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"The better you can work with people, the more successful you will be in your personal and professional lives - whether as an employee, a (line) manager, or a human resource manager." The role of modern managers also continues to change, requiring today's organizational leaders to deal with increasingly dynamic and complex environments. When it comes to managing organizations, a three-step approach applies:
The main reason in today's business for human resource managers to change their way of working, is the fact that there is much greater competition and an external environment that requires a greater range of change. Therefore, the qualities to be adaptable and productive are considered an absolute requirement. In the 21st century organization, the people within an organization are the most important asset, because they create the competition through competetive performance.
Employee engagement is a combination of job satisfaction, ability, and a willingness to perform for the organization at a high level and over an extended period of time. According to HR Magazine, companies that fall into the top 10% on employee engagement, beat their competition by 72% in earnings per share during 2007-08. Engaged employees are considered those who understand and are willing to do whatever it takes to make the organization succeed.
Previously, HR managers were expected to only manage personal paper files and were not involved with the organization's business process. The tasks of a HR manager consisted of keeping track of job applicants, maintaining employee paperwork, and filing annual performance evaluations. The HR department was considered to be more of a cost center.
Nowadays, organizations are focused on working through teams and also expect greater productivity than during the past. Within the current vision, organizations are viewed as productivity centers instead of cost centers. A producivity center is considered a revenue center that enhances the profitability of the organization by enhancing the productivity of people within the organization. The function of an HR manager today has grown to improving organizational revenues and profits - by enhancing the performance of the people within the organization.
Productivitiy is considered the amount of output that an organization gets per unit of input, with human input, usually expressed in terms of units in time. Productivity is considered a key element to survive in today's business. Productivity is therefore considered the end result of two components that HR managers work on creating and improve within organizations:
The two elements above indicate the importance of influencing the effectiveness of employees. For this matter, managers need to find an indirect way to affect the employees' productivity (efficiency and effectiveness).
One of the effective ways to improve people's efficiency within an organization is through the use of technology. Using technology allows organizations to gather, analyze and manage large amounts of data. This allows managers to look for parts in the data, that can help them create new and more efficient processes.
The three biggest challenges according to HR executives are:
The HR competencies that will be the most critical:
Businesses no longer have a "typical" worker. In the current reality, there exists a diversity in terms of gender, ethnicity and religion among employees within an organization. Companies in developed countries are experiencing a reduction in the number of quality of potential skilled employees. The lack of skilled workers for fairly complex jobs is considered a major issue. This results in fairly older and highly skilled employees to remain within the workforce of the organizations. Due to an increasing gender mix within organizations, managers of the 21st century will be required to be more culturally aware and take into consideration different work ethics, cultural norms and even languages.
"Knowledge workers are workers who "use their head more than their hands" and who gather and interpret information to improve a product or process for their organizations." In essence, they manage the knowledge for the firm.
The technology currently available should be used more efficiently through hiring and training better and more capable employees, also known as the human resources. Due to a continuous shortage of knowledgeable workers, there will be a shortage on a global scale for the forseeable future. This means each HR manager is going to be competing with every other HR manger in the world, for the available pool of knowledgeable workers.
Due to the free will of each employee to perform in any way they consider a fit for the business, the importance for the HR managers to indirectly control their human resources, has become even more important.
Dependent variables are considered variables which cannot be influenced directly, but indirectly, because it involves the free will people have within an organization. HR Managers have brought up the following issues, as being the most important and difficult thing to deal with:
Turnover causes an organization to experience consequences related to organizational productivity, performance and - potentially - competetive advantage. Also, an increase of costs on several levels will be associated with this new turnover, since employees - in most cases- will have to be replaced.
Absenteeism is the failure of an employee to the workplace as scheduled. The consequence that is related to this phenomenom is that it costs the organization money - indirectly. The productivity lost due to the absence of employees also costs money. Not to forget the decreased employee satisfaction due to the extra workload that needs to be carried by the cowokers due to an absent employee.
In the last 30-40 years HR management has made a shift from a fairly reactive to a proactive approach. HR managers are now actively seeking for new talent to acquire, instead of waiting for people to quit, sometimes unexpectedly. Good HR managers focus on processes within the organization and optimizing the strategies when it comes to fixing problems, whether it may be a training problem, motivational problem or any other people-oriented problem.
HRM has been redesigned to make organizations more competetive and create sustainable competetive advantages, a capability that creates value for customers that rivals can't copy quickly or easily and that allows the organization to differentiate its products or services from those of competitors.
Social media has developed itself into a major tool for the workplace. It has created an impact for the following phases: recruiting and selection, the onboarding process, training and development and performance management.
All managers require a mix of technical, interpersonal, conceptual, design and business skills in order to perform successfully.
Technical skills are defined as the ability to use methods and techniques to perform a task. A successful HR manager is required to possess knowledge of laws, rules and regulations related to HR. In addition, understanding the performance appraisal process, computer skills and interviewing skills are considered highly important.
Interpersonal skills comprise the ability to understand, communicate, and work well with individuals and groups through developing effective relationships. An HR manager is required to have strong people skills, meaning they have to be empathetic. Empathy is simply being able to put yourself in another person's place - to understand not only what he or she is saying but why he or she is communicating that information to you. Interpersonal skills also translate into holding the ability to work well with others in teams.
Conceptual design skills include the ability to evaluate a situation, identify alternatives, select a reasonable alternative, and make a decision to implement a solution to a problem. This skill set is critical in creating the ability to lead within an organization. The conceptual part of this skill set is the ability to understand what is going on in the business process and understanding how different departments and divisions within an organization operate.
Design skill is the skill set that allows an HR manager to create innovative solutions to problems that have been identified during application of the conceptual skills.
Business-oriented proficiency competency is also considered a mandatory HRM skill. Business skills are the analytical and quantitative skills - including in-depth knowledge of how the business works and its budgeting and strategic-planning processes - that are necessary for a manager to understand and contribute to the profitability of the organization.
Line managers are the individuals who create, manage and maintain the people and organizational processes. HR managers would generally be staff managers, individuals who advise line managers in some field of expertise.
Every manager's primary job is to manage the resources of the organization, including the human resources. A line manager should therefore understand the following elements, in order to perform sucessfully:
The following specialists careers exists when it comes to the specialties of an HR Manager:
Sustainability is meeting the needs of today without sacrificing future genrations' ability to meet their needs.
The practioner's model is designed to show how each of the sections of HRM interact and which items must be dealt with. The model first describes the critical elements when it comes to organizational functions in order for an organization to be viable long-term. This way the organization will be allowed to operate legally and work towards the goals that it has identified as critical to gaining success. Secondly, it helps identifying what the organization needs to do in order to sustain itself and its human resources over the long term.
In the next step, the model discusses the critical issues in managing those human resources successfully. Then, the model discusses how to maintain the workfoce by managing the compensations and benefits provided to employees. The model consists of the following five sections:
This chapter has focused on the difference between the traditional view of HRM and the present view. Human Resource Management used to be a cost center, whereas now it functions more as a productivity center, delivering highly productive employees with the right skills and increasing this productivity even more by putting the right people in the right places. In addition HR is considered a revenue-generating function nowadays. Some challenges that arise within human resource management are maintaining the high levels of employee engagement, developing organizational leaders, maintaining competetive compensation and benefit offerings and managing loss of key workers and their skill sets.
The four critical variables that managers must control are the following: productivity, employee engagement, turnover and absenteeism. The four HRM skills that are considered a requirement are technical skills, interpersonal skills, conceptual and design skills and business skills. In addition, employee satisfaction, ability and willingness are considered critical factors to the organization's success. Although compensation and benefits can provide incentives for employees to be motivated, they are not considered enough. In order to increase employee engagement, the right tools need to be provided as well, the creation of trust and listening to employees are key elements.
Strategic planning is about planning for the long-term future. In order to be successful, setting goals and measurable standards are required. The importance of the saying “When you fail to plan, you plan to fail.” has been confirmed by research.
The internal and external environment largely decides which actions must be performed by management to provide the right people to accomplish strategic goals. Therefore, HR is considered to play an important role in gathering the right combination of people to reassure the organization's goals and company objectives.
The external environment consists of different elements which exist outside the organization and cannot be controlled. There are nine major forces that exist within the external environment:
G.F. Keller stated “Many military historians and contemporary business students view the Chinese military strategist Sun Tzu as the developer of ‘the Bible’ of strategy.” Sun Tzu’s principles can be divided into two components:
Translated into business this means that one should know the internal and external business environment in which one is operating. Strategic planning follows a process that will be detailed in the next paragraphs.
Research has established that HRM is an important strategic asset when it comes to influencing the performance of both smaller and larger firms. Strategy is a plan of action designed to achieve a particular set of objectives. Strategic advantage can be created by correct use of the internal and external environment. Strategic advantage arises when you analyze the environment and react to it quicker than competitors do, while using all internal resources efficiently.
In order to confirm the strategy required, three major (strategic) questions should be answered:
For the first questions, different elements should be analyzed, such as: profits made, satisfaction of products for customers, workforce progress, technological development. Question 2 basically plans what we want the organization to look like in a particular point in the future. In addition, question three gives the required information to create the plan that will support the organization in accomplishing its goals.
A vision and mission are considered the two most critical components of any successful corporate strategy. Together, these two components direct every employee to the company’s goals and objectives.
The vision – A vision is what we expect to become as an organization at a particular point in time in the future. A vision is not specific in terms of ‘how’ it will be achieved. It provides a focus point in the future. The vision is considered a state of being. It defines who we are, what we stand for, what we believe in and what we want to become.
The mission – lays out our expectations of what we’re going to do in order to become the organization that we have envisioned. The mission statement provides the activities of the organizational units and what they aspire to accomplish, in order to align with the organizational vision. The mission is usually more specific and narrow than the vision. It takes into account whom we serve and how.
When you put the mission and the vision together, the people in the organization get a more complete picture of the direction in which they are expected to go. This way it helps the organization to direct the people towards its goals. Creating a focus is what makes the mission and vision powerful. Working towards the same end result will make the outcome that it will be achieved more likely.
A strong vision and a good mission statement are critical parts of the strategic planning.
Vission + Mission = FOCUS!
The different types of strategies can be broken down into three categories: cost leadership, differentiation, and focus or niche strategies.
COST LEADERSHIP. Cost leaders use everything in their power to minimize the costs required to produce products or services. Reducing these production costs can be combined with either applying the same profit margin and increasing profits or lower the margin and provide more competetive prices.
However, low cost strategies have a downside as well. Being considered ‘too cheap’ by clients might cause the association that a brand and the products or services offered, might be unreliable.
DIFFERENTIATION. Applying the strategy of differentiation attempt to create an impression of difference in the mind of the customer, when it comes to the offered products or services. Differentiation is not necessarily based on an actual difference, but the perception of it. According to Coca Cola, the key(s) to selling consumer products are differentiation, differentiation and differentiation, which it achieved with the scripted name logo and contour bottle.
FOCUS OR NICHE. The focus or niche strategy aims at a s pecific portion of a larger market. This could be for instance, a regional market, a particular product line or a buyer group.
There are different areas where the generic corporate strategy affects how jobs within HR are being performed.
HRM AND COST LEADERSHIP. In cases where a cost leadership strategy is being applied, a fairly great interest in minimizing all internal costs, including employee costs exists. When applying this strategy, a high interest for maximum efficiency exists, in order to minimize the costs associated with production.
HRM AND DIFFERENTIATION. When applying a differentiation strategy, the organization is going to be concerned with employees that are flexible and adaptable, innovative and able to create new processes, who can work in uncertain environments, with cross-functional teams. In a differentiation organization there would be much broader job classifications as well as a broader work-planning process.
There are two primary components of strategic analysis used by most organizations. The five forces analysis is a tool that organizations use to analyze the external competetive environment. The second component is called SWOT-analysis. This analysis is used to analyze company-specific environment.
FIVE FORCES ANALYSIS. This anlaysis has been introduced by Michael Porter, who identified competition within an industry as being composite of five competetive forces that should be considered when analyzing competetive situations.
Companies use the five-forces analysis and other competetive situation analysis tool primarly to make decisions on which business lines to enter and exit and how to allocate resources among the existing business lines.
SWOT ANALYSIS. This tool helps analyzing the internal environment of the organization, concerning its specific capabilities and limitations. When applying this analysis, the organization creates a list of its strengths, weaknesses, opportunities and threats.
Once the organizational vission, mission, generic strategy and analysis of the external environment have been established, the organization’s strategy can be defined.
SETTING OBJECTIVES. Successful strategic management requires a commitment on the part of managers to a defined set of objectives. Successful managers usually have a goal orentiation, meaning they set and achieve objectives. Objectives state what is to be accomplished in singular, specific, and measurable terms, with a target date. The organization has to write atleast one objective for every major goal in the strategy.
The following presents a model adapted from Max Weber to write effective objectives:
To + action verb + singular, specific, measurable result + target date
CREATE A STRATEGY. After setting the strategy, the next step would be to include everything into an organizational plan. Each strategy is tailored to its company and would therefore not be necessarily successful for another company.
IMPLEMENTING, MONITORING AND EVALUATING STRATEGIES. The last step in the strategic planning process is to implement, monitor and evaluate the plan. Measuring progress towards the objective is also considered an important part of controlling. Staying within the budgets is also crucial when it comes to controlling the objectives. In addition, quality must consistently be controlled.
HR managers need to recruit, select, train, evaluate, and interact with employees differently, depending on organizational strategies.
Organizational structure refers to the way in which an organization groups its resources to accomplish its mission.
Each department affects the organization as a whole and each department is affected by other departments as well. Usually an organization is divided into departments such as finance, marketing production, human resources and so on.
One way to identify an organizational structure is to look at the fundamental components. Complexity, formalization and centralization could be considered structural components.
COMPLEXITY. The first component of organizational structure, is the degree to which three types of differentiation exists within the organization. These different types of differentiation can be horizontal- , vertical – and spatial differentiation. Vertical diferentiation deals with how we break the organization up vertically: the layers of the organization from top to bottom. Horizontal differentiation identifies how we break the organization up horizontally, referring to the different departments. Spatial differentiation refers to the physical seperation of the different departments.
FORMALIZATION. Formalization is the degree to which jobs are standardized within an organization. This refers to the degree to which policies, procedures and rules are created that “program” the jobs of the employees.
CENTRALIZATION. Centralization is the degree to which decision making is concentrated within the organization.
Organizational culture is another characteristic that affects how the HR manager operates within the firm. Providing the right organization culture is one of the most important responsibilities of the CEO and other corporate executives.
Organizational culture consists of the values, beliefs, and assumptions about appropriate behavior that members of an organization share.
There are five artifacts of organizational culture to support employees to learn the culture:
There are three levels of culture, which include behavior, values and beliefs, and assumptions.
The Economic added value (EVA) is a measure of profits that remain after the cost of capital has been deducted from operating profits. It provides a better understanding to managers and stakeholders of the overall business performance. This definition could be translated into the following formula:
EVA = Net operating profit after tax – (Capital used x Cost of Capital)
The Return on Investment is a measure of the financial return we receive because of something that we do to invest in our organization or its people. The ROI is mostly being used in financial analyses.
The ROI could be translated into the following formula:
ROI = Gain from investment – Cost of investment
Cost of Investment
The balanced scorecard (BSC) measures financial, customer service, internal process, and learning and growth (or sustainability) measures. All four elements of the scorecard are just as important, because the success rate in each area affects the other.
The HR Scorecard identifies HR deliverables and HR system alignment, compares HR alignment with strategy, and measures organizational gains created by HR practices.
There are structural and cultural issues that cause organizations not to adapt timely to changes. It’s important for managers to decentralize and allow members within a department to make decisions within their area of responsibility. Formalization should also be reduced, in order to allow processes to adapt to new changes. In addition, more complexity should be allowed, in order for employees to respond in a more suitable way.
This chapter identifies and explains the major components that are considered part of the external environment. Customers, competition, suppliers, labor force, shareholders, society, technology, the economy and governments, are all part of the forces that make an impact.
Having a vision and a mission is considered an essential asset to any organization and the organization cannot survive without these two elements. The vision is someting fuzzy, it's not specific, since it doesn't focus on how a goal or objective is going to be achieved. Instead, it defines a future state for the organization. The mission, however, is more specific, since it is a statement of what the various organizational units will do and what their objective is. Putting the vision and the mission together helps the people in the organization to get a more clear perspective on the direction they are expected to go.
Major components of the organizational structure are complexity, formalization and centralization. These resources must be structured effectively in order for the organization to achieve its mission.
Organizational culture consists of the values, beliefs and assumptions about appropriate behavior that are shared between the members of the organization. The organizational culture speaks by the way people act.
This chapter explores some of the laws HR managers have to follow and the importance of diversity within an organization.
One of the most important definitions when it comes to diversity is discrimination, which is the act of making distinctions among people. Discrimination is something that occurs by HR managers during selection, however it’s illegal discrimination that should not be allowed. Illegal discrimination is making distinctions that harm people and that are based on those people’s membership in a protected class.
The OUCH test is a rule of thumb used whenever you are contemplating any employment action, to maintain fairness and equity for all your employees or applicants. This test should be used when someone is contemplating any action that concerns employees.
Acions can be considered objective or subjective. Something that is considered objective, is based on facts. Something that is concerned subjective is based on an emotional state, not on cognitive knowledge.
Uniform application is considered an action that is being applied uniformly. When asking an applicant to perform a test, it is important to create the exact same testing circumstances, as much as you can control them.
The Department of Labor and the Equal Employment Opportunity Commission (EEOC) has given the Four-Fifths Rule, which is a test used by various federal courts, the Department of Labor, and the EEOC to determine whether disparate impact exists in an employment test. If the selection ratio for any group is less than four-fifths (e.g. Asian males) of the selection rate for the majority group (e.g. white males) in an employment action, then it constitutes evidence of a potential disparate impact.
Reverse discrimination is discrimination against the majority employee group based on a legally protected factor, such as race or religion.
Job relatedness refers to the fact if the action performed is directly related to the primary aspects of the job in question.
The Equal Pay Act is considered an equal employment opportunity (EEO). This act requires the same payment for women as men, where they perform the same job within an organization. The job should identify equal in terms of skill, effort, responsibility and the same working conditions.
In case the pay differences because of a difference in seniority, merit, quantity or quality of production, or any factor other than sex (e.g. training programs), then those differences are legally allowed.
This act can be considered one of the most significant pieces of legislation regulating the EEO. It virtually changed the way of doing business for every organization in the US. The act states it’s illegal to:
“1. To fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or priviliges of employment, because of such invidual’s race, color, religion, sex or national origin; or
2. to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex or national origin.”
Some important concepts introduced during the CRA of 1964 are the following:
TYPES OF DISCRIMINATION.
The 1964 CRA described three types of discrimination. In addition to the three types, religious discrimination and sexual harassment have been identified by federal courts as fourth and fifth type of discrimination.
Disparate (adverse) Treatment exists when individuals in similar situations are intentionally treated differently, and this treatment is based on an individual’s membership in a protected class. Disparate treatment is generally illegal, unless the employer can prove that there was a “bona fide occupational qualification” that caused to intentionally disallow members of a protected group from applying to the job.
Disparate (adverse) impact occurs when an officially neutral employment practice disproportionately excludes the members of a protected group; it is generally considered to be unintentional, but intent is irrelevant. To identify discrimination under disparate treatment, there has to be intentional discrimination. For disparate discrimination, intent is not relevant.
Pattern or practice occurs when a person or group engages in a sequence of actions over a significant period of time that is intended to deny the rights provided by the Title VII of the 1964 CRA to a member of a protected class.
ORGANIZATIONAL DEFENSES AGAINST DISCRIMINATION CHARGES.
The organization does have ways to defend itself against charges of illegal discrimination. The defend can be performed by showing either that there was a need for a particular characteristic qualification for a specific job or that there was a requirement that the business does certain things in order to remain viable and profitable.
The first defense is a bona fide occupational qualification (BFOQ), a qualification that is absolutely required in order for an individual to be able to successfully do a particular job. In this case the quality for the qualification must be mandatory.
A business necessity exists when a particular practice is necessary for the safe and efficient operation of the business and when there is a specific business purpose for applying a particular standard that may, be discriminatory. A business necessity defense is applied in cases to proof it was needed for a safe and efficient operation and that a specific business purpose exists to apply a paricular standard that may, be discriminatory.
Job relatedness exists when a test for employment is a legitimate measure of an individual’s ability to do the essential functions of a job. For job relatedness to act as a defense against a charge of discrimination, the organization’s action first has to be a business necessity, and then the employer must be able to show that the performed test for employment action was a legitimate measure of an individual’s ability to do the job.
The first major law dealing with discrimination against disabled individuals was the Rehabilitation Act of 1973.
A disability is considered a physical or mental impairment that substantially limits one or more major life activities, a record of having such an impairment, or being regarded as having such an impairment. Conditions such as obesitas and left-handedness are not considered disabilities.
An organization is required to make reasonable accomodations to physical or mental limitations of an individual with a disability who was otherwise qualified to perform the “essential functions” of the job, unless it would imply an “undue hardship” on the organization’s operation.
A reasonable accomodation is an accomodation made by an employer to allow someone who is disabled but otherwise qualified to do the essential functions of a job to be able to perform that job. Usually, reasonable accomodation is inexpensive and easy to implement.
When finding accomodations, it is also essential to establish the difference between “essential” and “marginal” job functions. Essential functions are the fundamental duties of the position. A function can be considered essential if it meets the following criteria:
Marginal job functions are those that may be performed on the job but don't need to be performed by all holders of the job.
Employers are, according to the ADA not required to make every job disability friendly. They are:
An undue hardship exists when the level of difficulty for an organization to provide accomodations, determined by looking at the nature and cost of the accomodation and the overall financial resources of the facility, becomes a significant burden on the organization.
The Civil Rights Act of 1991 was enacted as an amendment designed to correct a few major omissions of the 1964 CRA as well as to overturn several US Court decisions. Compensatory damages are monetary damages awarded by the court that compensate the injured person for losses. Such losses can include future pecuniary loss, emotional pain, suffering and loss of enjoyment of life.
Punitive damages are monetary damages awarded by the court that are designed to punish an injuring party that has intentionally, inflicted harm on others. These damages are meant to discourage employers from intentionally discriminating.
USERRA was passed to ensure the civilian reemployment rights of military members who were called away from their regular jobs by US government orders. There is no minimum number of employees required for coverage by USERRA. All employers must, however, comply with the law.
Title II of the Genetic Information Nondiscrimination Act of 2008 (GINA) “prohibits the use of genetic information in employment, prohibits the intentional acquisition of genetic information about applicants and employees, and imposes strict confidentiality requirements.”
The employment of immigrants are ruled by a series of federal laws. The two major laws in this area are the Immigration and Nationality Act of 1952 (INA) and the Immigration Reform and Control Act of 1986 (IRCA).
The various federal equal employment opportunity (EEO) laws are enforced by the Equal Employment opportunity Commission (EEOC). This is a federal agency which has significant power over employers in the process of investigating complaints of illegal discrimination.
The EEOC has three significant responsibilities:
If discrimination has been identified by the EEOC, it will attempt to provide reconciliation between the parties. If an agreement cannot be made, there are two options:
Retaliation is a situation where the organization takes an “adverse employment action” against an employee because the employee brought discrimination charges against the organization or supported someone who brought the discrimination charges against the company.
An adverse employment action is any action such as frings, demotions, schedule reductions, or changes that would harm the individual employee.
Constructive discharge exists when an employee is put under such extreme pressure by management that continued employment becomes intolerable and, as a result, the employee quits, or resigns from the organization.
Affirmative action is a series of policies, programs, and initiatives that have been instituted by various entities within both government and the private sector that are designed to prefer hiring of individuals from protected groups in certain circumstances, in an attempt to mitigate past discrimination.
If a company is a contractor to the federal government and receives more than $10,000 a year they are required by presedential order (Executive Order 1124) to maintain an affirmative action program. There are exemptions to this rule as well.
Diversity is simply the existence of differences—in HRM, it deals with different types of people in an organization. Diversity provides both opportunities and challenges.
Diversity is necessary because as the white population continues to shrink and minority populations grow, interacting with a wide selection of customers and suppliers increases sales, revenues and profits. Embracing diversity therefore, creates business opportunities.
The primary advantages of a diverse workforce is to stimulate and provide more creative and innovative solutions to organizational problems.
Creativitiy is a basic ability to think in unique and different ways and apply those thought processes to existing problems.
Innovation is the act of creating useful processes or products based on creative thought processes.
Divergent thinking is the ability to find many possible solutions to a particular problem, including unique, interested, untested solutions.
One of the challenges of diversity is conflict. There exists functional conflict as well as dysfunctional conflict.
Functional conflict is how organizations go through the process of creating new things. Dysfunctional conflict occurs when conflict gets to the point where creativity is stiffled and almost all work becomes either difficult or impossible.
Cohesiveness is an intent and desire for group members to stick together in their actions.
Quid pro quo harassment is harassment that occurs when some type of benefit or punishment is made contingent upon the employee submitting to sexual advances.
A hostile work environment is a very specific legal term in HRM meaning harassment that occurs when someone’s behavior at work creates an environment that is sexual in nature and that makes it difficult for someone of a particular sex to work in that environment.
A reasonable person is the average person who would look at the situation and its intensity to determine whether the accused perosn was wrong in their actions.
To qualify as sexual harassment in court, a ‘’prima facie’’ (it looking like sexual harassment from a reasonable person’s perspective) has to be shown by the plaintiff. To qualify as prima facie case of sexual harasment the following characteristics must be included:
In order for a organization to be considered for liability, two critical conditions must exist:
The OUCH test is a rule of thumb used by organizations when contemplating any employment action. It is meant to maintain fairness for all employees or applicants. OUCH stands for Objective, Uniform in application, Consistent in effect, and Has job relatedness. Employment actions should be objective rather than subjective in any case, meaning all employment tests should be applied the same way for all applicants. In addition, the employment action should not have an inconsistent effect on any protected groups. The test must also be directly related to the job for which it has been prepared.
The EEOC is a federal agency that investigates allegations of illegal discrimination that could be based on color, race, religion, sex, national origin, age, disability or genetic information. The EEOC has three general functions: investigating and resolving discrimination allegations, gathering statistical information on complaints and running education and outreach programs on what illegal discrimination is.
Employee rights include suing employers and engaging in the EEOC investigation. Employer rights include avoiding retaliation for employees participating in the EEOC investigation and avoiding a work environment that could lead to constructive discharge.
Equal employment opportunity deals with different laws and regulations that are specifically and narrowly defined, covering subjects as affirmative action and diversity.
In order to maximize productivity within the organization, it is important to place the right people in the right positions. The reason for this, is that mismatched employees have lower job satisfaction, leading to absenteeism, higher turnover and of course, lower levels of productivity compared to correctly matched people.
Workflow analysis is the tool that we use to identify what has to be done within the organization to produce a product or service.
Workflow analysis is being performed by analyzing backwards and looking at the output. The steps in a process should be designed based on the desired end result.
There is a simple mnemonic tool (a memory tool) available to remember what resource inputs we have available. It’s called the four M’s:
Job analysis is the process used to identify the work performed and the working conditions for each of the jobs within our organizations. It uses a small part of the workflow. The result of the analyses includes duties, responsibilities, skills, knowledge, outcomes and other possible factors. From this analysis the job description and the job specification are prepared.
Job description identifies the major tasks, duties and responsibilities that are components of a job. The job specification identifies the qualifications of a person who should be capable of doing the job tasks noted in the job description.
Job analysis is required for an organization in order to perform any of the following functions:
Other elements that can be effected by performing a job anlaysis are individual career planning and development, organizational strategy, employee relations and legal compliance.
Databases can be used to perform a job analysis. The US Department of Labor’s O* NET is a free resource to be used for this analysis. It identifies six categories within its occupational classification structure.
QUESTIONNAIRES. There is a number of highly valid and reliable questionnaires available for use in the job analysis process. This questionnaire can be handed to many different people in order to analyze the job in question. This questionnaire helps to identify functions that are part of a specific job.
Questionnaire advantages:
Questionnaire Disadvantages
INTERVIEWS. During an interview questions are asked of the incumbent and the answers are compiled into a profile.
Interview advantages
Interview disadvantages
DIARIES. In this case the worker maintains a diary and writes down all the tasks accomplished while performing the job.
OBSERVATION. In this case an observer shadows the worker and logs the tasks performed by the worker over a period of time. This way obvious tasks, that might have been forgotten to be put on paper or mentioned by the employee performing the job, are recorded as well.
SUBJECT MATTER EXPERT (SME) PANEL. In some cases, a panel of subject matter experts are called upon. This method is also called the technical conference method and allows the employees to use their expertise to identify the key factors of the job.
Job design is the process of identifying tasks that each employee is responsible for completing, as well as identifing how those tasks will be accomplished. Job design affects job satisfaction and productivity.
There are four primary approaches to job design: mechanistic, biological, perpetual-motor, and motivational.
The job characteristic model provides conceptual framework for designing or enriching jobs based on core job characteristics. This model can be used by individual managers or team members. In JCM the five core job characteristics can be fine-tuned to improve the outcome of a job when it comes to the employees’ productivity and their quality of working life.
The first three core job characteristics lead to an experienced meaningfulness of work. When an employee is offered a variety of tasks to perform and perceives the tasks and therefore the job as meaningful, the employee is more likely to stay in the job and perform well. In addition, if people are given responsibility, they will likely experience to feel responsible for the decisions they are making. Feedback will lead to the psychological state of knowledge of the results. Knowing this result can create a psychological satisfaction as well.
Job simplification is the process of eliminating or combining tasks and/or changing the work sequence to improve performance. Job simplification breaks a job down into steps using a flowchart, then employees analyze the steps to check if they can perform the following:
Job expansion is the process of making jobs broader, with less repetition. Jobs can be expanded through rotation, enlargement, and enrichment. This supports in making the work more varied.
The purpose of team-based jobs is to provide a team with an entire piece of work. This can be considered a form of job enrichment. As a result, autonomy, task identity and taks siginificance go up at a substantial rate.
Another tool that can be used in the workplace to improve motivation in the entire groups of jobs include flextime, job sharing, telecommuting, and a compressed workweek.
Flextime allows employees with a flexible set of working hours. There must be a set of core hours where are employees are at work.
In job sharing (also called work sharing) two or more people are allowed to share one job, including the workload and benefits attached to this job.
Telecommuting allows workers to work from different locations. It also saves an organization money since no office space is required for every employee.
A compressed workweek means that a normal regular 40-hour workweek of 5 days is being compressed in less days. For example, a 40-hour workweek can be compressed to a 10-hour workweek based on 4 days.
HR Forecasting identifies the estimatd supply and demand for the different types of human resources in the organization over some future period, based on analysis of past and present demand.
QUANTITATIVE FORECASTING. Quantitative forecasting utilizes mathematics to forecast future events based on historical data. The three most common methods are trend analysis, ratio analysis and regression analysis.
Trend analysis is a process of reviewing historical items such as revenues and relating changes in those items to some business factor to form a predictive chart.
Ratio analysis is the process of reviewing historical data and calculating specific proportions between a business factor (such as production) and the number of employees needed. Regression analysis is a statistical technique that identifies the relationship between a series of variable data points for use in forecasting future variables. Statistical software can be used to create a regression diagram.
QUALITATIVE FORECASTING. Qualitative forecasting uses nonquantitative methods to forecast the future, usually based on knowledge provided by a pool of experts on a certain subject or industry. The experts will be able to provide a consensus on how to adjust the quantitative data for today’s environment.
Options in cases of a labor surplus are downsizing, layoffs, pay reduction, natural attrition, hiring freezes, retraining, transfers and early retirement.
A layoff is a process of terminating a group of employees, usually due to some business downturn or perhaps a technological change, with intent to improve organizational efficiency and effectiveness.
When a labor shortage occurs, possible solutions could be working overtime by current employees, hiring temporary or contract workers, technological innovation, retaining workers, outsourcing and turnover reduction. Also new hires, are a solution to this problem.
Gig work is not going to overtake regular employment as the primary means of labor engagement any time soon. However, it is increasing in a massive rate.
Automation work – work that was previously peformed by a person and now has been taken over by a machine – is increasing at a fast rate.
The workflow analysis starts by observing the end result. Once the expected results are established, the required steps in order to obtain these results can be identified. This forms an analysis of the tasks that will have to be performed in order to create the expected output. Job analysis is the basis of almost everything that HR executes. Jobs need to be analyzed in order to perform HR planning, compensate employees, recruit, select, train and manage people successfully.
The four major tools for motivational job design are job simplification, job expansion, team-based job design and flexible job design. The two types of HR forecasting are qualitative forecasting and quantitative forecasting. The three most common quantitative methods for forecasting are trend analysis, ratio analysis and regression analysis.
When an organization is facing labor surplus or shortage, there are various options that apply depending on the need. For a labor shortage are overtime, hiring temporary workers, outsourcing, reducing turnover and hiring new employees. The options for a labor surplus are layoff, pay reduction, natural attrition, a hiring freeze, retraining and transferring and early retirement.
The level of automation has increased severely the past years. With the speed of computers there is a possibility to think, learn and analyze faster.
The total costs associated with recruiting, selecting, and training new employees can often add up to as much as 300% to 400% of their annual salary. After the forecasting process and job analyses, the talent acquisition process can be started. This meant the correct numbers and types of people will have to be recruited.
Recruiting is the process of creating a reasonale pool of qualified candidates for a job opening.
There are several factors that influence the ability to recruit individuals at a particular point in time. One factor is the general shape of national and world economies. In addition, legal and regulatory aspects can have some effects on the hiring of part-time and temporary workers instead of full-time employees.
The external factors which are infuencing recruiting fall into two large categories: the available labor market and the social and legal environment.
The labor market is the external pool of condidates from which the recruits are being drawn. When studying the labor market, a research on the supply and demand in a particular category of jobs should be studied. In addition, generational factors in the labor force should be taken into consideration. In the US workforce, currently the millennial generation is the biggest generation. The current generations are: baby boomers (1946-1964), Gen X or the baby bustes (1965-1979), Gen Y or the millennials (1980-1994) and just the beginning of Gen Z or the iGeneration(1995-). Each generation tends to work differently. The millennial generation has shown to work better in a collaborative environment.
Also, competitors should be taken into account when studying the labor market. If, for example, there is great competition to hire technical or capable employees, the recruiting environment will be considered to be more difficult.
SOCIAL AND LEGAL ENVIRONMENT. The social environment people are operating in nowadays, also influences the way recruiting is being performed. Time to ourselves, job satisfaction and opportunities to grow and move up in the company are considered way more important than during the past.
Once knowledge on the labor market and legal environment is obtained, the internal issues that control recruiting processes should be considered. When is a recruiting process required? What alternatives are there to recruiting (outsourcing)? Policies must be set up to maintain these topics and consistency should be cherished as well during this process.
Important things to consider when establishing how to move through the recruiting process:
There should be no need to hire new employees if a temporary solution like working overtime for one or two months, might solve the problem. It is also important to consider the current labor market if the idea exists to hire new employees. Depending if the labor market is tight or not, it might be beneficial to hire new employees. A policy within each organization should be created to determine when the labor market should be utilized and when it shouldn’t.
There should be a plan that explains in which situations there should be recruited from local sources, globally or even internationally.
Social media profiles, such as LinkedIn and Facebook are being heavily used to assist HR managers in the recruiting process. The social media platforms allow HR managers to search more easily for specific employees with a detailed set of skills.
Nowadays, social media provides HR managers with a lot of valuable information. Facebook was estimated to have over 1.9 billion of users during 2017, meaning this provides a huge insight in the possible labor market. In addition, for higher-level jobs, where there will be fewer individuals with the required skills available, job sites like Indeed, Jobvite, Monster.com and Google Jobs can provide a much larger exposure of the vacancy to a group of potential candidates.
Social media sites can also assist in providing core information about the organization and its cultural values to the potential candidates. This particular information can provide the candidates with the necessary information to decide if the organization fits their personal preferences and needs. This prevents the organization from hiring people that are not a fit and having them to quit the job in a fairly short amount of time.
Policies should be created to regulate in which circumstances there will be recruited from the internal pool and for which circumstances there will be a search outside the organization. These policies will assure that the internal employees will have a "fair" perspective of the recruiting process.
Internal recruiting involves job openings with current employees or people the employees know.
There are two common types of recruiting that can be considered:
When it comes to promotions from within, there are several options for the organization. The organization can choose from open, targeted or closed recruiting.
Open recruiting refers to advertising a job openly within the organization, so each qualified person can apply for the job. Target recruiting means that the job is not advertised openly, but managers are asked privately to nominate the most suitable candidates for the vacancy. Closed recruiting arises when hiring managers have a space to fill within their team and they notify the HR team.
A managerial sponsorship can be requested for a peson to be considered for a job opportunity through internal recruiting, where this person hasn't been selected yet in the regular recruiting process.
External recruiting is the process of engaging individuals from the labor market outside the firm to apply for a job.
There are different sources available for the external recruiting process:
The following challenges could arise during the recruiting process:
The yield ratio is a calculation of how many people make it through the recruiting step to the next step in the hiring process.
The cost per hire shows the costs involved with hiring an applicant:
Cost per Hire = Sum (External Costs) + Sum (Internal costs)
Number of hires
The primary goal of the recruiting process is to get people within the organization to apply for different job vacancies or get outsiders to join the company. A reasonable pool of candidates must be created in order to select qualified people to work within the organization. The main external forces within recruiting are the external labor market and the social and legal forces that apply as well as the potential recruits. Supply and demand, the unemployment rate, competitors and social media are factors that influence the search of potential recruits.
Main items that need to be considered before recruiting are when to recruit, alternatives to recruitment, the reach of recruiting efforts and the issue of social media and. The advantages of internal recruiting are the increase in organizational commitment and job satisfaction, the ability to learn more on the bigger view, the existing relationship between the organization and the employee. A possible disadvantage is a smaller pool of applicants and a new job position to fill. The advantages of external recruiting are avoiding resistance to change, encourage innovation, increase creativity and to find people with the right and unique skill sets. A possible disadvantage is disruption of the workforce and longer recruiting process.
The selection process is the process of choosing the best-qualified applicant who was recruited for a given job. The OUCH-test could be applied in this case to measure if a particular tool or measure should be used during the selection process.
The tool should be objective and facts and knowledge should be used. There should be a uniformity in application of the measure. In addition, the tool or measure should have job relatedness: it should show it has a relationship with the essential requirements of the job.
A negligent hire is a legal concept that says if the organization hires someone who may pose a danger to coworkers, customers, suppliers, or other third parties, and if that person then harms someone else in the course of working for the company, then the company can be held liable for the individual's actions.
When looking of the perfect fit for the organization there are three categories in which there should be a fit:
The Uniform Guidelines on Employee Selection Procedures (UGESP) provide information that can be used to avoid discriminatory hiring practices as well as discimination in other employment decisions.
The UGESP also mentions the need for a valid employment test that is used by an employer to be true and reliable.
Validity is the extent to which a test measures what it claims to measure. The UGESP notes that in order to fulfill the required validity, users may rely upon criterion-related validity studies, content validity studies, or construct validity studies to validate a particular selection procedure.
The measures the UGESP is referring to are the following:
The first step in the recruiting process is to have applicants fill out an application form or have them send in their resume. Then a preliminary screening takes place, which performs a quick background check testing and initial interviewing to narrow down the applicants to the best matches for the job.
During an interview, no job applicant can legally be asked any information that can be used to discriminate against the job applicant based on protected group characteristics. Therefore, the elements of the OUCH-test should always be taken into consideration and be memorized:
Please note that state and local laws may vary when reviewing an application.
During the selection process, valid tests should be performed to select the appropriate candidates. However, the EEOC stated that the organization will have to show that the selection procedure being used is a valid measure for the job being filled.
There are three types of basic interviews that can be performed.
In a structured interview, all candidates are asked the same questions. In an unstructured interview there are no preplanned questions or sequence of topics. In a semistructured interview, a planned list of questions is available, but some unidentified questions will be asked as well to the applicant.
During an interview, there are four types of questions that can be asked:
Preparing an interview consists of six steps that should be performed.
When conducting the interview, there are five steps that should be followed:
Background checks are required to prevent negligent hires. In addition to the verification of the information provided by the applicant through the application forms and emails, there should be additional background checks performed. The following background checks are available:
The following questions should be asked when the decision has to be made on hiring the applicant:
There are two methods available for the final selection process:
It is also beneficial to obtain the coworkers opinion when hiring the right applicant, since they are the ones who will have to work with the new employee. The best candidate should be contacted and offered the job. If the candidate does not accept the job, the next-best candidate can be offered the job.
The steps in the selection process when recruiting a new employee are (1) the application, (2) preliminary screening, (3) initial interview and testing, (4), second interviews, (5) detailed background checks, (6) selection decision and conditional job offer, (7) drug screening and physical exam and (8) Hiring. The selection process is a very important step because this is the phase where the best eligible applicant must be chosen. Hiring unproductive members can cause lower motivation and job satisfaction in all companies' employees and is therefore considered a risk that should be avoided at all times.
There should be a fit with the organization on three levels in order to hire the applicant: a personality-job fit, ability-job fit and person-job fit. Managers need to get the best productivity out of their workforce. To accomplish this, managers have to treat employees differently, but fairly, in order to put the right person in the right place. Common problems that managers encounter during the selection process are rushing, stereotyping, halo and horn effects and premature selection.
The steps of an interview performed by HR are opening the interview, presenting a realistic job preview (RJP), asking questions, introducing top candidates to coworkers and closing the interview.
When the new application has been hired and the selection process has been completed, the next step is to train the applicant to successfully work within the new environment. The employee should atleast get a basic training on the organization and its routine processes. Effective development and training should be considered investments, not expenses.
Training is usally based on the competencies employees are required to have. Competency models identify the knowledge, skills, and abilities (known in HR as KSAs) needed to perform a particular job. The competency models can be utilized to identify what trainings will be required.
Training is the process of teaching employees the skills necessary to perform a job. Employees are trained to provide them with the KSAs that they need to succeed at their job. The training is mainly intended to put to immediate use by the employee.
Employee development is ongoing education to improve knowledge and skills for present and future jobs. This teaches employees how to move up in the organization.
When is training needed?
Training is required in the following situations:
When establishing the training remedies, it is important to know who needs training and what kind of training. The following steps are, therefore, considered part of the training process:
The first and probably most important step in establishing the training process, is the needs assessment: the process of analyzing the difference between what is currently occurring within a job or jobs and what is required - either now or in the future - based on the organization's operation and strategic goals.
If the needs assessment is not done correctly, a training course may be poorly designed and it can cover the wrong information.
As part of the needs assessment, there are some common challenges that should be discussed. The common challenges can be divided into the following categories:
The managers needs to select the employees that must be part of the training. It's common for employees to be uncertain about the training process because of their ability to learn. Therefore the employer needs to establish if the employees are ready and willing to learn.
ABILITY. Self-efficacy is whether or not a person believes that they have the capability to do something or achieve a particular goal. If an employee's self-efficicacy is low, it's highly likely that they will not sucessfully complete the training process.
WILLINGNESS. It's important for employees to be willing to learn what is taught in the training process. The employer needs to define the motivation of the employees to learn. Sometimes employees feel that they don't need to learn new information.
Learning within an organization refers to the fact that the employer needs to know that the employee has learnt what the organization was trying to teach. Learning is any relatively permanent change in behavior that occurs as a result of experience or practice. This definition is functional because it allows to measure the change by the way employees act.
There are three common learning theories: classical conditioning, operant conditioning and social learning.
CLASSICAL CONDITIONING. Classical conditioning is a technique made famous by Ivan Pavlov. Pavlov proved that animals could involuntarily react to a stimulus in their environment if they associate that stimulus with something else. Human beings react to stimuli the same way animals do, involutarily.
OPERANT CONDITIONING. This type of conditioning is based on reinforcement. Behavior is based on consequences received from behaving a certain way.
SOCIAL LEARNING. This type of learning does not involve consequences from or our actions, but consequences from another person's actions. Social learning is also called vicarious learning, meaning "experiences or realized through imaginative or sympathetic participation in the experience of another."
SOCIAL MEDIA FOR SOCIAL LEARNING. This type of learning is considered to be very effective since it is easily accessible nowadays and readily available.
There are four types of shaping behavior. Understanding and knowing these types can assist in motivating coworkers to act in ways which are required for improvement and success in their jobs.
The following types of shaping behavior are available:
The above tools allow employers to change the behavior of the employees in the ways they do want them to behave. In cases where target behavior must be increased, positive reinforcement or negative reinforcement can be used. In case targeted behavior must be decreased, punishment or extinction should be used as a method.
The Fleming learning style provides three primary learning options: visual, auditory and tactile learning. Tactile learnings prefer to learn by doing. Depending on the type of people an organization is dealing with, the most suitable learning style can be applied.
The Kolb learning style is considered to be more complex and was developed by David Kolb. A self-assessment should be completed for this style to predict the preferred learning style.
For on-the-job training, a four step procedure should be followed, to complete the training method efficiently:
One of the most common assessment options, was first identified by Donald Kirkpatrick and is called the Four-Level Evaluation Method. It measures reaction, learning, behaviors, and results.
Reaction evaluations measure the response of individuals to the actual training process. The participants are directly asked how they feel about the training, the content and process.
Learning evaluations are considered level-two measures in order to determine what knowledge the individual has gained, if they learned any new skills from the training, and whether the person's attitude towards their knowledge or skill set has changed as a result.
Behavior evaluations are third level evaluating training processes. Behavior evaluations are designed to determine whether or not the trainee's on-the-job behavior has changed because of the training provided. This measure is usually performed in the form of observation of the indidivual on the job, after completion of the training procedure.
Results evaluation is the fourth and final level of training evaluation. This measures if the behavioral changes of the individual has impacted the organization's results positively.
Measuring training success can be done by using the Return on investment (ROI) as a measure. The following formula should be applied:
ROI = Gain from investment - Cost of investment
Cost of investment
In addition, customer satisfaction is also an area where the training results would be interesting to measure.
There are series of common methods used by organizations for development. There are four ways for development:
The major difference between training and development is that training is designed to provide employees with the right knowledge, skills and abilities (KSAs) that they require to succeed in their job, whereas development is designed to teach workers how to move up in the organization in the future by becoming skilled at the tasks they need to know, when performing the higher-level job. Important aspects to pay attention to are training of the new workforce, to introduce the new employees to the culture of the organization. Other areas of training that are considered important are changes of processes or procedures, a failure to perform successfully or when employee development opportunities arise.
The first step when deciding a necessary training is to perform a needs assessment. The second step involves selecting how to shape employee behavior.The next steps are desiging the training, selecting the delivery method and delivering the training. Common challenges when providing training are including unprepared workers, difficulty in identifying the ROI provided, employee resistance, matching the training to strategic goals and logistic issues.
Three common learning theories that apply are classical conditioning, operant conditioning and social learning. The delivery types of the training include on-the-job training (OJT), distance learning and simulations.
Performance evaluation is considered an important part of the job of HRM managers, in order to check if the jobs are being performed in the right way. The performance of employees should be managed over time and they should be motivated to stay productive.
Performance management is the process of identifying, measuring, managing and developing the performance of the human resources in an organization.
Performance appraisal is the ongoing process of evaluating employee performance.
There are four steps which are considered to be part of the performance appraisal process.
The American National Standards Institute (ANSI) has outlined the minimum required elements of a performance management sytem for goal setting, performance review and performance improvement strategies.
In order to obtain an accurate measure of performance, it must be valid, reliable, acceptable, feasible and specific and based on the mission and objectives.
If performance appraisals are done in the correct way, they can provide the organization with a series of valuable results. There are three major reasons why performance evaluations are completed and why they are so critical to continually improve organizational performance.
Communication (informing) between management and employees can be influenced by performance appraisals. Successful communication requires two-way interaction.
Decision making (evaluating) about employees within the organization is also an important part connected to performance appraisals. Decisions need to be made based on the information that is obtained from communication.
Motivation (engaging) is defined as the willingness to achieve organizational objectives. The organization wants to create willingness to achieve the organization's objectives by handing over performance appraisals.
An effective performance appraisal has two parts, evaluating and motivating and it does both parts well. Evaluating is about assessing the past performance and motivating is about influencing the future performance.
A commong problem in evaluation is overpowering the employee with a lot of negative information about their performance they have not heard during coaching. As a human reaction, employees will stop listening and raise their shield towards all this negative information. Usually employees consider this unfair or one-sided.
The key to avoid problems during an evaluation is not to mention a weakness that the employee has not been made previously aware off. This is essential in order to run a smooth evaluation process.
In order to improve the performance of the employees, the manager needs to be able to provide motivational opportunities for the employees. The tools, training and other methods that will allow employees to improve their behavior should be provided by the organization.
Separating evaluation and development into two different interviews can also be beneficial. The first meeting is to evaluate the employee's past performance, to point out the strengths and areas of improvement. The second meeting, should be used to discuss a development plan that should lead to increased performance, which will result in a higher future evaluative rating during the next appraisal.
There are different forms of appraisal that can be discussed. The three primary options are traits, behaviors and results.
Traits identify the physical or psychological characteristics of a person. The traits can also be discussed during the performance appraisal process. Traits such as inquisitiveness, conscientiousness and general cognitive ability are considered valuable skills in jobs that require management and leadership skills.
Behaviors are simply the actions taken by an individual. This refers to the things that individuals do and say. Therefore, behavioral appraisals measure what individuals do and say at the workplace, not their personal characteristics. This feedback is more respected and honoured by employees since they prefer to be judged on what they do and not by who they ''are''.
Results are simply a measure of the goals achieved through a work process. Using this as a particular measurement tool allows the management to identify if the organizational goals are achieved by the performance of the employees.
From all these methods results and behavior are the most defendable options for appraisal, since they are more reliable and valid than trait based appraisals.
The critical incidents method is a performance appraisal method in which a manager keeps a written record of the positive and negative performance of the employees throughout the performance period.
The management by objectives (MBO) method is a process in which managers and employees jointly set objectives for the employees, periodically evaluate performance, and reward employees according to their results.
The narrative method or form requires a manager to write a statement about the employee's performance.
The graphic rating scale form is a performance appraisal checklist form on which a manager simply rates performance on a continuum such as excellent, good, average, fair and poor.
A behaviorally anchored rating scale (BARS) form is a performance appraisal that provides a description of each assessment along a continuum.
Ranking is a performance appraisal method that is used to evaluate the employee performance from best to worst.
The best method is considered to be a combination of different methods, other than just using one. For developmental objectives, the critical incidents, MBO and narrative method work well.
The assessment should be performed by the supervisor, peers, subordinates, customers, the employee him- or herself or the 360-degree evaluation, depending on the preference. A return on investment should be made, therefore there should be a realistic view towards the costs and what options would be feasible in the depending cases.
Bias is a personality-based tendency, either towards or against something. Bias is towards or against an individual employee within the organization.
Stereotyping is mentally classifying a person into an affinity group and then identifying the person as having the same assumed characterstics as the group. Although stereotyping is commonly perceived to be negative, there is also positive stereotyping.
Halo errors occur when the evaluator creates a generally positive impression of an individual and then artifically extends that impression to many of the individual's performance categories, which results in an overall positive evaluation of that person. This results in generally "good" impressions being translated by managers to overall good impressions, while the opposite might be true for other areas of the employee it concerns.
Distributional errors occur in three forms: severity or strictness, central tendency and leniency. These errors are based on the standard normal distrbution, also known as the bell curve. In severity or strictness, the rater values (nearly) everyone below average. Central tendency error occurs when the rater values everyone under their control as average, resulting in nobody being rated either good or bad. Leniency error occurs when the rater values everyone as above average.
A similarity error occurs when the rater gives better evaluations to employees whom they consider more similar to themselves and poorer evaluations to employees whom they consider to be different from themselves.
Proximity error occurs when similar grades may be given to items that are close to eachother on the evaluation form, regardless whether the employee performs similarly in those categories.
A recency error occurs when the rater uses only the last few weeks of a rating period as evidence when preparing the evaluation form.
A contrast error occurs when the rater compares and contrasts performance between two employees, instead of using absolute performance measures to assess each employee individually.
Attribution error occurs when an individual makes an assumption about the reasons or motivation for an observed behavior. This can be the case when the rater observes an employee action and assumes that the individual has a negative attitude toewards their job and performs poor.
Performance management is a continual process which identifies, measures, manages and develops performance of people within the organization. Its goal is to improve employee performance over time. Performance appraisal is part of the process that evaluates the employee's performance. The purpose of a performance appraisal is to formally communicate to the employee how the performance is perceived by the organization. The second reason is to take evaluative decisions. During a performance appraisal traits, behavior and results are being evaluated.
Some traits are favoured when it comes to a certain job type, because those traits have been proven to perform better in a certain job. However, there are many traits that don't influence job performance as well. Measuring behaviors is a more suitable method, because physical actions can be directly measured and are therefore a more likely assessment factor of the individual's performance. Eventually, the performance can be evaluated based on the results.
Personal biases and stereotyping are two of the biggest appraisal problems. When accurate performance measures are developed, these problems can be prevented. This can also be done by performing the OUCH test. In addition, the evaluators should be trained and additional raters could be appointed in order to prevent biases.
This chapter follows up on the developmental interview in order to keep improving the employee relations. Individual performance will be managed through coaching, counseling and to discpline and terminate employees who don't perform within the acceptable norms. Therefore it is utmost important to understand the employee and management rights, so developed and disciplined employees can create high-performance teams within the organization.
Priviliges are things that individuals are allowed to do based on asking permission from an authority. Therefore, a privilige must be earned, because an individual needs to perform something successfully in order to obtain the privilige.
A right is something a person in a society is allowed to do without any permission required from an authority. Rights are based on the membership in the society.
Right of free consent refers to the right of the individual to know what they are being asked to do and the possible consequences of actions to the individual or others, inside and outside the organization.
Generally, managers in the workplace have the right to monitor the workplace, to ensure that the employees are acting legally and ethically in all of the actions that they take on behalf of the organization. One kind of monitoring that is commonly used is website monitoring, to assure the organization that the employee is not defaming anyone.
Employment-at-will allows the company or the worker to break the work relationship at any point in time, with or without any particular reason, as long as in doing so, no law is violated. However, employment-at-will is limited in many jurisdictions. There are three standard exceptions for employment-at-will:
Coaching is considered to be an important managment skill used to get the best results from each employee. This is considered a popular approach to building leadership skills. Coaching is the process of giving motivational feedback to maintain and improve performance.
DETERMING CORRECTIVE COACHING ACTION. Coaching is required in area's where the performance is considered to be below the aspired levels. The following formula applies in this case: performance = Ability x Motivation x Resources.
THE COACHING MODEL. Coaching is a way to provide continuous feedback on the performance of employees. Weak employees are advised to improve their performance.
The following four step coaching model applies when performance should be improved:
During a coaching process, the performance is being fine-tuned. However, during counseling and disciplining, you are dealing with an individual who is not performing as expected. Management counseling is the process of giving employees feedback and referring employees with problems that cannot be managed within work structure to the organization's employee assistance program.
TYPES OF PROBLEM EMPLOYEES. Employees with problems display certain recognizable behavior and performance-related issues. They also deliver poor-quality work, don't get along with coworkers, display negative attitudes and they frequently don't show up for work. Research has shown that low performance workers demotivate high performance coworkers and that low performers: hurt workplace morale, form an obstacle to innovation and when in managment positions, directly affect attrition.
There are four types of problem employees:
PERSONAL PROBLEMS AND PERFORMANCE. A manager should not give advice on how to solve personal problems. Employee assistance programs (EAPs) provide a staff of people who help employees get professional assistance in solving their problems.
The job of a manager is to enforce the rule and therefore it is not a manager's job to be liked. The goal is to enforce the employees consistently without favoring anyone.
Discipline is corrective action designed to get employees to meet standards and the code of conduct. The main goal of coaching, counseling and disciplining is to change behavior.
Just cause is a set of standard tests for fairness in disciplinary actions- tests that were originally used in union grievance arbitrations. These tests have been adopted to include fairness. The Just Cause standards try to ensure that any disciplinary action is investigated fairly and completely and provide action that equals the level of offence. The standards are the following:
Progressive discipline is a process in which the employer provides the employee with opportunities to correct poor behavior before terminating them. Progressive discipline is typically used in cases of minor behavior events such as arriving late to work. The progressive disciplinary steps in this case are (1) informal coaching talk, (2) oral warning, (3) written warning, (4) suspension, and (5) dismissal.
Each time an employee should be disciplined, the following steps must be followed:
Unfortunately, the designed steps to provide feedback to the employee and improive their behavior will not always work. Since turnover is considered extremely expensive for an organization, it is not preferred to terminate any employee. It is important that during the process of termination that the employee is treated the same way as other employees who have performed the same infractions.
In case of gross negligence there is a serious failure to exercise care in the work environment. This is a reckless action that could cause harm to others.
Serious misconduct is intentional behavior that has the potential to cause great harm to another or the company. An example of this is bringing a weapon to work.
Leadership is the process of influencing employees to work toward the achievement of organizational objectives. Success or failure is based on the performance of top management.
Contingency leadership or situational leadership means changing characteristics to meet situational characteristics. Leaders have to take into account contingency factors as well.
A leadership model is a short summary of the theory that should be used when selecting the appropriate leadership style. The situational management model promotes positive leadership:
Team building program goals vary considerably, depending on the needs of the group and the change management skills. Some typical goals are:
People go through four stages when facing change, which are denial, resistance, exploration and commitment.
The commonly accepted individual rights in the workplace are free consent, right to due process, right to life and safety, right of freedom, right to privacy and right to free speech. The rights of management include create and enforce a code of conduct, create data and device policies, monitor the workplace, identify employment relationships, set up an orientation period and the right to test for drugs.
Coaching is designed to give employees feedback in order to improve their performance over time. The management counseling process is designed to provide employees with feedback so they understand that their performance level is not acceptable. Progressive discipline is used for minor disciplinary infractions within the organization. The sequence for progressive discipline is: (1), informal talk, (2) oral warning, (3) written warning, (4) suspension, (5) in some cases demotion and (6) dismissal.
The factors that are part of positive leadership in order to be successful are employee capability, directive behavior, supportive behavior and management style. The four stages of the change process include denial, resistance, exploration, and commitment. Denial is the natural reaction of employees when change is announced. The next step will be resistance when it's clear to employees their work will be affected. After the changes, the employee gets to explore the effect the change has made within the working environment.
People in organizations must be able to communicate well with each other in order to accomplish goals. Communication is the foundation of human resource skills. In addition, this is considered to be a transferable skill.
Trust is faith in the character and actions of another. It is a belief that another person keeps their promise and does what he or she says, and not take advantage. In today's business we see a crisis of trust, meaning we have to convince people to trust the organization.
Good managers should be good communicators. Communication is the process of transmitting information and meaning. Communication involves providing information to others in the role of sender and receiver of messages. Employees should have a trusting relationship with their manager when it comes to communication. In any communication, receivers consider the trust they have in the sender including the senders' credibility.
The message sending process consists of five steps:
Checking understanding of the recipient is a very important step. Feedback is information provided by the receiver that verifies that a message was transmitted sucessfully. If no one asked a question after communication, that doesn't mean the communication was performed properly. Senders of the message should therefore, obtain feedback from the receiver to make sure they ''really'' understand the message.
Paraphrasing is the process of restating a message that has been communicated by the sender in the recpient's words.
It is important to be just as good in sending messages as in receiving messages. Listening, is therefore an essential part of communication. Successfully receiving and interpreting messages is not as easy as it might seem.
Listening skills are considered to be a very important skill for graduates nowadays. Fortunately there are listening processes that can be performed to improve the listening skills.
The message receiving process includes several elements such as active listneing analyzing and checking for understanding. Active listening is the intention and abilitiy to listen, use the content and context of the communication correctly and respond appropriately. The following tips can provide support when it comes to improving listening skills:
As with many management processes, a couple of legal issues affect the labor relations. All managers must understand the contraints that are being set by these labor laws to successfully perform their jobs. The major laws in the United States are the Railway labor Act (RLA) of 1926, the National Labor Relations Act (NLRA) of 1935 (Wagner Act), The Labor Management Relations Act (LMRA) of 1947 (Taft-Hartley Act), the Labor Management Reporting and Disclosure Act of 1959 (Landrum-Griffin Act or LMRDA) and the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act).
A whistle-blowers is an individual who tells an authorative organization outside the individual's own company about actions within the company of which the individual thinks it's illegal. Laws as the Federal False Claims Act protect whistle-blowers from exposing fraud.
There are incentives for whistle-blowing in many federal and state laws and therefore organizations need to create incentives as well, to bring complaints as fraud to the attention (or any other illegal activities).
There are six things that can encourage internal reporting and limit outside reports of dangerous actions by the firm:
There are different kind of contracts, to disclose both formal and informal agreements. An express contract is a transaction in which the agreement between two parties is specifically stated, this could be orally or in writing.
An implied contract exists when "the parties form an agreement from their actions rather than from a specific oral or written agreement."
A quasi-contract is a court-ordered implied agreement to prevent one party in an action from benefitting at the expense of another party.
Wrongful discharge is simply terminating an individual employee for an illegal reason, either in violation of a contract or in violation of state of federal law. Even if the employee is at-will, employers are not entitled to just terminate the contract. Usually labor contracts contain clauses which state that it is considered a wrongful discharge. It is important to understand these clauses clearly, in order to prevent contract violation.
The United States has a long history of unions and labor rights creation. Therefore, workers in the US have more rights and freedom than other workers in other countries. Currently, most organizations don't have unions as part of their HR process.
People join unions for different reasons. This could be increasing pay and benefits, good health care coverage and retirement plans. There are good an bad sides when it comes to unions of organizational workforces. On one hand, unions have the task and responsibility to provide their members with jobs in which they are provided with fair wages and good benefits, as well as protecting them from arbitrary disciplinary or other negative actions imposed by employers. On the other hand, unions frequently spike up employer costs, protect employees and could disrupt organizational work through strikes and other work stopping actions.
Labor relations are the interactions between management and unionized employees. They are also called union-management relations and industrial relations.
Collective bargaining refers to the negotiation process resulting in a contract between union employees and management that covers employment conditions. The most common employment conditions covered in contracts are compensation, hours and working conditions. However, job security conditions remain a big bargaining issue for many unions.
A grievance is a formal complaint concerning pay, working condition and violation of other factors that are part of a collective bargaining agreement.
Grievance procedures are meant to protect employees against arbitrary decisions mde by management. These issues relate to discipline, discharge, promotions and benefits. Grievance procedures provide a process to allow an individual to communicate a complaint and make the company solve the issue in a timely manner.
The existance of such a grievance mechanism will generally motivate employees to raise conerns about fairness, working conditions, or contract provisions, directly with management.
Management also has rights when it comes to unions organizations and labor relations. It is within the responsibility of the managers to control and manage issues that arise concerning union and labor issues and protect the firm and all stakeholders.
There are different actions management can take in order to limit the effects of unions:
A lockout is the event where the manager refuses and literally locks out workers from the workplace. During the period of a lockout, employees may not be paid. An economic strike is a work stoppage for authorized collective bargaining issues that can be related to pay or working conditions.
There is always a possibility that a conflict arises in the workplace. The chance increases when employees or colleagues have to work together, but both have a different vision on the opposing goals. As a manager it is therefore, utmost important to understand and know how to work through conflicting goals.
Conflict arises whenever people are in disagreement and opposition. It is important to recognize conflict and act carefully, since any wrong move could damage relationships, hurt feeligns or even ruin your career. This makes conflict management a very important skill, professionally as well as personally.
The cause of conflict is usually set expectations that have not been met by the other party. Therefore a conflict exists. There are three major reasons why people don't meet the expected expectations and conflict arises. The first one is failing to let others know the exact expectations, meaning communication was off. The second reason is assuming that others have the same expectations that we have. The third reason is people are actually not aware of their expectations, until someone counteracts them.
There are two forms of conflict, also known as functional and dysfunctional conflict. With functional conflict there is a positive experience, because it can actually help to increase performance and meet the organizational goals. However, with dysfunctional conflict, there is a prevention of individual achievements and organizational goals. When there is a conflict between management and labor, usually there exists a dysfunctional conflict, because of different opinions. However, conflict of ideas is a factor that can actually stimulate changes that will eventually increase performance within the teams of the organization. On the other hand, personal conflict is known to hurt relationships and generally decreases performance, which makes it a dysfunctional conflict as well.
What are conflict management styles?
When facing conflict, there are five basic conflict management styles that can be applied, in order to face and solve the conflicting issues or opinions. Each conflict management style results in its own win- or loss pattern:
A difference between avoiding and accommodating is that with avoiding, there is nothing said or done. However, when someone accommodates, they are doing something that they don't really want to do.
A difference between negotiating and collaborating is the different solutions they lead to. With negotiating, you will try to divide the tasks or concern and assign some parts your way and other parts the other person's way. However, with collaborating, you develop an approach to work on a task that both parties agree on.
There is no best or preferred style when it comes to managing conflicts. A method can be chosen depending on the issue and preferred outcome.
Negotiation is a process in which two or more parties in conflict attempt to come to an agreement. Negotiation is usually considered a zero-sum gain, meaning that a win for one party, means a loss for the other party. Although negotiation should result in a deal, it doesn't always end in an agreement.
The value of trust and communication in organizations is highly important, since it helps to create respect between all individuals in the organization. Some level of trust between the manager and employees is required in order to communicate successfully. In cases the receiver of a message doesn't trust the sender, they will be reluctant to accept the message. Therefore, open and honest communication is essential.
Measuring of job satisfaction consists of questioning individual personality, the work itself, growth and upward mobility, coworkers, management and communication. Job satisfaction is considered an attitude and not behavior.
The major laws in the United States are the Railway labor Act (RLA) of 1926, the National Labor Relations Act (NLRA) of 1935 (Wagner Act), The Labor Management Relations Act (LMRA) of 1947 (Taft-Hartley Act), the Labor Management Reporting and Disclosure Act of 1959 (Landrum-Griffin Act or LMRDA) and the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act).
A whistle-blower is an individual who tells an authorative organization outside the individual's own company about actions within the company of which the individual thinks it's illegal. There are incentives created in order to assure that cases of fraud will be reported and the whistle-blower's identity will be protected.
Compensation is the total of an employee's pay and benefits. Compensation affects the possibility to attract and retain employees. Pay is currently the top reason for job satisfaction.
The compensation system of an organization inludes anything that an employee may see as and desire and is willing and able to offer in exchange. This can include the following:
There are four basic parts which a compensation system consists of:
The first three compensation types, base pay, wage and incentive pay, are known as direct compensation. These go directly to the employees as part of their paycheck. Benefits are indirect compensation methods. There are no direct funds provided in this case to the employee, but the employee is receiving a benefit.
When designing compensation programs, it is important to remember that the goal is to motivate the employees. The expectancy theory proposes that employees are motivated when they believe they can accomplish a task that rewards for doing so and is worth the effort.
This theory is based on the Victor Vroom's formula:
Motivation = Expectancy x Instrumentality x Valence
There are some keys to using this theory efficiently:
The equity theory is another theory that affects people within the organization. In general, the equity theory proposes that employees are motivated when the ratio of their perceived outcomes to inputs is at least roughly equal to that of other referent individuals. This means that employees are more likely to believe they will receive a reward if they feel that they are being treated in a fair way.
Applying the equity theory can cause difficulty since it is not easy to establish to what reference group the employee belongs. The theory, on the other hand, does offer some useful general recommendations:
The minimum wage is the lowest hourly rate that can be permitted to pay to an employee, as provided by federal law. In the US, during 2017, this was established to be $7.25 per hour.
Overtime is a higher than minimum, federally mandated wage, required for nonexempts employees if they work more than a certain number of hours a week. Overtime is currently set by the FLSA as "time-and-a-half" or 150% of the individual's normal wage.
Comparable worth refers to the principle that, when jobs are distinctly different but do hold similar levels of ability, responsibility skills and working conditions they are considered to be of equal value and should have the same pay scale. Legislation has been proposed in order to compare these type of jobs.
There are also federal laws that place controls on pay and benefits. Mandatory employee pension and benefits legislation includes the following elements as well:
Job evaluation is the process of determining the worth of each position relative to the other positions within an organization. There are several methods available to evaluate a job.
The job-ranking method puts jobs in order from lowest to highest in terms of value to the company.
The Point-Factor method is an objective method which breaks down a job into components based on its difficulty. These component are also known as compensable factors.
The Factor Comparison method combines the job-ranking and the point-factor methods to establish a more detailed evaluation. It is similar to the point-factor method in the sense that it also assigns points to compensable factors.
A pay structure is a hierarchy of jobs and their rates of payment within the organization. A pay structure is usually composed of a job structure and the pay levels. The job structure is what gives the hierarchy within the organization. Each job, therefore, will be categorized in a particular pay level. In order to establish the correct rates for the minimum and maximum pay rates within a payment level, some market factors need to be taken into consideration.
In order to set the minimum value, the labor market competition should be taken into account. This means looking at labor supply and demand. A graph can support greatly in establishing this information clearly.
The top level of pay is established by looking at product market competition. This is a function of value of the product or service that is being sold to the customer.
Product market competition sets the top of the pay level for most types of jobs in the company, because you cannot charge more for the product or service than the value that has been added.
A rate range provides the maximum, minimum and midpoint of a pay for a certain group of jobs. Once this rate has been created, for other similar jobs an analysis can be performed as well.
When developing a pay system, it is important to study motivational incentives, applicable laws, and equity.
A pay structure is a hierarchy of jobs based on their payment rates within the organization. This structure allows to understand the different pay rates for each job. A pay rate is composed of a job structure and the pay levels. Job structure is the element that gives the job a position in the hierarchy, whereas a pay level (also called pay grade) is made up of many different jobs and each pay level has a maximum pay rate and a minimum pay rate.
In order to establish the pay levels for each jobs, the maximum and minimum pay rates for particular jobs need to be established and the market factors need to be studied. External equity and fairness is very important during this process in order to determine the right pay levels.
In order to set the minimum value for a particular pay level, the labor market competition should be analyzed. If a graph would be made for a given type of work versus the number of workers in the labor market, the point where the two lines cross eachother, is considered the average pay for that work. The market will pay around what workers expect to be paid, if not, workers with necessary skills will not be filling the jobs.
When creating a payscale it is important to remember that the job of HR in this case is to value the worth of the job and not the worth of the person. In the end if a product or service is being sold, which the employee engages in, the product or service cannot be sold for more than it's worth or more than competitors are asking for the same product in the same market. Therefore, product market competition sets the top of the pay level for most types of jobs in the company.
When pay levels are plotted in a graph, a market pay line or market pay curve can be drawn. This line shows the average pay at different levels in a particular industry. This line can be used as a benchmark to check if the organization is doing well. If the created pay level of the organization doesn't align with this graph, the organization needs to check why the range created was not correct.
The rate range that is created from drawing the pay curve, shows a rate range, which provides the maximum, minimum and midpoint payment for a certain group of jobs.
When looking at the pay levels that have been created previously, these need to be analyzed. So taking the pay levels, bottom, midpoint and top. The bottom level will most likely be close to the minimum wage. The ranges of these pay levels could show overlap with eachother and this can provide additional space for payments to employees within a certain level.
Delayering refers to changing the company struture in order to get rid of some of the vertical hierarchy. Broadbanding, on the other hand, is performed by combining multiple pay levels into one. The benefit of combining these levels either vertically or horizontally, is that it simplifies the process. It also creates extra capacitiy to reward extraordinary performance from employees.
One trend that is being recognized is classyfing individuals as independent contractors instead of employees. Also, gender equity in pay continues to elude most organizations, even though awareness has been created.
Since there is a bigger demand for on-demand workers, there is an increase in independent contractor relationships and fewer employee-employer relationships as result of this trend. While in most cases this type of contracting is being performed legally, in most cases this structure has been set up purposely in order to prevent employee relationships and all the administrative burdens and legal issues that are involved with employee relationships.
One of the reasons most organizations are keen on increasing their independent contractor relationships, is the fact that they are trying to create maximum flexibility within the organization. If there is no long-term contract, the company can release the independent contractor immediately, after completion of the job or project. An additional reason for this type of contracting is that it can decrease a significant amount of costs for the organization. The compensation for independent contractors is much more simplified compared to internal employees.
For independent contractors, there is usally a simple payment agreement to cover a certain amount. There is no need to calculate hours, minimum wage, overtime, benefit costs, health care insurance or other compensation factors. For independent contracts, the organization doesn't need to pay federal taxes as well.
Sometimes organization think it is easy to make an employee an independent contractor, however the organization must make sure the employee is completely independent of the company's control. The US Supreme Court identified "economic realities" that can be used to test whether or not there is a employer-employee relationship:
It is important for employers to study the requirements for an independent contractor closely and make sure the relationship can be classified as such, if preferred. If it turns out to be differently, this will be considered unethical and illegal to intentionally misclassify indivdiuals to avoid paying them what would be reasonably.
Pay equity has become an executive concern and should be taken seriously by management. HR managers need to keep track of records of initial salary negotiations and eventual offers, manage and evaluate any compensation changes overtime. If any errors arise during this process, HR needs to make recommendations to senior management in order to correct the issue.
Some of the components of compensation include the following four items: Base pay, wage and salary add-ons, incentive pay for performance and benefits. The Expectancy Theory states that motivation equals expectancy x instrumentality x valence. Employees expect to provide a certain output and they believe to be able to accomplish the objective. This effort should result in some level of performance, which will result in some type of reward. The importance of the reward in this formula is huge, because it should move the employee to actually perform at the desired level in order to receive the reward. If there exists a link between the desire of the employee and the reward, the chance is greater that the employee will show the preferred performance and create the desired output. According to this theory, people compare their inputs and outcomes to those of relevant others. In case employees believe there is inequity, they will change their behavior in order to create equity. It is important for employees to perceive that they are being treated fairly, relative to others. Compensation forms therfore a big part of the perceived outcome.
There are seven basic issues that form an organization's compensation strategy. These are the ability to pay, the types of compensation, pay for perfromance or longevity, skill- or competency-based pay, at, above or below the market, wage compression and pay secrecy.
The types of compensation refers to the mix of the four basic components of compensation. The wage compression lowers the pay differential between long-term and newly hired employees. Pay secrecy is utilized in order to allow the organization to hide actual wage inequities from employees. However, it has the potential to create dissatisfaction and demotivation.
There are three types of job evaluation methods, which are job-ranking, point-factoring and the factor copmarison method.
Incentive compensation is an important part of the HR process. Incentive pay allows to provide a reward depending on the reward that is provided.
Variable pay is compensation that depends on a measure of an individual or group performance or results in order to be awarded. Not in all cases the salary provided to the employees is considered enough. Therefore, rewards and recognition are used to create motivational incentive systems. The final reason to use incentive pay is that the responsibility of the HR department is to find the right people and put them in the right places, in order to meet the organizational goals.
Individual incentives reinforce performance of a single person with a reward that is significant to that person. There are several advantages and disadvantages that arise when it comes to individual incentives.
Advantages of individual incentives:
Disadvantages of individual incentives:
What are the criteria for individual incentives?
Although individual incentives work well in many cases, there are also enough cases where group incentives might perform better. Group incentives provide reinforcement for actions of more than one individual within the organization.
The following advantages apply when it comes to group incentives:
Disadvantages of group incentives:
What are the criteria for group incentives?
A bonus is a lump sum payment, typically given to an individual at the end of a time period. It does not carry over to the next period. Bonuses are usually provided on an annual basis.
Commissions are payments provided to a salesperson for selling an item to a customer and is usually predicted to be a percentage of the price of a sold item.
Merit pay is a program to reward top performers with increases in their annual wage that carry over from year to year. This incentive is different from the incentives mentioned above in the way that the annual income can increase consistently compared to the employees who don't get the merit pay.
Pricework plans are considered as one of the simplest forms of compensation and can act as an incentive to produce at a higher level, because the payment is dependent on the production level.
Standard hour plans are usually applied in service type of work. In a standard hour plan, each task has been assigned a ''standard'' amount of time for completion. This time will be showns as the standard-hour manual.
Giving praise and other nonmonetary incentives are also important when it comes to recognition for the work that has been done. Employee recognition does lead to profits. Therefore, both financial and nonfinancial rewards and recognition are important to motivate employees to reach the objectives.
Profit-sharing plans provide a portion of company earnings over a specific period of time through a bonus payment. Usually, this is quarterly or annualy. This will get anyone in the organization focused on the organization's profitability.
Gainsharing is an alternative to profit sharing. For gain sharing, in each case, the gain (this could be profit or another factor) is being shared with the employees who've helped to create the gain.
With gainsharing it is important to show employees that they can affect their desired outcome in order for them to be motivated and change the way they perform and work. However, for gainsharing it is more difficult for management to actually manipulate part of the profit. Therefore the workforce will feel and experience that they have more control on the output and results, which increases their motivation.
An Employee Stock ownership Plan allows that part of the stock in the company is being provided to the employees over a period of time based on a formula. An ESOP is actually considered a retirement benefits plan, since the company puts the tax-deferred stock in a trust for eventual use by retired employees.
There are two other common stock plans used by companies, which are stock options and stock purchasing.
Stock options are usually offered to an individual employee to allow them to buy a certain nuber of shares of stock in the company at a certain point in the future, but for the price that has been set when the option is being offered. These options can be either provided to executives or to nonexecutive employees. The intention of this option is to increase the employee's motivation in order to improve the value of the company, so they have the option to buy the stock at the end of the year, with increased value.
Stock purchase plans are similar to stock options, however, instead of giving the option to buy stock in the future, they qualify employees who buy the stock essentially anytime.
When creating incentive programs, there are, of course, issues that can arise. Now that the incentive types are clear, the issues can be discussed. The reason incentive pay systems can fail is because they are often poorly designed and implemented badly. The trick when creating an incentive pay system is to create it carefully, but also to manage and execute it properly.
Poor management can cause even the best incentive pay systems to fail, since managers are considered the core of the management program. The managers are responsible to keep track of the individual and group performance in any case. It is also the responsibility of the manager to monitor the program and make adjustments in case things change or the tasks within the organization change.
If programs are designed to complicated or it is not clear to employees what they need to do in order to receive an incentive, then they will not change their behavior as a result and company performance and profits will not be improved. Too complex programs will almost in any case lead to failure, since it will not be clear to employees what they need to do or how to reach the goals. Failure to communicate the goal and the tied rewards properly will also result in the same problem.
If employees can't affect the desired outcome the reward programs are obviously useless in those cases. In cases where the job responsibility of the employee has no direct relation with the company profit for example, their performance doesn't influence the profit and therefore they have no impact on the reward system by improving their performance. In this case there is no incentive for the employee to work more productive.
In some cases, it can be unclear for the employees how they are currently performing, compared to the desired outcomes. If a worker need to accomplish a certain production target by the end of next week in order to receive a reward, the worker will be very like to work harder and be motivated, because the goal and the reward are made very clear. However, if the worker doesn't know what the current performance rating is, they cannot increase their efforts to match the desired outcome.
When developing a variable pay plan, it is very important to consider the required actions in order to make it work.
The first step when desigining an payment incentive system, is to make sure that the incentive program is based on the goals in the strategic plan. The rewards needs to be based on measurable and specific goals. In addition, it is important to keep in mind the short-term and long-term goals for all members that are part of the organization.
Any incentive program should provide incentives to all individuals involved in the process that is being targeted. Not just to managers, because this will create frustration among employees. There should be incentives created for all line workers and the job of the manager should be to remove obstacles out of their way, in order to increase performance and reach the desired outcome.
In addition, the incentive programs need to be set up in a way that every employee within the organization can understand how the incentive program works. Even if it is understandable, the next step is to communicate it properly to the correct parties within the organization.
Also, it is important that the factors that are part of the incentive systems, focus on factors that can be affected by the employee. If the factors cannot be affected by the employee, then obviously, the employee has no impact on the desired outcome and cannot be rewarded by the incentive system.
The SMART goals as mentioned in previous chapters, are also important to take into consideration, because they provide a clear link between performance and payout. The goals of the incentive program should be set up in SMART fashion, in order to accurately measure and reward employees.
There must be a clear seperation from base pay, in order for employees to understand they are receiving an additional benefit. In addition, employees must understand that they only receive an incentive rewards if they increase their performance significantly and meet the incentive requirements.
A significant piece of compensation, in order for the employees to be considered valuable, holds at least 10% of overall pay and in some cases 20% or more.
The adiminstration of the program is something that is highly important during this process and should be taken care of seriously. By offering the incentive programs and rewards to employees, whether they are individual or group based, the organization must make sure when they are eligible for such rewards, that they are being paid timely. Once performance is measured, those who are entitled to receive a reward should receive this as fast as possible.
Finally, nonmonetary awards are also very important to take into consideration. Especially, since not every employee might be motivated by the monetary part. Nonmonetary rewards usually work even better than monetary rewards. And in all cases, nonperformers should not be rewarded in any case.
Incentive pays are necessary in order to recognize the best performing people within the organization. Therefore it is important to have flexibility to provide the best performing people with greater rewards, than average or low performers. In case the company and employees underperforms, the organization is not tied to provide any additional reward or benefit, since these rewards are performance-related. The goal of providing benefits and incentives to employees is to motivate them to increase their performance, be more productive and reach the organizational strategic goals.
The advantage of individual incentives is that it makes it easy to evaluate each individual employee, because they provide the ability to choose rewards that match desires of the employees. Since their is a link to performance and results, this creates an incentive for employees to be motivated and increase the motivation of less motivated workers within the organization as well. Disadvantages of the individual incentives are that it is considered to be very time consuming, since all employees need to be evaluated seperately and seperate incentives need to be created. In addition performance could be hard to measure since there is not always a direct output measurable for every job type. The administrative burden is also very high when different records for each employee need to be kept seperately.
Providing indivdual incentives can come in many forms. These can be bonus payments, lump sum payments, commissions, merit pay, recognition and nonmonetary forms of appraisal.
Group based incentives are usually based on organizational gains or gaining an ownership stake in the company. Since profit can be easily manipulated, gainsharing is most of the time the best alternative. The advantage of group incentives is that employees within the group can motivate eachother and that performance doesn't have to be measured and tracked individually.
When benefits are being provided to employees, there are mandatory laws applicable, that need to be taken into consideration as well. In addition to providing these benefits, of course, there are costs involved as well in order to arrange these benefits for the employees.
"According to the US Bureau of Labor Statistics (BLS), benefits for all groups of workers average roughly 32% of total employee compensation costs."
There are several reasons the employee benfits have experienced an increased growth in the United States and worldwide.
Tax advantages are one of the reasons benefits are growing. In case the organization provides benefits to its employees, it can write off these provided benefits as costs.
Statutory requirements are porposed by federal and sometimes state and local law as well. A number of states have made sick leaves, paid time off, retirement, health care and other benefits mandatory for most or all private corporate employers (on top of minimum wage).
The goal is to create a program that increases the motivation of employees and engagement and helps to create a competetive advantage. As part of their strategic value, therefore, some companies use generous voluntary benefits.
There are also issues that arise with providing these benefits. The first one is the height of the benefit that is being provided. Most companies will determine this value by calculating a standard percentage of the direct compensation.
Once the company has established how much money is available to provide the benefits, the type of benefits needs to be established.
Finally, there needs to be a consideration on how much flexibility there should be to build into the benefits program, because flexible options are very important to today's employees. Flexible benefit programs allow employees in some way to choose their preferred option.
Statutory benefits are benefits which are required by law. Some benefits are required by federal law in the US (also in other countries) and there are also laws that apply if the company chooses a certain optional benefits.
Employers and employees are required to provide funds for Social Security benefits. The employer and the employee jointly pay into Social Security through withholding from the employee's paycheck, including a mandatory employer payment.
Once employees reach the retirement age requirement and have obtained 40 credits, they can receive a monthly check. Although the social security system was meant to focus on only 30% of retirement payment, most employees plan on it as their only retirement.
If an employee becomes disabled or dies the disability or survivor benefit will apply usually. The employee, will get payments each month roughly equal to what the employee would have gotten in the retirement based on their historical earnings. If an employee has been disabled for 5 months and is predicted to be disabled for atleast 12 months, the Social Security disability will apply.
There is also a Medicare component. Employees become eligible at the same moment they become eligible for Social Security retirement.
While the Social Security benefits take up much of the federal budget in the US, there are also other required benefits. There are several statutory requirements if the company chooses to provide certain health and welfare or retirement benefits to their workforce.
The Worker's compensation is an insurance program designed to provide medical treatment and temporary payments to employees who cannot work because of an employment-related injury or illness.
Employment-related in this case means, that the illness or injury didn't have to happen while the employee was actually at work.
Worker's compensation costs vary between 1.2% and 2% of payroll for most companies. Rates are primarily determined by three factors:
Unemployment Insurance (UI) provides workers who lose their jobs with continuing subsistence payments from their state for a specified period of time. This program is federally mandated, but is being managed separately by each of the states. This also applies for the administration.
In order for an individual to become eligible for the UI they have to be terminated from employment, either through downsizing, layoff or other processes. In addition, they must have worked four of the last five quarters and met minimum income guidelines in each of those quarters as wel. A series of events can occur that make the individual ineligible:
In addition to the mandatory benefits, almost all employers provide some group of voluntary benefits to their employees. These benefits can range from a group of commonly provided benefits (such as retirement accounts, life insurance) to a very broad group.
Employers with more than 50 full-time employees are required to provide health insurance to their full-time workforce. All other organizations can choose to provide or not provide this benefit.
Traditional health care plans usually cover a standard percentage of fees for medical services - for either doctors or in-patient care. The most utilized plan for the percentage split between the insurance plan and the employee is 80/20.
HMO refers to managed care programs. It is a health care plan that provides health maintenance and medical care. This is the type of health care that provides the patient with routine preventive care, but for nonpreventive care, it requires a research on the individual's health condition, before any medical bills are approved.
With the managed care, the insured person will be required to use doctors and facilities within the network. The employee will have to choose a primary care physician (PCP). The primary care physician will be the first point of contact for all preventive care and for any routine medical situation, except emergencies.
Preferred provider organizations (PPOs) are a kind of hybrid between traditional fee-for-service plans and HMOs. They include some of the advantages and disadvantages and also have some of the same requirements.
Utilization analysis is a review of the program costs and comparison of program costs within the rate of the program's usage.
A defined benefit plan provides the retiree with a set amount and type of benefits that will become available when the employee retires. For the retiree it should be exactly clear what they will receive when they retire.
Defined contribution plans only identify the amount of funds that will be placed in a retirement account, therefore it does not define what the employee will receive upon retirement. The employee is only aware of the amount that is being contributed tot the retirement account.
Human resources are one of the few potential sources for competetive advantage in a modern organization. The totality of their compensation, including offered benefits, is one major factor in keeping employees satisfied and engaged. Employees need an incentive to be motivated so they can create a competetive advantage for the company. Today's workers demand more benefits in order to mix their lifestyles. By providing benefits, the company can increase job satisfaction and engagement, since taking care of employees results in making them work harder, take better care of customers and the organization.
Social Security is composed of Old-Age, Survivors and Disability Insurance (OASD) prgrams. The Old-Age part provides retirement payments to those who reach the assigned retirement age, according to the OASDI rules. In case the employee dies before reaching the retirement age and would be eligible in case alive, the survivor will be able to receive the benefits related to that payment, which will be similar to what should be granted to the actual retiree in case they would still be alive.
Medicare is the national health care program for the elderly or disabled. An employee becomes eligible for Medicare at the same time they become eligible for Social Security or disability retirement. The goal of Medicare is to cover at least part of the costs of hospitalization and non-hospital related care and provides prescription coverage options as well. Worker's compensation is a program that provides medical treatment and temporary payment to employees who are injured on the job or become ill because of their job.
Major voluntary benefits that can be provided by the organization are paid time off, group health insurance, and employee services. Paid time off can occur in the form of holidays, sick leave, vacation time and personal days. Group health insurance provides employees with health care coverage and retirement plans allow them to save for their own retirement.
When the workforce is prepared for the assigned task, knows how to be productive and the compensation is clear, the next step is to keep the workforce safe and healthy. This way they can continue to perform at high levels.
There are many federal safety laws and regulations, as well as governing agencies for industrial safety and health. Employee health issuess, such as the need for work-life balance, employee assistance and employee wellness programs also affect employees.
Workplace safety deals with the physical protection of people from injury or illness while on the job. Therefore, all employers must meet the requirements of the Occupational Safety and Health Administration (OSHA). They must maintain records of injuries and deaths due to workplace accidents and submit to on-site inspections.
Those who do not comply with the standards and rules provided by the OSHA will be faced with citations and penalties, such as fines. The consequences are so severe that employers even risk going to jail if they are willfully failing to maintain a safe working environment.
The general duties that are required by the OSHA from the employers regarding safety and health are the following:
The general duty clause also states it's within the responsibilities of the employee to comply with the rules, standards and regulations as proposed by the Act.
OSHA is the division within the Department of Labor that has the responsibility to oversee the execution of the OSH Act. It was created in order to "assure safe and healthful working conditions for working men and women by setting and enforcing standards and providing training, outreach education and assistance."
OSH has been given the broad authority to investigate complaints and impose citations and penalties on employees or employers who violate the OSH Act.
OSHA is responsible for providing federal safety and health standards and promoting those standards to employers. OSHA is also the responsible entity to perform inspections related to the proper execution of the OSH Act. Inspections are usually performed without any advance notice to the employer and are done based on one of the following reasons and/or issues:
Inspectors must, at all times, identify themselves and provide the employer with the reason for the investigation. However, the employer can decide to refuse the inspection if the inspectors are not able to identify themselves at the moment of inspection. On the other hand, this does not provide a good impression to the authorities, since refusal could imply that the company has something to hide. In general, it would make more sense in such a case, to allow the inspection, in accordance with the OSHA rules.
Employer rights
The employer has the right to request the inspector's credentials, name, badge number and to receive the reason for the inspection. This would be the employee complaint or the program inspection information. The following rights of the employer should be taken into account when an inspection is being performed:
There are a few reasons why it is beneficial to accompany the inspectors during their inspection. The first reason is that it is important to understand the violations made in case it concerns an employee complaint. Even though the inspector will provide notes afterwards, it might not always be as easy to comprehend if the actual situation has not been observed by a representative. The second reason is, that usually in many cases, the problem can be fixed immediately. This will also show the inspectors (and authorities) that the organization is willing to comply with the rules of the Act and are flexible to directly make any changes to fix the situation. The third reason to accompany the inspector with the research is to make sure the inspection stays within the reach of the scope.
An employer also has the right to be present when the inspector is interviewing employees. During these interviews, the right to stop the interview if it gets too confrontational or disturbing the current work environment. In addition, the employer has the right to inform the employees of their rights during the research performed by the inspector.
Employee rights
When it comes to employee rights, they can also refuse to do an interview with the inspector. They can also request that an employer will be present during such an interview or that the interview will be held privately. In addition, the employee has the right for legal representation during the interview, if they prefer. The employee can also end the interview by requesting discontinuation.
The OSHA requires that all employers keep track of information at the work site that describes any chemical hazards that may be present on-site. All employers are required to provide a hazard communication program, including container labels, safety data sheets and employee training. Safety Data Sheets (SDS) are documents that provide information on a hazardous chemical and its characteristics.
OSHA violations include the following elements:
NIOSH works under the same roof as the Centers for Disease Control and Prevention (CDC). Its mission is to conduct research and provide recommendations to prevent worker injury and illness. NIOSH sets three major goals in the strategic plan:
The NIOSH regularly works with the worldwide government health laboraties and other member nations in the World Health Organization (WHO) in order to indentify workplace issues that could cause illness or injury and to create standards for the WHO member countries. One of the most important research areas of the NIOSH is communicable disease research. The NIOSH attempts to identify methods of transfer and then provide guidelines for minimizing danger of transmission of dangerous diseases to others, that may exist in the workplace.
Employee health refers to the state of physical and psychological wellness in the workforce. Employees need to be provided with both physical and psychological health in order to have a strong workforce.
Having a work-life balance is an element that is considered high on the list of issues facing employers as well as employees. Therefore, individual employees are seeking a work-life balance. Bad work-life balances are usually linked with conflicts such as stress; absenteeism; burnout; and dissatisfaction with the job, family or life in general. All of this could result in excessive job turnover and the breakup of families.
In order to support employees in maintaining a healthy work-life balance, companies are offering more work-family benefits, commonly called family-friendly practices. Companies are offering, for example, flexible work hours, so the day can be built around the family responsibilities easily. In addition, flexible time off is granted in order to attend family related activities, such as parent-teacher meetings.
There are two important employee services that can also assist in work-life balance and other aspects of mental and physical health of employees. These are the Employee Assistance Programs (EAPs) and the employee wellness programs (EWPs).
An EAP is a set of counseling and other services provided to employees in order to assist hem to resolve personal issues that could affect their work performance. Around 77% of private-sector workers have access to an employee assistance plan. The EAP is designed to assist employees in confronting and overcoming problems in their personal life. This could be marital problems or divorce, financial problems, substance addictions, emotional problems and many other issues. The reason employers pay for these services is because it could save employees and prevent costs to only opt for these services when needed.
EWPs are designed to provide the employee's physical welfare by providing education and training programs. These programs offer health education, training and fitness, weight and lifestyle mangement, and health risk assessment services to employees. The main goal in this case is to improve the health of the workforce, because there is strong evidence that Americans don't exercise enough. Being obese causes all kinds of health problems and the effects are noticed in the workplace.
Ergonomics refers to the science of fitting the workplace conditions and job demands to the capabilities of the working population. The goal of ergonomics is to reduce stress and eliminate injuries and disorders associated with overusing the muscles, bad posture and repeating tasks." In order to prevent such issues, ergonomics focuses on improving and arranging the working place to a suitable environment.
Musculoskeletal disorders (MSDs) affect the body's muscles, joints, tendons, ligaments and nerves and can arise in different work environments. These issues impact the working condition and performance of the employee severely. Therefore, all these cases form a potential risk to the organization in the form of lost producitivity or even lost employees.
It is important for HR to understand the OSHA rules and standards in order to arrange the workplace in a safe way. If the organization can focus on keeping the number of injuries and accidents low, the absenteeism can be lowered as well and job satisfaction will increase. In return, this will increase the productivity over time.
People usually have internal reactions to external environmental stimuli. Stress is the body's reaction to environmental demands. The form of this reaction can be emotional, and/or physical and can be caused by a lack of work-life balance. However, stress is an individual perception. One person might be able to handle stress a lot better than the other.
Functional stress is when the stress actually helps to improve the performance. So it can be considered reinforcement in a positive way. Therefore it could help increase motivation and meet objectives. People can perform better under stress, because it allows to stretch their capacity and fuels creativity.
Dysfunctional stress has a negative impact because it actually decreases performance. Stressors are factors that may, if extreme, cause people to feel overwhelmed by anxiety, tension and/or pressure. Stress that is considered to be constant and severe, can actually lead to a burnout over time. A burnout is a constant lack of interest and motivation to perform one's job.
There are actually five elements that contribute to job-related stress. These are personality type, organizational culture and change, management behavior, type of work, and interpersonal relations.
Although experiencing stress can be healthy if it increases performance, it is also important to manage stress that arises, in order to maintain health of the employee. Many companies are making stress management a top priority through training employees in stress management, because it affects the working employees. EWPs also provide stress mangement programs frequently. The actual goal of stress management is about taking control of stress and making it functional. There are seven management techniques that can be used to reduce stress:
Workplace security is the management of personnel, equipment and facilities so they can be protected. Workplace security covers topics such as violence in the workplace, bombthreats, management of natural and man-made disasters, computer-related risk and many more. Therefore, the workplace security is concerned with mitigating these risks to the organization and its members.
Cyber security is the use of tools and processes to protect the computer systems and networks within the organization. This is a very popular topic, that has been a lot in the news the past and most recent years, with concerns on hackers, terrorist organizations and hactivists.
HRM is therefore especially concerned with external people penetrating company computer systems that obtain sensitive employee information on medical records, payroll and banking data and other personal data. For this matter, it is utmost important to work closely with company security managers to set up strong roadblocks to protect the organization from outsiders who want to penetrate into the organization.
In business the form of desk rage, is where yelling, verbal abuse, and physical violence occur. Emotions such as frustration, stress and fear are known to bring out anger. Anger is usually the outcome from unresolved conflict and in business the violence often takes the form of sabotage against other employees or even the organization.
Anger can lead to perception problems and this results in poor decisions and hostility. Although it's natural to get angry, sometimes we cannot control the feeling of anger. We can, however, control the way we behave and react. Some tips to effectively get rid of anger are the following:
Keeping an anger journal is the first step to emotional control and self-awareness. There are certain questions you can ask yourself to identify such behavior in order to be able to control it eventually. One great way to improve the ability to control anger is to write the questions in the anger journal. This can be questions such as "how upset do you get?", "What feelings do you have when you are angry?" and "What is the reason for your anger?". People who maintain such a journal often change their behavior without even trying.
The OSHA is an inspection authority and can inspect a worksite without advance notice. This research could be performed because of an employee complaint. During the inspection, the inspector has the right to interview employers and employees. The organization also has the right to send a company representative together with the inspector, when performing the inspection. This way the organization is aware of the exact complaints and some issues can be fixed on the spot, to show willingness to corporate and obey to the law and regulations. However, in order for the inspector to continue the research, he needs to show a court order. Without this order, the employer is legally allowed to refuse a reasearch, however this aproach is not advised. During an inspection, the employer and employee can stop an interview in case it gets too confrontational.
Upon the completion of the inspection, the inspector will provide the manager with list of discrepancies upon completion of the inspection. These can include the following violations: willful, serious, other than serious, de minimis, failure to abate and repeated.
EAPs end EWPs both help employees with their work-life balance. EAPs can provide confidential counseling and other personal services to employees in order to help them cope with stress created by personal issues related to work or home life. EWPs help employees with their physical wellness. These provide health programs such as health education, training and fitness programs, weight management and health risk assessment. Ergonomics is the science of fitting the workplace conditions and job demands to the capabilities of the working population. The goal of ergonomics is to reduce stress and limit injuries due to overuse of muscles. Therefore the OSHA provides guidelines on ergonomics in the workplace that are voluntary and can be inspected during a reasearch performed by the inspector.
Research and studies have shown a positive relationship between ethical bavior and leadership effectiveness. Being ethical could be difficult at times, but it provides great rewards on the other hand. Honest people are known to have fewer mental health problems and physical complaints, like anxiety and back pain and better social interactions.
Unethical behavior has long-tern negative consequences for companies, including their repuation, legal fees and fines. Sales could decline and cost of capital could increase. Market share detereoration and network partner loss could also be the result of showing unethical corporate behavior. For some companies this behavior can even result in going out of business.
There are various definitions developed for ethics in different books and articles. Some of them are:
There are several reaons why unethical behavior occurs. A couple of them will be discussed below.
PERSONALITY TRAITS AND ATTITUDES. The level of ethics someone obtains could be tied to their personality and therefore, some people have a higher natural sense of ethics than others. Unfortunately, a culture of lying and dishonesty is infecting American business and society as this kind of behavior has become more common and accepted. Some people don't even recognize their ''lying'' behavior and believe there is nothing wrong with the way they act.
MORAL DEVELOPMENT. A second factor which influences ethical behavior is moral developent. This refers to distinguishing right from wrong and choosing to do the right thing. The ability of people to make ethical decisions is based on their level of moral development. There are three levels of moral development. The first level is called the preconventional level, where a decision is based on self-interest and the possible consequences of the behavior (reward or punishment). The second level is called the convential level, which seeks to maintain expected standards and live up to the expectations of others. The third level is called the postconventional level, where an effort has been made to define moral principles for themselves; regardless of leaders' or the group's ethics, people at this level will make the right decision.
INCENTIVES. We respond to "incentives" and can usually be manipulated to behave ethically or unethically, depending on the incentives presented. The incentive is usually because of personal benefits or reasons, in order to prevent any trouble.
THE SITUATION. It can be tempting to be unethical in certain situations, for example when you are negotiating. Unsupervised people in a competitive environment are usually more likely to show unethical behavior. Unethical behavior occurs more in situations where there is no formal ethics policy available to guide these kind of situations and no punishments or consequences are tied to this kind of behavior.
Unfortunately, all people have the capacity to be dishhonest. One percent of people will always be honest, one percent of people will always be dishonest and 98% of people will be unethical at times, however just a little bit.
The problem with ethical behavior is that people like to see themselves as good or ethical. So therefore, when people do behave unethically, they often justify the behavior to protect the self-concept to prevent them from feeling bad. By cheating only a little, people can still feel good about their integrity.
Some common justifications for unethical behavior are the following:
CAUTION OF ESCALATION. We are currently living in a time where ethical confusion exists, because relativism takes the upperhand and people are justifying their behavior. Statements like "do what is best for me" and "to do whatever I want".
There are several ethical approaches and guidelines that exist to support in making ethical choices. Understanding these common approaches can help in resolving ethical dilemmas.
The Golden Rule is "Do unto others as you would have them do unto you" or "Don't do anything to anyone that you would not want someone to do to you." Most successful people live by the Golden Rule. This is actual a moral principle that can be found in any religious text across the world.
The motto "Service Above Self" from Rotary International is a great motto to live by because it refers to helping others as opposed to the question what people can do for them.Rotary uses a four-way test to decide if there is ethical behavior:
The stakeholder's approach to ethics opts to create a win-win situation for all stakeholders that are affected by a certain decision. The difficult part is that different stakeholders have different interests.
Research has shown that making a decision without using an ethical guide leads to less ethical choices. In cases where there exists uncertainty on the decision, higher-level managers should be consulted for advice.
Every culture endorses an ethical way to live. Following a code of ethics is considered to be an actual ethic approach.
Values are basic concepts of good and bad, or right and wrong. Values are created in society and culture. Each culture holds concepts of what is right and wrong. However, a primary goal of the code of ethics is to define what the company is about and make it clear that the company operates by being honest and fair.
Principles are a basic application of our values. Principles are applied to specific situations to come up with a set of actions that are considered to be ethical. An example of such a principle is to maintain personal integrity.
Managerial support, is absolutely critical to successful code of ethics. If the managers don't pay attention to the ethical codes, the subordinate managers and employees won't as well.
Within the organization it is not just the organization and the CEO but each individual that is reponsible for living the ethical conduct of business. Personal responsibility also refers to accountability of one's own actions.
From a compliance perspective, there are applicable laws that can be identified to find regulations that must be adhered to as part of the code of ethics. The OSH Act would certainly apply to all public companies, however there are other laws and regulations that apply to certain industries and groups.
It is crucial for the code of ethics to be effective, that managers lead ethically. It is not aways easy to decide what the the "right thing to do is" in every situation that is presented in the workplace, especially since they can provide personal advantages like receiving a gift.
Authority is the right to give orders, enforce obedience, make decisions and commit available resources towards completing organizational goals. Authority is based on the positioin that a person has within the organization, not because of their individual knowledge or skills. It is important for managers to have certain authority to use resources in order to manage the their departments well.
Responsibility is the obligation to answer for something/someone. It's a duty to perform an assignment to a satisfactory outcome. This means that when authority is given to a certain individual it should use the right to use certain resoures within the organization accordingly, in order to meet the organizational objectives.
Accountability means having a personal duty to someone else to use organization resources in an effective way in order to fulfill an assignment. This also means a manager can be held personally responsible for not using the available resources in the right way.
In order to perform in an ethical way, it is important to learn to apply the concepts of authority, responsibility, and accountability constantly in order to avoid unethical actions. By doing so, there will be a gain of trust from others within the organization. Therefore, it is important to obtain knowledge on the appropriate use of company assets and what defines misuse of those assets as well.
Bribery, for example is a payment meant to result in a decision from someone that will help a person or the organization but could harm other organizations or other stakeholders in this decision. Corrupt payments to government officials is also a phenomenon where a payment is designed to allow the company to avoid scrutiny of their actions by government agencies. It could also be used to facilitate a desired company action.
Employment and personnel issues that can arise are who to hire, fire and promote, since all these factors influence productivity, absenteeism and turnover within the organization.
Marketing practices that are being performed in a dishonest way can form a big risk to the reputation of any organization. In addition, unethical practices performed by many financial firms are thought to be the cause of the massive recession that started in late 2007.
Also, customer privacy is an arising issue, since large amounts of personal data have become pretty common in organizations. Use of such data should be required for legitimate reasons only. There are also companies who monitor all employee communication on company computers and other devices. There can be a debate if this kind of monitoring can be considered ethical or an invasion of employee privacy.
Ethics and Corporate Social Responsibility are closely linked, since being socially responsible refers to being aware of legal and economic obligations and always choosing for the right option so society can benefit from it.
Corporate Social Responsibility is based on the belief that "companies have some responsibilities to society beyond that of making profits for the shareholders." CSR is mainly about taking actions without causing any harm and doing good, taking into consideration shareholder interests. Corporate Social Responsibility is therefore the concept that organizations have a duty to all societal stakeholders to operate in a way that takes care of their needs. This means that organizations have to take into consideration their effect on society and not just look at shareholders but all stakeholders within the organzation.
Employees must be provided with safe working conditions and adequate pay and benefits. Companies need to make sure that the products and services they provide to customers are safe. From a society perspective, each organization or company should add value to the quality of life and not destroy the environment.
In addition a corporation must work fairly with competitors and work with their suppliers in a positive and cooperative way. The organization must, at all times, follow the laws and regulations provided by the government and on top of that, it must provide shareholders with a reasonable profit.
THE BUSINESS CASE FOR CSR. A business case is a term used for justification of a business action. The level of CSR can actually show up in the profits received. Companies with a better reputation for CSR are actually known to make larger profits than those that have poor CRS reputations.
Showing socially irresponsible behavior actually impacts the company and their reputation, which can lead to more difficulty in attracting (new) customers, investors and employees. A negative reputation that has been caused due to irresponsible behavior can cost years to improve or may even, be lost forever.
SOCIAL ENTREPRENEURS AND HYBRID ORGANIZATION. There is actually a growth in social entrepreneurs who are concerned for social issues related to financial rewards. Social entrepreneurs usually create hybrid organizations or enterprises. Hybrid organizations usually pursue a social mission. Their operations are in most cases sustained through commercial activities through work integration and social enterprises.
CSR REPORTING. Obviously, all the Fortune 500 companies have formal CSR programs. These corporations are even measuring how well they meet their SR objectives. The measures that result from this anlaysis are usually called corporate social performance (CSP).
Apart from the fact that CSR is considered to be a good public practice, CSR is actually codified more often in the US law compared to other countries and regions. There are a number of corporate compliance laws provided by the state and federal government stakeholders. Employees are also part of the performance rating of a company, since they are part of the firm. There are also employee groups that are currently receiving much more attention than previously. These are older workers, women executives, lesbian/gay/bi/transgender (LGBT) employees and increasing diversity.
An important question when it comes to CSR is at what level should the company be operating? The diferent levels of corporate social responsibility are legal, ethical or benevolent. It is also possible for a firm to be in between levels or on different levels for different issues. The three levels are:
Sustainability practices are also part of the CSR policy. Sustainability includes meeting the needs of the current generation without compromising the ability of future generations to meet their needs.
A sustainable mindset takes into consideration how to develop products for the current generation by taking advantage of the current environment and enhancing how well a company's products perform using renewable resources. Therefore, organizations are currently working hard to reduce their environmental impact. There is a realization at the moment for different companies and organizations, that sustainability and economic growth can work together.
Our current society expects organizations and managers to work responsibly by using resources wisely and responsibly. The goal is to protect the environment and minimalize the amount of air, water, energy, minerals and other materials found in the final goods we consume. Also, recycling and reusing these goods to extent their use is preferred. Organizations are now actually accepting the environment as a highly important external stakeholder.
Sustainability training is a necessary tool in order to incorporate the mind-set of social responsibility and sustainability into the people of the organization. This should happen through the top of the organization all the way down. First the culture of executives must be altered in order to alter the mindset of the employees at lower levels within the organization.
There are many definitions when it comes to ethics, however they all have common elements. These common elements include morals, values, beliefs and principles. These concepts lead to the need for personal integrity and trust in the character of another person. Factors that contribute to unethical behavior are personality traits and attitudes, moral development and the situation. Moral development can cause individuals to act more childlike in a sense they will create strict rules for themselves.
When creating ethical codes the Golden Rule applies. This approach says to treat others as you would want to be treated. There are a couple questions provided by this rule to ask yourself to test if you are making an ethical decision. Values define what the company is about and make it clear that the company is fair and honest in its actions. Principles apply our values to specific situations so we can identify actions that were unethical. When it comes to coordinating ethical behavior, the involvement of management is crucial, because if managers don't pay attention to ethical behavior, employees won't either. Personal responsibility refers to the fact that everyone is responsible for their own actions and behavior. Compliance is the department in this case that points out the applicable laws and regulations that guide ethical behavior in certain industries.
Authority is a specific right within the organization that allows a certain person to give orders to others in the organization in order to reach organizational goals. In this case the responsibility refers to the personal obligation to use the company's resources effectively in order to help reach the organization's goals. Accountability refers to the personal duties to use organizational resources correctly, because if this is not done right, people can be held personally liable for that misuse. Common ethical issues that arise are bribery and corrupt payments.
Capital and goods flow easily between countries. Because of the ability to communicate fast, services can usually be performed in the locations where they can be performed against the lowest costs and most efficiently. There are four types of capital flow between countries according to one specific model:
There are several reasons why businesses continue to globalize. One is to increase business. Most large corporations want to increase their growth. This usually means the company would have to go overseas, because there are billions of potential customers if they go global.
The global village concept has become a reality in the sense that the entire world can see and interact with goods that were previously only available to a certain area. Currently, ideas, products and services move easily across the world, form one country to another. The power of free flow of ideas, information exchange and knowledge around the world has reshaped the way people see their world.
Declining trade barriers and the World Trade Organization (WTO) are reasons for increasing globalization over the past 50 years.
Trade blocs are groups of countries who form an association in order to facilitate movement of goods across national borders. One of the first trade blocs was NAFTA - the North American Free Trade Agreement among Canada, the US, and Mexico.
These days, people around the world are having more and more similar requests, when it comes to the products or services they would like to have. The fast impact and reach of internet has changed the way individuals think, act and react. There are four stages in the evolution of a company from local producer to global firm: domestic, international, multinational, and transnational. Please see the table below for some additional information on each of these stages:
Domestic | One-country market and serves primarily one set of customers. |
International | When new firms enter the company's market the company tries to search for new markets. |
Multinational | With increased competition, firms need to become more efficient and offer lower product/service costs. |
Transnational | A type of MNC that eliminates artificial geographical barriers without a real single national headquarter. |
In order for international organizations who operate in a multicultural business environment, individuals and organizations must be capable of adapting smoothly across cultural boundaries. As the organization expands its scope, individuals need to learn to broaden their perspective from a local focus towards a broader concept of society.
Most copmanies start small and locally. In many industries, when the company will consider international performance in order to gain a competetive advantage over its competitors, the complexity of the firm will increase even more. Together with the creation of an international presence, the HR must be involved closely and become a more complex department. This results in every huge function within HR to be reconsidered:
It is considered the repsonsibility of the HR department to identify issues that are of legal, ethical or cultural matter when operating globally. This applies for international labor laws, organizational ethics policies, communication, training and cultural training.
The HR managers have to ensure that the organization in each country complies wth the local laws. The major laws are considered to be in the area of staffing, labor relations, and disciplinary action/termination.
The National culture is even more powerful in many cases, because it refers to everything people have known their entire lifes. People that have lived in one culture, might not realize there exist other cultures, with different norms, values and beliefs. This type of view is often reffered to as parochialism: a narrow-minded view of the world including the inability to recognize individual differences. It is therefore a requirement to managers in global organizations to have a parochial view of the world.
For international organizations it is crucial to hire people with the required and necessary skills in order for the organization to survive internationally. The people with the right skills need to be gathered and specific trainings in order to function properly in the new environment should be provided as well. For expatriates there are some personality traits that are highly beneficial in order to fit into a culture better. There are five big factors in determining if someone fits into an international culture:
The next question would be from which source to get the individuals from. There are three generic options that apply in this case:
The staffing choice that will be applied eventually, depends on the organizational preference and culture. There are three approaches that drive the decision for which option the organization will choose. These are: ethnocentric, geocentric and polycentric.
Ethnocentric organizations believe their values are superior to others and therefore they staff their international organizations with home-country managers. Polycentric firms emphasize the importance of local values and culture and will therefore opt for host-country nationals. Geocentric businesses believe in global management and therefore opt for the third-country nationals.
Outsourcing is the process of hiring another oganization to do work that was previously done within the host organization. If together with the new employees that will be hosted, one of the processes will move to another country, then the process is called offshoring. This means that in the home country there will be a cost reduction and less employees that will have to be managed by the organization.
Onshoring is the process of shuttering operations in other countries and bringing work back to the home country to increase employment locally. This action is not always something that makes sense for every party and it could be questioned if it is ethical to do so.
For both options, outsourcing and onshoring, it is important to consider the potential job loss or gain in the home country, because jobs are created in a new location. In addition, it is important when considering such a decision to take the interest of shareholders into consideration as well.
Companies are now sourcing managerial and technical talent from offshore. Social media is one of the most common platforms used to reach skilled and knowledgeable workers worldwide.
The recruiting and selection process in this case is quite similar, however there are a few new areas that can be introduced:
An expatriate is an employee who leaves their home country to go work in another country.
Cultural training is an essential part when it comes to preparing expatriates. Also communication training is necessary since the expatriate will have to deal with a new culture and perhaps new language. Verbal, nonverbal and symbolic communication is important to take into consideration for this type of training. Communication can always be difficult, even when everyone is speaking the same language. It's usually the nonverbal communication that differs depending on the norms, values and cultures. Therefore, it is utmost important to have well-trained employees available that understand the body language and nonverbal cues that are being provided during communication by their coworkers in the new environment.
Other expatriate isues that could arise are reporting structure, performance management processes, mentoring, other support and repatriation. Since the employee will be in a host country there should be an agreement on whom to report to. Also the performance appraisal should be prepared by either the host-country or the home-country. This is also essental to agree on for both parties.
When it comes to determining the compensation in a global environment, the question is whether compensation in various countries needs to be different. The same compensation system as for regular employees applies (pay, incentives and benefits) for the global workforce.
Is different compensation required in global firms? The answer is, of course. Each country has a different standard of living and labor laws vary differently across each country. If the expectation exists to request high-quality and high-performance managers to work within the organization and also travel across different countries to provide the same quality, they also need to be compensated in a fair way.
When analyzing the differences between the local country of the manager and the host-country, it is important to take into consideration the current cost of living, the current salary and how these two align with eachother. Another question that arises is in what currency should the employees be paid? Their home currency or the new local currency? Luckily, there are different approaches available that support in choosing the right payment and compensation method.
BALANCE SHEET APPROACH. The balance sheet approach is one of the most common methods to provide expatriate compensation. When applying the balance sheet approach, the organizatio usually continues to pay the individual an equal payment rate, usually in the home currency, while providing additional allowances during an overseas assignment to enable that employee to maintain a normal standard of living during their time abroad.
SPLIT-PAY APPROACH. A variant on the balance sheet approach is the use of split payment. Many organizations have admitted to use this strategy as part of their compensation plan. The idea behind split payment is that half ot the compensation is provided to the employee in the home country currency, while the other half is provided in the local currency, therefore reducing currency exchange rate costs.
LOCAL PLUS APPROACH. This approach opts for applying the same payment structures that are considered regular in the host country. In addition there will be allowances provided to the employee in the host country, so they are still able to match their lifestyle to the one in their home country.
OTHER APPROACHES. A different approach then the ones discussed above is a negotiation approach, where the employer and the employee close a deal by discussing the options for a compensation package. There is also a localization approach available, where the compensation of the employee is based on the host country norms. Then, there is also a lump sum option, which provides the possibility for the employee to receive a sum of money in order to cover certain expenses such as taxes, vehicles, housing and similar items.
In today's world, effective global leaders are an essential asset that could offer a competetive advantage within the organization. One of the biggest challenges can actually be to keep developing leadership talent and to grow an organization internationally. This arises the question if the payment incentives work the same way globally as they do locally. Shortly, the answer would be "no". The conclusion is that it is not possible to provide the same type of incentives to employees regardless of the organizational and country culture and structure.
Of course, it is logical that benefit programs, in any place, should be adapted to the local norms, values and culture that applies in that specific location. Due to regulations and laws that apply, some countries, might for example require benefits that are not mandatory in other countries. The living condition, is also a factor that should be taken into consideration when choosing the right benefit package. The organization (and employee) want to make sure that everything is provided in order to operate effectively once on location. Companies in many of the European Union, have to apply many more benefits compared to the United States. This is due to the laws and regulations that apply within the European Union.
Recession can cause a great impact on the benefits provided by organization to employees, but also the governmnental benefits, such as retirement programs and health care might be severely impacted.
Retirement benefits vary among countries, since some countries provide a centralized approach and other countries might have another approach, whereas other governments provide very little on a centralized approach. An issue is that currently, the new generation of retirees are planning on retiring earlier than historically planned. Most people would like to retire from the age of 60 or earlier. This issue is creating a potential gap for retirement funding. For this reason, financial counseling can be very beneficial to advise employees what they should be saving, in order to fund additional retirement accounts. This will help them to fill the future retirement gap that might be caused.
Although there are many differences around the world, due to regulations, law and cultural matters, there exists a strong connection between employee satisfaction and benefit packages that are being offered. Therefore, it would be highly beneficial for employers to arrange proper communication with the employee to discuss applicable benefit plans that would satisfy the employee and motivate them to perform better on the job as well.
There are several reasons why business could be increased, but the main reason is to become a global village in which goods, ideas, services and knowledge are flowing freely across national borders, creating an even greater demand for the offered products. In the recent years, barriers to trade have been minimized, even though there are some trade blocs that exist in certain countries. Due to technology, innovation and recent changes, barriers to transportation, communication, and culture have also decreased. However, the most important reason to go internationally is, to remain competetive.
The stages are domestic, international, multinational and transnational. Domestic firms generally operate in only one country, whereas international firms operate in a few, usually similar countries. Multinational businesses start to source capital resources from anywhere in the world, where they can be provided at the lowest cost. Transnational firms compete on a global level without any boundaries or barriers. This group is also known to be culturally sensitive.
When it comes to embracing new cultures, there are five aspects that describes how globe dimensions differ. These are power-distance, individualist cultures, masculine societies, high uncertainty avoidance and short-term societies. There are five big personality traits that can create advantages or disadvantages when an expatriate must be chosen to represent the organization in a foreign country, in a new and different culture. The personality traits are extroversion, openness to experience, agreeable, conscientious and neuroticism. Depending on the level of these traits (positive) or negative, they can impact the capacity of the potential expatriate to be able to survive well in the new foreign country with different norms, values and a new culture. Depending on the job-type and the preference of the organization, there are three types of employees that can be chosen to fill the spot of the expatriate. These are parent-country members, host-country nationals and third-country nationals.
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