness of this process can contribute to employee retention, in that employees can gain constructive feedback on their job performance, and it can be an opportunity for the manager to work with the employee to set goals within the organization. This process can help ensure the employee’s upper level self-actualization needs are met, but it also can address some of the motivational factors discussed by Herzberg, such as achievement, recognition, and responsibility.
Human Resource Recall
How important is PTO to you? How do you think the amount of PTO would affect your likelihood to accept one job over another?
Succession Planning
Succession planning is a process of identifying and developing internal people who have the potential for filling positions. As we know, many people leave organizations because they do not see career growth or potential. One way we can combat this in our retention plan is to make sure we have a clear succession planning process that is communicated to employees. Succession planning is sometimes called the talent bench, because successful companies always have talented people “on the bench” or ready to do the job should a key position become vacant. The goals of most succession plans include the following: [2]
· Identify high-potential employees capable of advancing to positions of higher responsibility.
· Ensure the development of these individuals to help them be “ready” to earn a promotion into a new position.
· Ensure diversity in the talent bench by creating a formal succession planning process.
Succession planning must be just that: planned. This allows clear communication to the employees on how they can further develop within the organization, and it helps them see what skills they should master before that time comes.  Chapter 8 “Training and Development” will provide more information on how to develop and implement a succession plan.
Flextime, Telecommuting, and Sabbaticals
According to a survey, the ability to work from home and flexible work schedules are benefits that would entice an employee to stay in their job. [3] The ability to implement this type of retention strategy might be difficult, depending on the type of business. For example, a retailer may not be able to implement this, since the sales associate must be in the store to assist customers. However, for many professions, it is a viable option, worth including in the retention plan and part of work-life balance, which we will discuss in Section 7.3.10 “Work-Life Balance”.
Some companies, such as Recreational Equipment Incorporated, based in Seattle, offer twelve weeks of unpaid leave per year (beyond the twelve weeks required under the Family and Medical Leave Act) for the employee to pursue volunteering or traveling opportunities. In addition, with fifteen years of service with the company, paid sabbaticals are offered, which include four weeks plus already earned vacation time.
Management Training
As we discuss in  Section 7.1.1 “Reasons for Voluntary Turnover”, a manager can affect an employee’s willingness to stay on the job. In a recent Gallup poll of one million workers, a poor supervisor or manager is the number one reason why people leave their jobs. [4] Managers who bully, use the theory X approach, communicate poorly, or are incompetent may find it difficult to motivate employees to stay within the organization. While in HR we cannot control a manager’s behavior, we can provide training to create better management. Training of managers to be better communicators and motivators is a way to handle this retention issue. We will discuss training further in Chapter 8 “Training and Development”.
Conflict Management and Fairness
Perceptions on fairness and how organizations handle conflict can be a contributing factor to retention. Outcome fairness refers to the judgment that people make with respect to the outcomes they receive versus the outcomes received by others with whom they associate with. When people are deciding if something is fair, they will likely look at procedural justice, or the process used to determine the outcomes received. There are six main areas employees will use to determine the outcome fairness of a conflict:
1. Consistency. The employee will determine if the procedures are applied consistently to other persons and throughout periods of time.
1. Bias suppression. The employee perceives the person making the decision does not have bias or vested interest in the outcome.
1. Information accuracy. The decision made is based on correct information.
1. Correctability. The decision is able to be appealed and mistakes in the decision process can be corrected.
1. Representativeness. The employee feels the concerns of all stakeholders involved have been taken into account.
1. Ethicality. The decision is in line with moral societal standards.
For example, let’s suppose JoAnn just received a bonus and recognition at the company party for her contributions to an important company project. Another employee, Sam, might compare his inputs and outputs and determine it was unfair that JoAnn was recognized because he had worked on bigger projects and not received the same recognition or bonus. When we look at how our retention strategies are developed, we want to be sure they can apply to everyone in the organization; otherwise it may cause retention problems. Some of the procedures questioned could include the following:
· How time off is requested
· How assignments of the “best” projects are given
· Division of work
· Promotion processes
· Pay processes
While some of these policies may seem minor, they can make a big difference in retention. Besides development of fair policies, we should be sure that the policies are clearly communicated and any processes are communicated as well. These types of policies should be revisited yearly and addressed in the retention plan if it appears they are causing employee dissatisfaction.
In addition to a sense of fairness within the organization, there should be a specific way (process) of managing conflict. If the organization is unionized, it is likely a grievance process is already in place to handle many types of conflicts. We will discuss this process in greater detail in Chapter 11 “Working with Labor Unions”. There are four basic steps to handle conflict. First, the individuals in conflict should try to handle the conflict by discussing the problem with one another. If this doesn’t work, a panel of representatives from the organization should hear both sides of the dispute and make a recommendation. If this doesn’t work, the organization may want to consider mediation and, in extreme cases, arbitration. Inmediation, a neutral third party from outside the organization hears both sides of a dispute and tries to get the parties to come to a resolution, while in arbitration, an outside person hears both sides and makes a specific decision about how things should proceed.
Fortune 500 Focus
With over nineteen thousand employees in sixty countries, Google has seen its share of retention problems. [5] In late 2010, Googlers left the organization en masse to work for Facebook or Twitter. [6] Many who left were looking for pre–initial public offering (IPO) organizations to work with, something that Google couldn’t compete with, since it went IPO in April 2004. As a result of the high turnover, Google put its mathematical algorithms to work to determine which employees were most likely to leave, allowing HR to determine what departments to focus on in their retention plans. In 2011, Google gave every employee a 10 percent pay raise, and it continues to offer a variety of new and old perks, such as free food in any of its cafeterias, 20 percent of time to work on personal projects, and $175 peer spot bonuses. Google also offers free laundry services, climbing walls, tuition reimbursement, child-care centers, financial planning classes, and matching funds (up to $3,000 per employee) to nonprofit organizations. For all this, Google ranked number four on Fortune magazine’s list of 100 best companies to work for in 2011. [7] Some say it isn’t the perks, high pay, or bonuses but the company culture that Google creates. A weekly all-hands meeting with the founders, where people are encouraged to ask the founders questions, and a team focus meeting where everyone shares ideas are examples of the company culture Google creates. Google exemplifies the importance of culture in retention of employees.
Job Design, Job Enlargement, and Empowerment
As we have discussed previously, one of the reasons for job dissatisfaction is the job itself. Ensuring we are appropriately matching skills with the job when we do our initial hiring is important. Revisiting the recruitment plan and selection process should be a consideration.
Job enrichment means to enhance a job by adding more meaningful tasks to make the employee’s work more rewarding. For example, if a retail salesperson is good at creating eye-catching displays, allow him or her to practice this skill and assign tasks revolving around this. Job enrichment can fulfill the higher level of human needs while creating job satisfaction at the same time. In fact, research in this area by Richard Hackman and Greg Oldham [8] found that employees need the following to achieve job satisfaction:
· Skill variety, or many different activities as part of the job
· Task identity, or being able to complete one task from beginning to end
· Task significance, or the degree to which the job has impact on others, internally or externally
· Autonomy, or freedom to make decisions within the job
· Feedback, or clear information about performance
In addition, job enlargement, defined as the adding of new challenges or responsibilities to a current job, can create job satisfaction. Assigning employees to a special project or task is an example of job enlargement. Be cautioned, though, that some employees may resent additional work, and job enlargement could actually be a demotivator. Otherwise, knowing the employee and his or her goals and adding work that can be an end to these goals is the best way to achieve retention through job enlargement.
Employee empowerment involves employees in their work by allowing them to make decisions and act upon those decisions, with the support of the organization. Employees who are not micromanaged and who have the power to determine the sequence of their own work day, for example, tend to be more satisfied than those who are not empowered. Empowerment can include the following:
· Encourage innovation or new ways of doing things.
· Make sure employees have the information they need to do their jobs; for example, they are not dependent on managers for information in decision making.
· Use management styles that allow for participation, feedback, and ideas from employees.
Pay-for-Performance Strategies
In Chapter 6 “Compensation and Benefits”, we discussed several pay-for-performance strategies we can implement to motivate our employees. A pay-for-performance strategy means that employees are rewarded for meeting preset objectives within the organization. For example, in a merit-based pay system, the employee is rewarded for meeting or exceeding performance during a given time period. Rather than a set pay increase every year, the increase is based on performance. Some organizations offer bonuses to employees for meeting objectives, while some organizations offer team incentive pay if a team achieves a specific, predetermined outcome. For example, each player on the winning team of the 2010 NFL Super Bowl earned a team bonus of $83,000, [9] while the losing team of the Super Bowl took home $42,000. Players also earn money for each wild card game and payoff game. Some organizations also offer profit sharing, which is tied to a company’s overall performance. Gain sharing, different from profit sharing, focuses on improvement of productivity within the organization. For example, the city of Loveland in Colorado implemented a gain-sharing program that defined three criteria that needed to be met for employees to be given extra compensation. The city revenues had to exceed expenses, expenses had to be equal to or less than the previous year’s expenses, and a citizen satisfaction survey had to meet minimum requirements.
To make sure a pay-for-performance system works, the organization needs to ensure the following:
· Standards are specific and measureable.
· The system is applied fairly to all employees.
· The system is communicated clearly to employees.
· The best work from everyone in the organization is encouraged.
· Rewards are given to performers versus nonperformers.
· The system is updated as the business climate changes.
· There are substantial rewards for high performers.
As we have already addressed, pay isn’t everything, but it certainly can be an important part of the employee retention plan and strategy.
Work-Life Balance
Work-life balance discussions originated during the 1960s and 1970s and pertained mostly to working mothers’ meeting the demands of family and work. During the 1980s, the realization that meeting a work-life balance is important (for all, not just working mothers) resulted in companies such as IBM implementing flextime and home-based work solutions. The growing awareness of the work-life balance problem continued into the 1990s, when policies were developed and implemented but not acted upon by managers and employees, according to Jim Bird in Employment Relations Today. [10] Today, work-life balance is considered an important topic, so much so that the World at Work Society offers special certifications in this area. The World at Work certification programs focus on creation of successful programs to attract, retain, and motivate employees.
Karol Rose, author of Work Life Effectiveness, [11] says that most companies look at a systems approach of work-life balance, instead of a systems and individual approach. The systems approach to work-life balance includes policies and procedures that allow people flexibility, such as telecommuting and flextime options.
According to Rose, looking at the individual differences is equally as important as the systems approach. Brad Harrington, the director of Boston College’s Center for Work and Family, stresses this issue: “Work-life balance comes down, not to an organizational strategy, but to an individual strategy.” For example, a single parent has a different work-life balance need than someone without children. In other words, as HR professionals, we can create work-life balance systems, but we should also look at individual approaches. For example, at Recreational Equipment Incorporated (REI),[12] they use the systems approach perspective and offer paid time off and sabbaticals, but their employee assistance program also offers access to services, referrals, and free consulting for the individual to find his or her perfect work-life balance. For this, REI receives a number nine ranking on Fortune’s list of best companies to work for in the area of work-life balance.
The company culture can contribute greatly to work-life balance. Some organizations have a culture of flexibility that fares well for workers who do not want to feel tethered to an office, while some workers prefer to be in the office where more informal socializing can occur. While some companies promote work-life balance on paper, upper management needs to let employees know it is OK to take advantage of the alternatives to create a positive work-life balance. For example, companies place different levels of value on work-life options such as telecommuting. An organization may have a telecommuting option, but the employees must feel it is OK to use these options. Even in a company that has work-life balance systems, a manager who sends e-mails at 10 p.m. on Saturday night could be sending the wrong message to employees about the expectations, creating an environment in which work-life balance is not practiced in reality. O’Neill, a surf gear company in California, sends a strong message to its employees by offering half-day Fridays during the summer, [13] so employees can get a head start on the weekend.
Jim Bird, in his work-life balance article in Employment Relations Today, suggests implementing a work-life balance training program that is dual purpose (can serve both personal interests and professional development). In other words, implement trainings in which the employee can develop both personal skills and interests that can translate into higher productivity at work.
Besides the training program, Bird suggests creating a monthly work-life newsletter as an educational tool to show the company’s commitment to work-life balance. The newsletter can include interviews from respected employees and tips on how to create a work-life balance.
Finally, training managers on the importance of work-life balance and how to create a culture that embraces this is a key way to use work-life balance as a retention strategy.
Other Retention Strategies
According to Fortune’s “100 Best Companies to Work For,” [14] retention strategies that are more unusual might be part of your retention plan. Some strategies from the list might include the following:
· On-site daycare or daycare assistance
· Gym memberships or on-site gyms
· Concierge service to assist in party planning or dog grooming, for example
· On-site dry cleaning drop-off and pickup
· Car care, such as oil changes, on-site once a week
· On-site doggie daycare
· On-site yoga or other fitness classes
· “Summer Fridays,” when all employees work half days on Fridays during the summer
· Various support groups for cancer survivors, weight loss, or support in caring for aging parents
· Allowance for fertility treatment benefits
· On-site life coaches
· Peer-to-peer employee recognition programs
· Management recognition programs
While some of these options may not work in your organization, we must remember to be creative when our goal is to retain our best employees and reduce turnover in our organizations. The bottom line is to create a plan and make sure the plan is communicated to all employees.
[1] “The Knowledge of Pay Study,” WorldatWork and The LeBlanc Group LLC, 2010, accessed February 26, 2011,
[2] William J. Rothwell and H. C. Kazanas, Building In-House Leadership and Management Development Programs: Their Creation, Management, and Continuous Improvement(Westport, CT: Quorum Books, 1999), 131.
[3] “Employee Job Satisfaction and Retention Survey, 2007/2008,”, 2008, accessed February 26, 2011,
[4] “No. 1 Reason People Quit Their jobs,” AOL News, Netscape, n.d., accessed July 28, 2011,
[5] “Our Philosophy,” Google, n.d., accessed July 28, 2011,
[6] Ben Popper, “Why Google’s Retention Plan Backfired,” CBS Business Network, September 16, 2010, accessed July 28, 2011,
[7] “100 Best Companies to Work For,” CNN Money, 2011, accessed July 28, 2011,
[8] Robert N. Ford, Motivation through the Work Itself (New York: American Management Association, 1969); William J. Paul, Keith B. Robertson, and Frederick Herzberg, “Job Enrichment Pays Off,” Harvard Business Review, March–April 1969, 61–78.
[9] Darren Rovell, “How Much Do Players Get Paid for Winning the Super Bowl?” CNBC Sports, January 18, 2011, accessed July 29, 2011,
[10] Jim Bird, “Work-Life Balance: Doing It Right and Avoiding the Pitfalls,” Employment Relations Today 33, no. 3 (2006), reprinted on, accessed July 29, 2011, .
[11] Karol Rose, Work-life Effectiveness: Bottom-line Strategies for Today’s Workplace(Scottsdale, AZ: World at Work Press, 2006).
[12] “Pay and Benefits: Total Rewards at REI,” Recreational Equipment Incorporated, n.d., accessed July 29, 2011,
[13] “Vans, Quiksilver, and California Top Skate Companies Offer Dream Careers to FIDM’s Graphic Design School Grads,” Fashion News, June 4, 2011, accessed July 29, 2011, -design-school-grads.
[14] “100 Best Companies to Work For,” CNN Money, 2011, accessed February 26, 2011,

7.4   Case and Summary

Chapter Summary
· Retaining employees is an important component to a healthy organization. Losing an employee is called turnover.
· Direct turnover costs and indirect turnover costs can include the costs associated with employee replacement, declining employee morale, or lost customers.
· A high-performance work system (HPWS) is a set of systematic HR practices that create an environment where the employee has greater involvement and responsibility for the success of the organization. The overall company strategy should impact the HPWS HR develops in regard to retention.
· Retention plans are developed to address employee turnover, resulting in a more effective organization.
· Some of the reasons why employees leave can include a poor match between job and skills, no growth potential, pay inequity among employees, the fairness and communication style of management, and heavy workloads.
· The first step in developing a retention plan is to use exit interviews and/or surveys to find out the satisfaction level of employees. Once you have the data, you can begin to write the plan, making sure it is tied to the organizational objectives.
· A retention plan normally consists of survey and exit interview analysis, any current plans and strengths and weaknesses of those plans, the goal of the retention plan, and the specific strategies to be implemented.
· There are many motivation theories that attempt to explain people’s motivation or lack of motivation at work.
· The Hawthorne studies were a series of studies beginning in 1927 that initially looked at physical environments but found that people tended to be more motivated when they felt cared about. The implications to retention are clear, in that employees should feel cared about and developed within the organization.
· Maslow’s theory on motivation says that if someone already has a need met, giving them something to meet more of that need will no longer motivate. Maslow divided the needs into physiological, safety, social, esteem, and self-actualization needs. Many companies only motivate based on the low-level needs, such as pay. Development of training opportunities, for example, can motivate employees on high-level self-actualization needs.
· Herzberg developed motivational theories based on actual motivation factors and hygiene factors. Hygiene factors are those things that are expected in the workplace and will demotivate employees when absent but will not actually motivate when present. If managers try to motivate only on the basis of hygiene factors, turnover can be high. Motivation on both factors is key to a good retention plan.
· McGregor’s theory on motivation looked at managers’ attitudes toward employees. He found that theory X managers had more of a negative view of employees, while theory Y managers had a more positive view. Providing training to the managers in our organization can be a key retention strategy, based on McGregor’s theory.
· The carrot-and-stick approach means you can get someone to do something by prodding or offering some incentive to motivate them to do the work. This theory implies these are the only two methods to motivate, which we know isn’t true. The implication of this in our retention plan is such that we must utilize a variety of methods to retain employees.
· Once you determine the employee’s level of satisfaction through exit interviews and surveys and understand motivational theories, you can develop specific retention strategies.
· Of course, salary and benefits are a major component of retention strategies. Consistent pay systems and transparent processes as to how raises occur must be included in a retention plan (and compensation strategy).
· Training and development meets the higher level needs of the individual. Many companies offer paid tuition programs, reimbursement programs, and in-house training to increase the skills and knowledge of the employee.
· Performance appraisals provide an avenue for feedback and goal setting. They also allow for employees to be recognized for their contributions.
· Succession plans allow employees to see how they can continue their career with the organization, and they clearly detail what employees need to do to achieve career growth-without leaving your organization.
· Flextime and telecommuting options are worth considering as an addition to your retention plan. These types of plans allow the employee flexibility when developing his or her schedule and some control of his or her work. Some companies also offer paid or unpaid sabbaticals after a certain number of years with the company to pursue personal interests.
· Since one of the reasons people are dissatisfied at their job is because of the relationship with their manager, providing in-house training to all management team members to help them become better communicators and better managers can trickle down to the employee level, creating better relationships and resulting in better retention and less turnover.
· Reviewing company policies to ensure they are fair can contribute to better retention. For example, how projects are assigned or the process for requesting vacation time can contribute to dissatisfaction if the employee feels the processes are not fair.
· Review the job design to ensure the employee is experiencing growth within their job. Changing the job through empowerment or job enlargement to help the growth of the employee can create better retention.
· Other, more unique ways of retaining employees might include offering services to make the employee’s life easier, such as dry cleaning, daycare services, or on-site yoga classes.
Chapter Case
Turnover Analysis
You recently completed your company’s new compensation plan. You are happy with the results but know there is more to retaining the employees than just pay, and you don’t currently have a retention plan. Your organization is a large staffing firm, consisting of several offices on the West Coast. The majority of employees are staffing recruiters, and they fill full-time and temporary positions for a variety of clients. One of the challenges you face is a difference in geographical areas, and as a result, there are differences in what may motivate employees.
As you initially look at turnover numbers, you have the sense that turnover has increased over the last six months. Your initial thoughts are the need for a better retention strategy, utilizing a bonus structure as well as other methods of retention. Currently, your organization pays a straight salary to employees, does not offer flextime or telecommuting options, focuses on individual performance (number of staffing placements) rather than team performance, and provides five days of vacation for every two years with the organization.


Separated Employees

Total Number of Employees Midmonth
















1. Calculate monthly turnover for the past six months.
1. What are the possible reasons for turnover in your organization and other organizations?
1. What steps would you take to remedy the situation?


Assignment 1 9

Human Resource Management 300 Assignment 1

Toyia A. Haines

University of Maryland University College

Question 1

A. There was a time when human resource departments were primarily responsible for administrative functions like handling job applications and processing payroll (Mayhew, 2019). Over the years, these departments have taken on a much larger role. Today’s Human Resource Managers (HRM) are responsible for the functional areas of HR like, recruiting the right people, offering competitive salaries and benefits, and workplace safety. Employees play a huge role in an organization’s success therefore, recruitment is a vital component (Lumen Learning, n.d.). Therefore, it is important to hire the right person the first time. The HRM’s role is know what is required to perform the job and incorporate that into their employment selection strategy. Another function is compensation and benefits. Decisions HRM’s make regarding pay and benefits can impact employee satisfaction as well as the ability to recruit top talent (Mayhew, 2019). The third is workplace safety. HRM’s are responsible for ensuring employee’s work in a hazard-free work environment. Risk management and Workman’s Compensation Insurance also falls under this category (Human, n.d.).


Human. (n.d.). Human resource management. Retrieved from

Lumen Learning (n.d.).  


 Retrieved from 

Reading: Recruitment

Mayhew, R. (2019, February 06). The Strategic Role of Human Resource Managers. Retrieved February 7, 2019, from

B. The organization I work for has always taken training and development very seriously. When someone is hired off the street or an internal employee gets promoted, they attend formal training at the training center. The initial training is approximately three weeks for all of the associate job titles. Once the classroom training is completed the associate will receive on the job training for another 90 days. We are required to complete an additional 20 hours of online training per month. The tuition assistance pays for employees to further their education. This supports the organizations strategy by keeping good talent within the company (Human, n.d.). This strategy is effective because many of the supervisors have experience because they have come up through the ranks.


Human. (n.d.). Human resource management. Retrieved from

Lumen Learning (n.d.). The Changing Role of Strategic Human Resource Management from

Mayhew, R. (2019, February 06). The Strategic Role of Human Resource Managers. Retrieved February 7, 2019, from

Question 2:

A. An organization’s diversity strategy can support the business strategy by increasing profits, creativity, and morale. Studies show that people from different backgrounds work better together than people from similar backgrounds (Human, n.d.). This is because people from different cultures provide different perspectives (DiversityInc, n.d.). A diverse workforce lets your business look like the community around you. Having a diverse workforce gives your company an advantage when marketing to consumers from different age groups and racial and ethnic backgrounds (Abreu, 2014). Additionally, diversity makes recruitment easier. Studies show that candidates would prefer working with a diverse team (Abreu, 2014).


Abreu, K. (2019, February 06). The Myriad Benefits of Diversity in the Workplace. (n.d.). Retrieved February 6, 2019, from

DiversityInc. (n.d.). Retrieved February 6, 2019, from

Human. (n.d.). Human resource management. Retrieved from

B. I always thought that the company I worked for had an effective diversity program because I see a lot of diversity on the frontline. I was actually surprised that my company was not on the top 50 list of the most diverse companies. It was not until I read about AT&T’s diversity initiatives that I realized there is more that can be done. I have worked for the same company for nearly 21 years and have held various job titles. While I feel like I have a great job with lots of opportunity to advance my career (I have been promoted twice) upper level management does not seem to be required to improve diversity. Instead of just talking about diversity, AT&T actually holds its senior leaders accountable for diversity (AT&T Diversity & Inclusion, n.d.). AT&T was also ranked top in its class for doing business with underrepresented groups (DiversityInc, n.d).


AT&T Diversity & Inclusion. (n.d.). Retrieved February 7, 2019, from

DiversityInc. (n.d.). Retrieved February 9, 2019, from

Human. (n.d.). Human resource management. Retrieved from

Question 3:

A. An organization’s culture tells employees the proper way to behave. An ineffective culture will negatively impact the company. In order to create an inclusive culture that supports diversity and multiculturalism, HRM’s should ask employees how they feel about the culture and their work environment. Employee’s thoughts and opinions should be listened to, respected, and taken seriously. The next step is to create a mission statement. The mission statement should be aligned with values and action (Gallop, 2018). HRM’s should approach senior leaders with the mission statement, employee’s feedback, and supporting data.


Gallup, Inc. (2018, September 17). 3 Requirements for a Diverse and Inclusive Culture. Retrieved February 10, 2019, from

Human. (n.d.). Human resource management. Retrieved from

Shrm. (2019, January 27). Understanding and Developing Organizational Culture. Retrieved February 10, 2019, from

B. My organization has a company policy for everything. The diversity policy basically states that while the company will remain in compliance with all employment and EEO laws, it will make every effort to recruit diverse candidates. The organizational culture gives me a sense of belonging (Shrm, 2019). For example, employees routinely participate in surveys from HR. Everyone is encouraged to express their opinions because real changes are made based on the results. Employees are invited and also asked to speak up in “town hall” meetings with upper level management.

Gallup, Inc. (2018, September 17). 3 Requirements for a Diverse and Inclusive Culture. Retrieved February 10, 2019, from
Human. (n.d.). Human resource management. Retrieved from
Shrm. (2019, January 27). Understanding and Developing Organizational Culture. Retrieved February 10, 2019, from

Question 4:

A. Diversity and multiculturalism are similar concepts but are not the same. Diversity is based differences or “otherness” between one another with the goal of treating everyone equal (Human, n.d.). While multiculturalism examines a system of advantages based on a person’s race, gender, culture, and sexual orientation (Human. n.d.). An organization focused on compliance would only be concerned with preventing discrimination. Where organizations focused on multiculturalism would be concerned with the examination of unequal power and privileges that results in unfairness (Smith, 2018). I would be looking for the age, sex, ethnicity, physical ability, race and sexual orientation of the employees (Kokemuller, 2016). I would also be looking for evidence that shows the employees cultural and or gender differences are being respected. If an organization has employees who are practicing Muslims, they should have time and space for daily prayer. Another example is if there are transgender employee’s the law could require the company provide them their own restroom (Emma, 2018).


Emma, L. (2018, June 30). Advantages and Disadvantages of Diversity in Workplace. Retrieved February 9, 2019, from

Human. (n.d.). Human resource management. Retrieved from

Kokemuller, N. (2016, October 26). The Definition of Multicultural in the Workplace. Retrieved February 9, 2019, from

Smith, H. (2018, October 01). Workplace Cultural Diversity and its Advantages – Diversity and Inclusion. Retrieved February 9, 2019, from

Question 5:

A. It is important to consider retention as a part of the recruiting and selection process because it is expensive to recruit, interview, and train individuals (Hussain, 2018). Therefore, you want to hire the right person the first time (Lumen, n.d.). Job skills testing can also help with retention because it ensures you a placing the applicant in a position he or she is qualified for. Career development programs can help with retention too. Employees are loyal to companies who invest in them (Hussain, 2018). I would use metrics to evaluate the impact of my employee retention plan. Specifically, I would look at turnover rate at which is the rate employees are leaving the company (Schneider, 2018).

Human. (n.d.). Human resource management. Retrieved from

Hussain, V. (2018, March 13). How Career Development Programs Support Employee Retention. Retrieved February 9, 2019, from

Schneider, M., & Schneider, M. (2018, May 14). 11 Essential HR Metrics That Every Organization Should Know. Retrieved February 8, 2019, from

B. I work at a large company where there are various departments with countless opportunities for movement and growth. One strategy human resource manager’s use is to hire internal candidates first (Human, n.d.). This allows existing employees the opportunity to transfer to other job title or location as well as get promoted to higher paying positions. Another strategy human resource use is to offer career and development plans (Hussain, 2018). All of the employees are encouraged to participate. The company offers free education and training classes to teach you the skills needed to pursue the career you want. These strategies work because the company has an excellent retention rate (Schneider, 2018). There are hundreds of employees who have been there for over 40 years and thousands who have been there for over 20 years. No one ever resigns to go work somewhere else—they only retire.

Human. (n.d.). Human resource management. Retrieved from

Hussain, V. (2018, March 13). How Career Development Programs Support Employee Retention. Retrieved February 9, 2019, from
Schneider, M., & Schneider, M. (2018, May 14). 11 Essential HR Metrics That Every Organization Should Know. Retrieved February 8, 2019, from

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