The Role of Human Resource Management
Human resource management (HRM) could be the most critical managerial duty for a business. Consider this: if a business cannot recruit, train, develop, motivate and appraise their human resources (read employees), they are likely wasting money and cutting into their profit. Read this section and pay close attention to the introduction to get an overview of the scope of HRM.
Introduction
Learning Objective
- Define human resource management and explain how managers develop and implement a human resource plan.
Employees at Starbucks are vital to the company’s success. They are its public face, and every dollar of sales passes through their hands. According to Howard Schultz, they can make or break the company. If a customer has a positive interaction with an employee, the customer will come back. If an encounter is negative, the customer is probably gone for good. That’s why it’s crucial for Starbucks to recruit and hire the right people, train them properly, motivate them to do their best, and encourage them to stay with the company. Thus, the company works to provide satisfying jobs, a positive work environment, appropriate work schedules, and fair compensation and benefits. These activities are part of Starbucks’s strategy to deploy human resources in order to gain competitive advantage. The process is called human resource management (HRM), which consists of all actions that an organization takes to attract, develop, and retain quality employees. Each of these activities is complex. Attracting talented employees involves the recruitment of qualified candidates and the selection of those who best fit the organization’s needs. Development encompasses both new-employee orientation and the training and development of current workers. Retaining good employees means motivating them to excel, appraising their performance, compensating them appropriately, and doing what’s possible to retain them.
Human Resource Planning
How does Starbucks make sure that its worldwide retail locations are staffed with just the right number of committed employees? How does Walt Disney World ensure that it has enough qualified “cast members” to provide visitors with a “magical” experience? How does Norwegian Cruise Lines make certain that when the Norwegian Dawn pulls out of New York harbor, it has a complete, fully trained crew on board to feed, entertain, and care for its passengers? Managing these tasks is a matter of strategic human resource planning – the process of developing a plan for satisfying an organization’s human resources (HR) needs.
A strategic HR plan lays out the steps that an organization will take to ensure that it has the right number of employees with the right skills in the right places at the right times. HR managers begin by analyzing the compan’s mission, objectives, and strategies. Starbucks’s objectives, for example, include the desire to “develop enthusiastically satisfied customers” as well as to foster an environment in which employees treat both customers and each other with respect. Thus, the firm’s HR managers look for people who are “adaptable, self-motivated, passionate, creative team members”. Likewise, Disney’s overall objectives include not only making all visitors feel as if they’re special in a special place but also ensuring that employees’ appearance reflects a special image (there’s even a forty-seven-page book on the subject)”. Disney looks for people who best fulfill these job requirements. The main goal of Norwegian Cruise Lines – to lavish passengers with personal attention – determines not only the type of employee desired (one with exceptionally good customer-relation skills and a strong work ethic) but also the number needed (one for every two passengers on the Norwegian Dawn)”.
Job Analysis
To develop an HR plan, HR managers must obviously be knowledgeable about the jobs that the organization needs performed. They organize information about a given job by performing a job analysis to identify the tasks, responsibilities, and skills that it entails, as well as the knowledge and abilities needed to perform it. Managers also use the information collected for the job analysis to prepare two documents:
- A job description, which lists the duties and responsibilities of a position
- A job specification, which lists the qualifications – skills, knowledge, and abilities – needed to perform the job
HR Supply and Demand Forecasting
Once they’ve analyzed the jobs within the organization, HR managers must forecast future hiring (or firing) needs. This is the three-step process summarized in Figure 7.1 “How to Forecast Hiring (and Firing) Needs”.
Figure 7.1 How to Forecast Hiring (and Firing) Needs
Starbucks, for instance, might find that it needs three hundred new employees to work at stores scheduled to open in the next few months. Disney might determine that it needs two thousand new cast members to handle an anticipated surge in visitors. The Norwegian Dawn might be short two dozen restaurant workers because of an unexpected increase in reservations.
After calculating the disparity between supply and future demand, HR managers must draw up plans for bringing the two numbers into balance. If the demand for labor is going to outstrip the supply, they may hire more workers, encourage current workers to put in extra hours, subcontract work to other suppliers, or introduce labor-saving initiatives. If the supply is greater than the demand, they may deal with overstaffing by not replacing workers who leave, encouraging early retirements, laying off workers, or (as a last resort) firing workers.
Recruiting Qualified Employees
Armed with information on the number of new employees to be hired and the types of positions to be filled, the HR manager then develops a strategy for recruiting potential employees. Recruiting is the process of identifying suitable candidates and encouraging them to apply for openings in the organization.
Before going any further, we should point out that, in recruiting and hiring, managers must comply with antidiscrimination laws; violations can have legal consequences. Discriminationoccurs when a person is treated unfairly on the basis of a characteristic unrelated to ability. Under federal law, it’s illegal to discriminate in recruiting and hiring on the basis of race, color, religion, sex, national origin, age, or disability. (The same rules apply to other employment activities, such as promoting, compensating, and firing.) The Equal Employment Opportunity Commission (EEOC) enforces a number of federal employment laws, including the following:
- Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex, or national origin. Sexual harassment is also a violation of Title VII.
- The Equal Pay Act of 1963, which protects both women and men who do substantially equal work from sex-based pay discrimination.
- The Age Discrimination in Employment Act of 1964, which protects individuals who are forty or older.
- Title I and Title V of the Americans with Disabilities Act of 1990, which prohibits employment discrimination against individuals with disabilities.
Where to Find Candidates
The first step in recruiting is to find qualified candidates. Where do you look for them, and how do you decide whether they’re qualified? Let’s start with the second part of the question first. A qualified person must be able to perform the duties listed in the job description and must possess the skills, knowledge, and abilities detailed in the job specification. In addition, he or she must be a good “fit” for the company. A Disney recruiter, for example, wants a candidate who fits a certain image – someone who’s clean-cut and “wholesome” looking. The same recruiter might also favor candidates with certain qualities – someone who has a “good attitude,” who’s a “go-getter” and a “team player,” and who’s smart, responsible, and stable.
Internal versus External Recruiting
Where do you find people who satisfy so many criteria? Basically, you can look in two places: inside and outside your own organization. Both options have pluses and minuses. Hiring internally sends a positive signal to employees that they can move up in the company – a strong motivation tool and a reward for good performance. In addition, because an internal candidate is a known quantity, it’s easier to predict his or her success in a new position. Finally, it’s cheaper to recruit internally. On the other hand, you’ll probably have to fill the promoted employee’s position. Going outside gives you an opportunity to bring fresh ideas and skills into the company. In any case, it’s often the only alternative, especially if no one inside the company has just the right combination of skills and experiences. Entry-level jobs usually have to be filled from the outside.
How to Find Candidates
Whether you search inside or outside the organization, you need to publicize the opening. If you’re looking internally in a small organization, you can alert employees informally. In larger organizations, HR managers generally post openings on bulletin boards (often online) or announce them in newsletters. They can also seek direct recommendations from various supervisors.
Recruiting people from outside is more complicated. It’s a lot like marketing a product to buyers: in effect, you’re marketing the virtues of working for your company. Starbucks uses the following outlets to advertise openings:
- A dedicated section of the corporate Web site (“Job Center,” which lists openings, provides information about the Starbucks experience, and facilitates the submission of online applications)
- College campus recruiting (holding on-campus interviews and information sessions and participating in career fairs)
- Internships designed to identify future talent among college students
- Announcements on employment Web sites like Monster.com, Vault.com, Glassdoor.com, and SimplyHired.com
- Newspaper classified ads
- Facebook and Twitter
- Local job fairs
- In-store recruiting posters
- Informative “business cards” for distribution to customers“
When asked what it takes to attract the best people, Starbucks’s senior executive Dave Olsen replied, “Everything matters”. Everything Starbucks does as a company bears on its ability to attract talent. Accordingly, everyone is responsible for recruiting, not just HR specialists. In fact, the best source of quality applicants is the company’s own labor force.
The Selection Process
Recruiting gets people to apply for positions, but once you’ve received applications, you still have to select the best candidate – another complicated process. The selection process entails gathering information on candidates, evaluating their qualifications, and choosing the right one. At the very least, the process can be time-consuming – particularly when you’re filling a high-level position – and often involves several members of an organization.
Let’s examine the selection process more closely by describing the steps that you’d take to become a special agent for the Federal Bureau of Investigation (FBI). Most business students don’t generally aspire to become FBI agents, but the FBI is quite interested in business graduates – especially if you have a major in accounting or finance. With one of these backgrounds, you’ll be given priority in hiring. Why? Unfortunately, there’s a lot of white-collar crime that needs to be investigated, and people who know how to follow the money are well suited for the task.
Application
The first step in becoming a gun-toting accountant is, obviously, applying for the job. Don’t bother unless you meet the minimum qualifications: you must be a U.S. citizen, be age twenty-three to thirty-seven, be physically fit, and have a bachelor’s degree. To provide factual information on your education and work background, you’ll submit an application, which the FBI will use as an initial screening tool.
Employment Tests
Next comes a battery of tests (a lot more than you’d take in applying for an everyday business position). Like most organizations, the FBI tests candidates on the skills and knowledge entailed by the job. Unlike most businesses, however, the FBI will also measure your aptitude, evaluate your personality, and assess your writing ability. You’ll have to take a polygraph (lie-detector) test to determine the truthfulness of the information you’ve provided, uncover the extent of any drug use, and disclose potential security problems.
Interview
If you pass all these tests (with sufficiently high marks), you’ll be granted an interview. It serves the same purpose as it does for business recruiters: it allows the FBI to learn more about you and gives you a chance to learn more about your prospective employer and your possible future in the organization. The FBI conducts structured interviews – a series of standard questions. You’re judged on both your answers and your ability to communicate orally.
Physical Exam and Reference Checks
Let’s be positive and say you passed the interview. What’s next? You still have to pass a rigorous physical examination (including a drug test), as well as background and reference checks. Given its mission, the FBI sets all these hurdles a little higher than the average retail clothing chain. Most businesses will ask you to take a physical exam, but you probably won’t have to meet the fitness standards set by the FBI. Likewise, many businesses check references to verify that applicants haven’t lied about (or exaggerated) their education and work experience. The FBI goes to great lengths to ensure that candidates are suitable for law-enforcement work.
Final Decision
The last stage in the process is out of your control. Will you be hired or rejected? This decision is made by one or more people who work for the prospective employer. For a business, the decision maker is generally the line manager who oversees the position being filled. At the FBI, the decision is made by a team at FBI headquarters. If you’re hired as a special agent, you’ll spend twenty-one weeks of intensive training at the FBI Academy in Quantico, Virginia.
Contingent Workers
Though most people hold permanent, full-time positions, there’s a growing number of individuals who work at temporary or part-time jobs. Many of these are contingent workers hired to supplement a company’s permanent workforce. Most of them are independent contractors, consultants, or freelancers who are paid by the firms that hire them. Others are on-call workers who work only when needed, such as substitute teachers. Still others are temporary workers (or “temps”) who are employed and paid by outside agencies or contract firms that charge fees to client companies.
The Positives and Negatives of Temp Work
The use of contingent workers provides companies with a number of benefits. Because they can be hired and fired easily, employers can better control labor costs. When things are busy, they can add temps, and when business is slow, they can release unneeded workers. Temps are often cheaper than permanent workers, particularly because they rarely receive costly benefits. Employers can also bring in people with specialized skills and talents to work on special projects without entering into long-term employment relationships. Finally, companies can “try out” temps: if someone does well, the company can offer permanent employment; if the fit is less than perfect, the employer can easily terminate the relationship. There are downsides to the use of contingent workers, including increased training costs and decreased loyalty to the company. Also, many employers believe that because temps are usually less committed to company goals than permanent workers, productivity suffers.
What about you? Does temporary work appeal to you? On the plus side, you can move around to various companies and gain a variety of skills. You can see a company from the inside and decide up front whether it’s the kind of place you’d like to work at permanently. If it is, your temporary position lets you showcase your skills and talents and grab the attention of management, which could increase the likelihood you’ll be offered a permanent position. There are also some attractive lifestyle benefits. You might, for example, work at a job or series of jobs for, say, ten months and head for the beach for the other two. On the other hand, you’ll probably get paid less, receive no benefits, and have no job security. For most people, the idea of spending two months a year on the beach isn’t that appealing.
Key Takeaways
- The process of human resource management consists of all the actions that an organization takes to attract, develop, and retain quality employees.
- To ensure that the organization is properly staffed, managers engage in strategic human resource planning – the process of developing a plan for satisfying the organization’s human resource needs.
- Managers organize information about a given job by performing a job analysis, which they use to prepare two documents: a job description listing the duties and responsibilities of a position and a job specification, which lists the qualifications – skills, knowledge, and abilities – needed to perform the job.
- After analyzing the jobs that must be performed, the HR manager forecasts future hiring needs and begins the recruiting process to identify suitable candidates and encourage them to apply.
- In recruiting and hiring, managers must comply with antidiscrimination laws enforced by the Equal Employment Opportunity Commission (EEOC).
- Discrimination occurs when a person is treated unfairly on the basis of a characteristic unrelated to ability, such as race, color, religion, sex, national origin, age, or disability.
- Once a pool of suitable candidates has been identified, managers begin the selection process, reviewing information provided by candidates on employment applications and administering tests to assess candidates’ skills and knowledge.
- Candidates who pass this stage may be granted an interview and, perhaps, offered a job.
Exercise
You’re the chairperson of the management department at your college. Describe the steps you’d take to ensure that your department has enough qualified faculty to meet its needs.
Developing
What happens once an employee has been hired? This section discusses training and developing employees and the importance of having a diverse workforce.
Introduction
Learning Objective
- Explain how companies train and develop employees, and discuss the importance of a diverse workforce.
Because companies can’t survive unless employees do their jobs well, it makes economic sense to train them and develop their skills. This type of support begins when an individual enters the organization and continues as long as he or she stays there.
New-Employee Orientation
Have you ever started your first day at a new job feeling upbeat and optimistic only to walk out at the end of the day thinking that maybe you’ve taken the wrong job? If this happens too often, your employer may need to revise its approach to orientation – the way it introduces new employees to the organization and their jobs. Starting a new job is a little like beginning college; at the outset, you may be experiencing any of the following feelings:
- Somewhat nervous but enthusiastic
- Eager to impress but not wanting to attract too much attention
- Interested in learning but fearful of being overwhelmed with information
- Hoping to fit in and worried about looking new or inexperienced
The employer who understands how common such feelings are is more likely not only to help newcomers get over them but also to avoid the pitfalls often associated with new-employee orientation:
- Failing to have a workspace set up for you
- Ignoring you or failing to supervise you
- Neglecting to introduce you to coworkers (or introducing you to so many people that you have no chance of remembering anybody’s name)
- Assigning you no work or giving you busywork unrelated to your actual job
- Swamping you with facts about the company
A good employer will take things slowly, providing you with information about the company and your job on a need-to-know basis while making you feel as comfortable as possible. You’ll get to know the company’s history, traditions, policies, and culture over time. You’ll learn more about salary and benefits and how your performance will be evaluated. Most importantly, you’ll find out how your job fits into overall operations and what’s expected of you.
Training and Development
It would be nice if employees came preprogrammed with all the skills they need to do their jobs. It would also be nice if job requirements stayed the same: once you’ve learned how to do a job (or been preprogrammed), you’d know how to do it forever. In reality, new employees must be trained; moreover, as they grow in their jobs or as their jobs change, they’ll need additional training. Unfortunately, training is costly and time-consuming.
How costly? On average, for every $1 in payroll, large companies spend close to $0.03 in employee training and development”. The consulting firm Booz Allen Hamilton invests almost $0.08 in employee training and development. At Pfizer, the world’s largest pharmaceutical company, the total is $0.14 out of every payroll dollar”. What’s the payoff? Why are such companies willing to spend so much money on their employees? Pfizer, whose motto is “Succeed through People,” regards employee growth and development as its top priority. At Booz Allen Hamilton, consultants specialize in finding innovative solutions to client problems, and their employer makes sure that they’re up-to-date on all the new technologies by maintaining a “technology petting zoo” at its training headquarters. It’s called a “petting zoo” because employees get to see, touch, and interact with new and emerging technologies. For example, those attending the “petting zoo” several years ago got to try out the Segway Human Transporter even before it hit the market.
At Booz Allen Hamilton’s technology “petting zoo,” employees are receiving off-the-job training. This approach allows them to focus on learning without the distractions that would occur in the office. More common, however, is informal on-the-job training, which may be supplemented with formal training programs. This is the method, for example, by which you’d move up from mere coffee maker to a full-fledged “barista” if you worked at Starbucks. You’d begin by reading a large spiral book (titled Starbucks University) on the responsibilities of the barista. After you’ve passed a series of tests on the reading material, you’ll move behind the coffee bar, where a manager or assistant manager will give you hands-on experience in making drinks. According to the rules, you can’t advance to a new drink until you’ve mastered the one you’re working on; the process, therefore, may take a few days (or even weeks). Next, you have to learn enough about different types of coffee to be able to describe them to customers. (Because this course involves drinking a lot of coffee, you don’t have to worry about staying awake.) Eventually, you’ll be declared a coffee connoisseur, but there’s still one more set of skills to master: you must complete a customer-service course, which trains you in making eye contact with customers, anticipating their needs, and making them feel welcome.
Diversity in the Workplace
The makeup of the U.S. workforce has changed dramatically over the past 50 years. In the 1950s, more than 60 percent was composed of white males. Today’s workforce, however, reflects the broad range of differences in the population – differences in gender, race, ethnicity, age, physical ability, religion, education, and lifestyle. As you can see in Table 7.1 “Employment by Gender and Ethnic Group”, more women and minorities have entered the workforce, and white males now make up only 36 percent of the workforce. Their percentage representation diminished as more women and minorities entered the workforce.
Most companies today strive for diverse workforces. HR managers work hard to recruit, hire, develop, and retain a workforce that’s representative of the general population. In part, these efforts are motivated by legal concerns: discrimination in recruiting, hiring, advancement, and firing is illegal under federal law and is prosecuted by the EEOC. Companies that violate antidiscrimination laws not only are subject to severe financial penalties but also risk damage to their reputations. In November 2004, for example, the EEOC charged that recruiting policies at Abercrombie & Fitch, a national chain of retail clothing stores, had discriminated against minority and female job applicants between 1999 and 2004. The employer, charged the EEOC, had hired a disproportionate number of white salespeople, placed minorities and women in less visible positions, and promoted a virtually all-white image in its marketing efforts. Six days after the EEOC filed a lawsuit, the company settled the case at a cost of $50 million, but the negative publicity will hamper both recruitment and sales for some time to come.
Table 7.1 Employment by Gender and Ethnic Group
| Group | Total (%) | Males (%) | Females (%) |
|---|---|---|---|
| All employees | 100 | 52 | 48 |
| White | 68 | 36 | 32 |
| African American | 14 | 6 | 8 |
| Hispanic or Latino | 13 | 7 | 5 |
| Asian/Pacific Islander/Other | 5 | 3 | 3 |
There’s good reason for building a diverse workforce that goes well beyond mere compliance with legal standards. It even goes beyond commitment to ethical standards. It’s good business. People with diverse backgrounds bring fresh points of view that can be invaluable in generating ideas and solving problems. In addition, they can be the key to connecting with an ethnically diverse customer base. If a large percentage of your customers are Hispanic, it might make sense to have a Hispanic marketing manager. In short, capitalizing on the benefits of a diverse workforce means that employers should view differences as assets rather than liabilities.
Key Takeaways
- The process of introducing new employees to their jobs and to the company is called orientation.
- An effective approach is to take things slowly, providing new employees with information on a need-to-know basis while making them feel as comfortable as possible.
- New employees will need initial training to start their jobs, and they’ll need additional training as they grow in or change their jobs.
- Off-the-job training allows them to focus on learning without the distractions that would occur in the office, but on-the-job training is more common.
- In addition to having well-trained employees, it’s important that a workforce reflects the broad range of differences in the population.
- The efforts of HR managers to build a workforce that’s representative of the general population are driven in part by legal concerns: discrimination is illegal, and companies that violate antidiscrimination laws are subject to prosecution.
- But ensuring a diverse workforce goes well beyond both legal compliance and ethical commitment. It’s good business, because a diverse group of employees can bring fresh points of view that may be valuable in generating ideas and solving problems.
- Additionally, people from varied backgrounds can help an organization connect with an ethnically diverse customer base.
Exercises
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(AACSB) Reflective Skills
Think about a full-time or part-time job that you’ve held. Was your orientation to the job satisfactory? If not, how would you have improved the process? Did you receive any training? Was it useful? What additional training would have helped you do a better job? How would it have benefited the company?
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(AACSB) Diversity
While visiting a mall in Los Angeles, you noticed two stores located side by side selling electronic-entertainment products – CDs, DVDs, and so on. All the employees in one store were white males. The mix of workers in the other store – which happened to be more profitable – was more diverse. Why do you think the store with the diverse workforce did more business? In terms of diversity, what would be your ideal workforce in a store similar to these in Los Angeles?
Motivating
Drawing on older theories of motivation such as Maslow’s Hierarchy of Needs and Herzberg’s two-factor theory, and newer theories such as expectancy and equity theories, HR managers can gain insight into what might motivate employees to do their best work. Read this section to see how these theories can be used.
Introduction
Learning Objective
- Define motivation and describe several theories of motivation.
Motivation refers to an internally generated drive to achieve a goal or follow a particular course of action. Highly motivated employees focus their efforts on achieving specific goals; those who are unmotivated don’t. It’s the manager’s job, therefore, to motivate employees – to get them to try to do the best job they can. But what motivates employees to do well? How does a manager encourage employees to show up for work each day and do a good job? Paying them helps, but many other factors influence a person’s desire (or lack of it) to excel in the workplace. What are these factors? Are they the same for everybody? Do they change over time? To address these questions, we’ll examine four of the most influential theories of motivation: hierarchy-of-needs theory, two-factor theory, expectancy theory, and equity theory.
Hierarchy-of-Needs Theory
Psychologist Abraham Maslow’s hierarchy-of-needs theory proposed that we are motivated by the five unmet needs, arranged in the hierarchical order shown in Figure 7.3 “Maslow’s Hierarchy-of-Needs Theory”, which also lists examples of each type of need in both the personal and work spheres of life. Look, for instance, at the list of personal needs in the left-hand column. At the bottom are physiological needs (such life-sustaining needs as food and shelter). Working up the hierarchy we experience safety needs (financial stability, freedom from physical harm), social needs (the need to belong and have friends), esteem needs (the need for self-respect and status), and self-actualization needs (the need to reach one’s full potential or achieve some creative success).
Figure 7.3 Maslow’s Hierarchy-of-Needs Theory
There are two things to remember about Maslow’s model:
- We must satisfy lower-level needs before we seek to satisfy higher-level needs.
- Once we’ve satisfied a need, it no longer motivates us; the next higher need takes its place.
Let’s say, for example, that you’ve just returned to college and that for a variety of reasons that aren’t your fault, you’re broke, hungry, and homeless. Because you’ll probably take almost any job that will pay for food and housing (physiological needs), you go to work repossessing cars. Fortunately, your student loan finally comes through, and with enough money to feed yourself, you can look for a job that’s not so risky (a safety need). You find a job as a night janitor in the library, and though you feel secure, you start to feel cut off from your friends, who are active during daylight hours. You want to work among people, not books (a social need). So now you join several of your friends selling pizza in the student center. This job improves your social life, but even though you’re very good at making pizzas, it’s not terribly satisfying. You’d like something that will let you display your intellectual talents (an esteem need). So you study hard and land a job as an intern in the governor’s office. On graduation, you move up through a series of government appointments and eventually run for state senator. As you’re sworn into office, you realize that you’ve reached your full potential (a self-actualization need) and you comment to yourself, “It doesn’t get any better than this”.
Needs Theory and the Workplace
What implications does Maslow’s theory have for business managers? There are two key points: (1) Not all employees are driven by the same needs, and (2) the needs that motivate individuals can change over time. Managers should consider which needs different employees are trying to satisfy and should structure rewards and other forms of recognition accordingly. For example, when you got your first job repossessing cars, you were motivated by the need for money to buy food. If you’d been given a choice between a raise or a plaque recognizing your accomplishments, you’d undoubtedly have opted for the money. As a state senator, by contrast, you may prefer public recognition of work well done (say, election to higher office) to a pay raise.
Two-Factor Theory
Another psychologist, Frederick Herzberg, set out to determine which work factors (such as wages, job security, or advancement) made people feel good about their jobs and which factors made them feel bad about their jobs. He surveyed workers, analyzed the results, and concluded that to understand employee satisfaction (or dissatisfaction), he had to divide work factors into two categories:
- Motivation factors. Those factors that are strong contributors to job satisfaction
- Hygiene factors. Those factors that are not strong contributors to satisfaction but that must be present to meet a worker’s expectations and prevent job dissatisfaction
Figure 7.5 “Herzberg’s Two-Factor Theory” illustrates Herzberg’s two-factor theory. Note that motivation factors (such as promotion opportunities) relate to the nature of the work itself and the way the employee performs it. Hygiene factors (such as physical working conditions) relate to the environment in which it’s performed. (Note, too, the similarity between Herzberg’s motivation factors and Maslow’s esteem and self-actualization needs.)
Figure 7.5 Herzberg’s Two-Factor Theory
Two-Factor Theory and the Workplace
We’ll ask the same question about Herzberg’s model as we did about Maslow’s: What does it mean for managers? Suppose you’re a senior manager in an accounting firm, where you supervise a team of accountants, each of whom has been with the firm for five years. How would you use Herzberg’s model to motivate the employees who report to you? Let’s start with hygiene factors. Are salaries reasonable? What about working conditions? Does each accountant have his or her own workspace, or are they crammed into tiny workrooms? Are they being properly supervised or are they left on their own to sink or swim? If hygiene factors like these don’t meet employees’ expectations, they may be dissatisfied with their jobs.
As you can see in Figure 7.5 “Herzberg’s Two-Factor Theory”, fixing problems related to hygiene factors may alleviate job dissatisfaction, but it won’t necessarily improve anyone’s job satisfaction. To increase satisfaction (and motivate someone to perform better), you must address motivation factors. Is the work itself challenging and stimulating? Do employees receive recognition for jobs well done? Will the work that an accountant has been assigned help him or her to advance in the firm? According to Herzberg, motivation requires a twofold approach: eliminating dissatisfiers and enhancing satisfiers.
Expectancy Theory
If you were a manager, wouldn’t you like to know how your employees decide to work hard or goof off? Wouldn’t it be nice to know whether a planned rewards program will have the desired effect – namely, motivating them to perform better in their jobs? Wouldn’t it be helpful if you could measure the effect of bonuses on employee productivity? These are the issues considered by psychologist Victor Vroom in his expectancy theory, which proposes that employees will work hard to earn rewards that they value and that they consider obtainable.
As you can see from Figure 7.6 “Vroom’s Expectancy Theory”, Vroom argues that an employee will be motivated to exert a high level of effort to obtain a reward under three conditions:
- The employee believes that his or her efforts will result in acceptable performance.
- The employee believes that acceptable performance will lead to the desired outcome or reward.
- The employee values the reward.
Figure 7.6 Vroom’s Expectancy Theory
Expectancy Theory and the Workplace
To apply expectancy theory to a real-world situation, let’s analyze an automobile-insurance company with one hundred agents who work from a call center. Assume that the firm pays a base salary of $2,000 a month, plus a $200 commission on each policy sold above ten policies a month. In terms of expectancy theory, under what conditions would an agent be motivated to sell more than ten policies a month?
- The agent would have to believe that his or her efforts would result in policy sales (that, in other words, there’s a positive link between effort and performance).
- The agent would have to be confident that if he or she sold more than ten policies in a given month, there would indeed be a bonus (a positive link between performance and reward).
- The bonus per policy – $200 – would have to be of value to the agent.
Now let’s alter the scenario slightly. Say that the company raises prices, thus making it harder to sell the policies. How will agents’ motivation be affected? According to expectancy theory, motivation will suffer. Why? Because agents may be less confident that their efforts will lead to satisfactory performance. What if the company introduces a policy whereby agents get bonuses only if buyers don’t cancel policies within ninety days? How will this policy affect motivation? Now agents may be less confident that they’ll get bonuses even if they do sell more than ten policies. Motivation will decrease because the link between performance and reward has been weakened. Finally, what will happen if bonuses are cut from $200 to $25? Obviously, the reward would be of less value to agents, and, again, motivation will suffer. The message of expectancy theory, then, is fairly clear: managers should offer rewards that employees value, set performance levels that they can reach, and ensure a strong link between performance and reward.
Equity Theory
What if you spent thirty hours working on a class report, did everything you were supposed to do, and handed in an excellent assignment (in your opinion). Your roommate, on the other hand, spent about five hours and put everything together at the last minute. You know, moreover, that he ignored half the requirements and never even ran his assignment through a spell-checker. A week later, your teacher returns the reports. You get a C and your roommate gets a B+. In all likelihood, you’ll feel that you’ve been treated unfairly relative to your roommate.
Your reaction makes sense according to the equity theory of motivation, which focuses on our perceptions of how fairly we’re treated relative to others. Applied to the work environment, this theory proposes that employees analyze their contributions or job inputs (hours worked, education, experience, work performance) and their rewards or job outcomes (salary, benefits, recognition). Then they create a contributions/rewards ratio and compare it to those of other people. The basis of comparison can be any one of the following:
- Someone in a similar position
- Someone holding a different position in the same organization
- Someone with a similar occupation
- Someone who shares certain characteristics (such as age, education, or level of experience)
- Oneself at another point in time
When individuals perceive that the ratio of their contributions to rewards is comparable to that of others, they perceive that they’re being treated equitably; when they perceive that the ratio is out of balance, they perceive inequity. Occasionally, people will perceive that they’re being treated better than others. More often, however, they conclude that others are being treated better (and that they themselves are being treated worse). This is what you concluded when you saw your grade. You’ve calculated your ratio of contributions (hours worked, research and writing skills) to rewards (project grade), compared it to your roommate’s ratio, and concluded that the two ratios are out of balance.
What will an employee do if he or she perceives an inequity? The individual might try to bring the ratio into balance, either by decreasing inputs (working fewer hours, refusing to take on additional tasks) or by increasing outputs (asking for a raise). If this strategy fails, an employee might complain to a supervisor, transfer to another job, leave the organization, or rationalize the situation (perhaps deciding that the situation isn’t so bad after all). Equity theory advises managers to focus on treating workers fairly, especially in determining compensation, which is, naturally, a common basis of comparison.
Key Takeaways
- Motivation describes an internally generated drive that propels people to achieve goals or pursue particular courses of action.
- There are four influential theories of motivation: hierarchy-of-needs theory, two-factor theory, expectancy theory, and equity theory.
- Hierarchy-of-needs theory proposes that we’re motivated by five unmet needs – physiological, safety, social, esteem, and self-actualization – and must satisfy lower-level needs before we seek to satisfy higher-level needs.
- Two-factor theory divides work factors into motivation factors (those that are strong contributors to job satisfaction) and hygiene factors (those that, though not strong contributors to satisfaction, must be present to prevent job dissatisfaction). To increase satisfaction (and motivate someone to perform better), managers must address motivation factors.
- Expectancy theory proposes that employees work hard to obtain a reward when they value the reward, believe that their efforts will result in acceptable performance, and believe that acceptable performance will lead to a desired outcome or reward.
- Equity theory focuses on our perceptions of how fairly we’re treated relative to others. This theory proposes that employees create contributions/rewards ratios that they compare to those of others. If they feel that their ratios are comparable to those of others, they’ll perceive that they’re being treated equitably.
Exercise
This chapter describes four theories of motivation: hierarchy-of-needs theory, two-factor theory, expectancy theory, and equity theory. Briefly describe each theory. Which one makes the most intuitive sense to you? Why do you find it appealing?
Appraisal
Introduction
Learning Objective
- Explain how managers evaluate employee performance and retain qualified employees.
Employees generally want their managers to tell them three things: what they should be doing, how well they’re doing it, and how they can improve their performance. Good managers address these issues on an ongoing basis. On a semiannual or annual basis, they also conduct formal performance appraisals to discuss and evaluate employees’ work performance.
The Basic Three-Step Process
Appraisal systems vary both by organization and by the level of the employee being evaluated, but as you can see in Figure 7.8 “How to Do a Performance Appraisal”, it’s generally a three-step process:
- Before managers can measure performance, they must set goals and performance expectations and specify the criteria (such as quality of work, quantity of work, dependability, initiative) that they’ll use to measure performance.
- At the end of a specified time period, managers complete written evaluations that rate employee performance according to the predetermined criteria.
- Managers then meet with each employee to discuss the evaluation. Jointly, they suggest ways in which the employee can improve performance, which might include further training and development.
Figure 7.8 How to Do a Performance Appraisal
It sounds fairly simple, but why do so many managers report that, except for firing people, giving performance appraisals is their least favorite task? To get some perspective on this question, we’ll look at performance appraisals from both sides, explaining the benefits and identifying potential problems with some of the most common practices.
Among other benefits, formal appraisals provide the following:
- An opportunity for managers and employees to discuss an employee’s performance and to set future goals and performance expectations
- A chance to identify and discuss appropriate training and career-development opportunities for an employee
- Formal documentation of the evaluation that can be used for salary, promotion, demotion, or dismissal purposes
As for disadvantages, most stem from the fact that appraisals are often used to determine salaries for the upcoming year. Consequently, meetings to discuss performance tend to take on an entirely different dimension: the manager appears judgmental (rather than supportive), and the employee gets defensive. It’s the adversarial atmosphere that makes many managers not only uncomfortable with the task but also unlikely to give honest feedback. (They tend to give higher marks in order to avoid delving into critical evaluations.) HR professionals disagree about whether performance appraisals should be linked to pay increases. Some experts argue that the connection eliminates the manager’s opportunity to use the appraisal to improve an employee’s performance. Others maintain that it increases employee satisfaction with the process and distributes raises on the basis of effort and results.
360-Degree and Upward Feedback
Instead of being evaluated by one person, how would you like to be evaluated by several people – not only those above you in the organization but those below and beside you? The approach is called 360-degree feedback, and the purpose is to ensure that employees (mostly managers) get feedback from all directions – from supervisors, reporting subordinates, coworkers, and even customers. If it’s conducted correctly, this technique furnishes managers with a range of insights into their performance in a number of roles.
Some experts, however, regard the 360-degree approach as too cumbersome. An alternative technique, called upward feedback, requires only the manager’s subordinates to provide feedback. Computer maker Dell uses this approach as part of its manager-development plan. Every six months, forty thousand Dell employees complete a survey in which they rate their supervisors on a number of dimensions, such as practicing ethical business principles and providing support in balancing work and personal life. Like most companies using this technique, Dell uses survey results for development purposes only, not as direct input into decisions on pay increases or promotions”.
Retaining Valuable Employees
When a valued employee quits, the loss to the employer can be serious. Not only will the firm incur substantial costs to recruit and train a replacement, but it also may suffer temporary declines in productivity and lower morale among remaining employees who have to take on heavier workloads. Given the negative impact of turnover – the permanent separation of an employee from a company – most organizations do whatever they can to retain qualified employees. Compensation plays a key role in this effort: companies that don’t offer competitive compensation packages (including benefits) tend to lose employees. But other factors come into play, some of which we discussed earlier, such as training and development, as well as helping employees achieve a satisfying work/nonwork balance. In the following sections, we’ll look at a few other strategies for reducing turnover and increasing productivity.
Creating a Positive Work Environment
Employees who are happy at work are more productive, provide better customer service, and are more likely to stay with the company. A study conducted by Sears, for instance, found a positive relationship between customer satisfaction and employee attitudes on ten different issues: a 5 percent improvement in employee attitudes results in a 1.3 percent increase in customer satisfaction and a 0.5 percent increase in revenue”.
The Employee-Friendly Workplace
What sort of things improve employee attitudes? The twelve thousand employees of software maker SAS Institute fall into the category of “happy workers”. They choose the furniture and equipment in their own (private) offices; eat subsidized meals at one of three on-site restaurants; enjoy free soft drinks, fresh fruit on Mondays, M&M’s on Wednesdays, and a healthy breakfast snack on Fridays in convenient break rooms; and swim and work out at a seventy-seven-thousand-square-foot fitness center. They set their own work hours, and they’re encouraged to stay home with sick children. They also have job security: no one’s ever been laid off because of an economic downturn. The employee-friendly work environment helps SAS employees focus on their jobs and contribute to the attainment of company goals. Not surprisingly, it also results in very low 3 percent turnover.
Recognizing Employee Contributions
Thanking people for work done well is a powerful motivator. People who feel appreciated are more likely to stay with a company than those who don’t. While personal thank-yous are always helpful, many companies also have formal programs for identifying and rewarding good performers. The Container Store, a national storage and container retailer, rewards employee accomplishments in a variety of ways. Recently, for example, twelve employees chosen by coworkers were rewarded with a Colorado vacation with the company’s owners, and the seven winners of a sales contest got a trip to visit an important supplier – in Sweden. The company is known for its supportive environment and has frequently been selected as one of the top U.S. companies to work for.
Involving Employees in Decision Making
Companies have found that involving employees in decisions saves money, makes workers feel better about their jobs, and reduces turnover. Some have found that it pays to take their advice. When General Motors asked workers for ideas on improving manufacturing operations, management was deluged with more than forty-four thousand suggestions during one quarter. Implementing a few of them cut production time on certain vehicles by 15 percent and resulted in sizable savings.
Similarly, in 2001, Edward Jones, a personal investment company, faced a difficult situation during the stock-market downturn. Costs had to be cut, and laying off employees was one option. Instead, however, the company turned to its workforce for solutions. As a group, employees identified cost savings of more than $38 million. At the same time, the company convinced experienced employees to stay with it by assuring them that they’d have a role in managing it.
Why People Quit
As important as such initiatives can be, one bad boss can spoil everything. The way a person is treated by his or her boss may be the primary factor in determining whether an employee stays or goes. People who have quit their jobs cite the following behavior by superiors:
- Making unreasonable work demands
- Refusing to value their opinions
- Failing to be clear about what’s expected of subordinates
- Rejecting work unnecessarily
- Showing favoritism in compensation, rewards, or promotions
Holding managers accountable for excessive turnover can help alleviate the “bad-boss” problem, at least in the long run. In any case, whenever an employee quits, it’s a good idea for someone – someone other than the individual’s immediate supervisor – to conduct an exit interview to find out why. Knowing why people are quitting gives an organization the opportunity to correct problems that are causing high turnover rates.
Involuntary Termination
Before we leave this section, we should say a word or two about termination – getting fired. Though turnover – voluntary separations – can create problems for employers, they’re not nearly as devastating as the effects of involuntary termination on employees. Losing your job is what psychologists call a “significant life change,” and it’s high on the list of “stressful life events” regardless of the circumstances. Sometimes, employers lay off workers because revenues are down and they must resort to downsizing – to cutting costs by eliminating jobs. Sometimes a particular job is being phased out, and sometimes an employee has simply failed to meet performance requirements.
Employment at Will
Is it possible for you to get fired even if you’re doing a good job and there’s no economic justification for your being laid off? In some cases, yes – especially if you’re not working under a contract. Without a formal contract, you’re considered to be employed at will, which means that both you and your employer have the right to terminate the employment relationship at any time. You can quit whenever you want (which is good for you), but your employer can fire you whenever it wants (which is obviously bad for you).
Fortunately for you, over the past several decades, the courts have undercut employers’ rights under the employment-at-willdoctrine. By and large, management can no longer fire employees at will: usually, employers must show just cause for termination, and in some cases, they must furnish written documentation to substantiate the reasons for terminating an employee. If it’s a case of poor performance, the employee is generally warned in advance that his or her current level of performance could result in termination. As a rule, managers give employees who have been warned a reasonable opportunity to improve performance. When termination is unavoidable, it should be handled in a private conversation, with the manager explaining precisely why the action is being taken.
Key Takeaways
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Managers conduct performance appraisals to evaluate work performance, usually following a three-step process:
- Setting goals and performance expectations and specifying the criteria for measuring performance
- Completing written evaluations to rate performance according to predetermined criteria
- Meeting with employees to discuss evaluations and ways to improve performance
- Turnover – the permanent separation of an employee from a company – has a negative effect on an organization.
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In addition to offering competitive compensation, companies may take a variety of steps to retain qualified employees:
- Providing appropriate training and development
- Helping employees achieve a satisfying work/nonwork balance in their lives
- Creating a positive work environment
- Recognizing employee efforts
- Involving employees in decision making
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On the other hand, employers may have to terminate the employment of (that is, fire) some workers.
- They may lay off workers because revenues are down and they have to downsize – to cut costs by eliminating jobs.
- Sometimes a job is phased out, and sometimes an employee simply fails to meet performance requirements.
- If there’s no written employment contract, the employment relationship falls under the principle of employment-at-will, by which an employer can end it at any time. Usually, however, the employer must show just cause.
Exercises
- What steps does a manager take in evaluating an employee’s performance? Explain the benefits of performance appraisals, and identify some of the potential problems entailed by the performance-evaluation process.
- As an HR manager, what steps would you take to retain valuable employees? Under what circumstances would you fire an employee? Can you fire someone without giving that person a warning?
Employee Compensation and Benefits
Another important duty of human resources is creating a compensation or benefits package that is sufficiently robust to keep employees from leaving but not so extravagant that the business goes bankrupt in trying to compensate their employees. Read this section to see a few types of employee benefits.
- What are the types of compensation and methods for paying workers?
Compensation, which includes both pay and benefits, is closely connected to performance appraisals. Employees who perform better tend to get bigger pay raises. Several factors affect an employee’s pay:
- Pay structure and internal influences. Wages, salaries, and benefits are based on skills, experience, and the level of the job. The most important high-level positions, such as president, chief information officer, and chief financial officer, are compensated at the highest rates. Likewise, different jobs of equal importance to the firm are compensated at similar rates. As the level of management responsibility increases, so does pay. For instance, if a drill-press operator and a lathe operator are considered of equal importance, they may both be paid $21 per hour.
- Pay level and external influences. In deciding how much to pay workers, the firm must also be concerned with the salaries paid by competitors. If competitors are paying higher wages, a firm may lose its best employees. HR professionals regularly evaluate salaries by geography, job position, and competitor and market wages. Wage and salary surveys conducted by the U.S. Chamber of Commerce and the U.S. Department of Labor can also be useful. There are also several websites such as Glassdoor that post salaries for jobs by company.
An employer can decide to pay at, above, or below the going rate. Most firms try to offer competitive wages and salaries within a geographic area or an industry. If a company pays below-market wages, it may not be able to hire skilled people. The level of a firm’s compensation is determined by the firm’s financial condition (or profitability), efficiency, and employee productivity, as well as the going rates paid by competitors. For example, MillerCoors Brewing Co. is considered a high-paying firm ($29–$33 per hour for production employees).
Types of Compensation or Pay
There are two basic types of compensation: direct and indirect. Direct pay is the wage or salary received by the employee; indirect pay consists of various employee benefits and services. Employees are usually paid directly on the basis of the amount of time they work, the amount they produce, the type of work performed, or some combination of skill, time, and output. An hourly rate of pay or a monthly salary is considered base pay, or an amount of pay received by the employee regardless of output level. In many jobs, such as sales and manufacturing, an employee can earn additional pay as a result of a commission or an incentive pay arrangement. The accelerated commission schedule for a salesperson shown below indicates that as sales increase the incentive becomes increasingly more attractive and rewarding; therefore, pay can function as a powerful motivator. In this example, a salesperson receives a base monthly salary of $1,000, then earns 3 percent on the first $50,000 of product sold, 4 percent on the next $30,000, and 5 percent on any sales beyond $80,000.
| Base pay | $1,000 per month |
| 3% of 50,000 | 1,500 |
| 4% of 30,000 | 1,200 |
| 5% of 20,000 | 1,000 |
| $4,700 |
Two other incentive pay arrangements are bonuses and profit-sharing. Employees may be paid bonuses for reaching certain monthly or annual performance goals or achieving a specific cost-saving objective. In this instance, employees are rewarded based on achieving certain goals.
In a profit-sharing plan, employees may receive some portion of the firm’s profit. Employee profit shares are usually based on annual company financial performance and therefore are paid once a year. With either a bonus or a profit share, an important incentive pay consideration is whether the bonus or profit share is the same for all employees or whether it is differentiated by level in the organization, base pay, or some other criterion. Choice Homes, a large-scale builder of starter homes, pays an annual incentive share that is the same for everyone; the president receives the same profit share or bonus as the lowest-paid employee.
Indirect pay includes pensions, health insurance, vacation time, and many others. Some forms of indirect pay are required by law: unemployment compensation, worker’s compensation, and Social Security, which are all paid in part by employers. Unemployment compensation provides former employees with money for a certain period while they are unemployed. To be eligible, the employee must have worked a minimum number of weeks, be without a job, and be willing to accept a suitable position offered by the state Unemployment Compensation Commission. Some state laws permit payments to strikers. Worker’s compensation pays employees for lost work time caused by work-related injuries and may also cover rehabilitation after a serious injury. Social Security is mainly a government pension plan, but it also provides disability and survivor benefits and benefits for people undergoing kidney dialysis and transplants. Medicare (health care for seniors) and Medicaid (health care for the poor) are also part of Social Security.
Many employers also offer benefits not required by law. Among these are paid time off (vacations, holidays, sick days, even pay for jury duty), health insurance (including dental and vision), supplemental benefits (disability, life, pet insurance, legal benefits), 401K contributions, pensions and retirement savings accounts, and stock purchase options.
Some firms with numerous benefits allow employees to mix and match benefit items or select items based on individual needs. A younger employee with a family may desire to purchase medical, disability, and life insurance, whereas an older employee may want to put more benefit dollars into a retirement savings plan. Pay and benefits are obviously important elements of human resource management and are frequently studied as aspects of employee job satisfaction. Pay can be perceived as very satisfactory, or it can be a point of job dissatisfaction. In a study of job satisfaction conducted by SAP, direct compensation was the most important element of job satisfaction by employees from various companies. As the cost of health insurance and other benefits has risen sharply over the past few years, benefits have become increasingly important to workers.
Catching the Entrepreneurial Spirit
Starbucks Perks More Than Coffee
At Starbucks, CEO Howard Schultz understood that the single most important aspect of creating an enduring brand is its people. Schultz wanted to set Starbucks apart from other coffee shops and service businesses, and he did this by offering health benefits and stock ownership for people who work part-time. It had never been done before, and it came with a cost.
In addition to employee benefits, funding to build the brand was funneled into operations to create an experience that would enable the brand to endure and be sold profitably for many years to come. So instead of expensive marketing and advertising campaigns, the company focused on experiential marketing.
Scott Bedbury, the president of marketing of Starbucks at the time, explains. “The stores were once four white walls. There was no comfortable furniture or fireplaces or music. So we set out to create an experience in the stores and a level of brand equity that most traditionally marketed brands couldn’t touch. That meant constant creative development of products, and the look and feel in the stores. It wasn’t cheap. The first year, we spent $100 million building out stores, which is a significant marketing budget for anyone”.
But the defining moment for the brand was the stock option and employee benefit plan. This laid the foundation for the company’s internal brand, and was Schultz’s mission from the very beginning, explains Bedbury. “When Howard took over the company, he was not a rich man and he didn’t own a house or even a car. Howard grew up poor in Brooklyn and was influenced strongly by his dad, who never got health benefits from any of his employers. This fueled Howard’s drive to create a company that put employees first. He is passionate that when it comes to customers versus employees, employees will always come first”.
But it wasn’t easy, and it took a lot of courage to present this idea to investors. Bedbury said, “When Howard tried to raise $2.8 million to buy the company from the three founders, he made 220 presentations and he got shut down in all but 12 of them. He was seen as an idealist who was going to put an unnecessary burden on the bottom line by offering benefits to part-time employees who viewed this as a temporary job. But Howard convinced them that turnover would drop, which it did. Store manager attrition was 15 percent, part-time hourly employees was 65 percent, compared to McDonalds and Taco Bell, which were about 200–300 percent a year. That’s turning over your work force every four months, and when you do that, your service suffers and there are all kinds of problems. I don’t know why more people don’t do it. If you give up some equity to employees, they’ll reward you for that”.
Critical Thinking Questions
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- How can a company like Starbucks sustain its strong employee culture while continuing to grow rapidly?
- Can a firm give its employees too much in terms of benefits and services? Explain.
Concept Check
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- How does a firm establish a pay scale for its employees?
- What is the difference between direct and indirect pay?
- Why are health insurance and benefits so important to employees?
What Makes a Great Place to Work?
Read this section to look at benefits and some factors that make a business a good place to work.
Introduction
Learning Objective
- Identify factors that make an organization a good place to work, including competitive compensation and benefits packages.
Every year, the Great Places to Work Institute analyzes comments from thousands of employees and compiles a list of “The 100 Best Companies to Work for in America,” which is published in Fortune magazine. Having compiled its list for more than twenty years, the institute concludes that the defining characteristic of a great company to work for is trust between managers and employees. Employees overwhelmingly say that they want to work at a place where employees “trust the people they work for, have pride in what they do, and enjoy the people they work with”. They report that they’re motivated to perform well because they’re challenged, respected, treated fairly, and appreciated. They take pride in what they do, are made to feel that they make a difference, and are given opportunities for advancement”. The most effective motivators, it would seem, are closely aligned with Maslow’s higher-level needs and Herzberg’s motivating factors.
Job Redesign
The average employee spends more than two thousand hours a year at work. If the job is tedious, unpleasant, or otherwise unfulfilling, the employee probably won’t be motivated to perform at a very high level. Many companies practice a policy of job redesign to make jobs more interesting and challenging. Common strategies include job rotation, job enlargement, and job enrichment.
Job Rotation
Specialization promotes efficiency because workers get very good at doing particular tasks. The drawback is the tedium of repeating the same task day in and day out. The practice of job rotation allows employees to rotate from one job to another on a systematic basis, eventually cycling back to their original tasks. A computer maker, for example, might rotate a technician into the sales department to increase the employee’s awareness of customer needs and to give the employee a broader understanding of the company’s goals and operations. A hotel might rotate an accounting clerk to the check-in desk for a few hours each day to add variety to the daily workload. Rotated employees develop new skills and gain experience that increases their value to the company, which benefits management because cross-trained employees can fill in for absentees, thus providing greater flexibility in scheduling.
Job Enlargement
Instead of a job in which you performed just one or two tasks, wouldn’t you prefer a job that gave you many different tasks? In theory, you’d be less bored and more highly motivated if you had a chance at job enlargement – the policy of enhancing a job by adding tasks at similar skill levels (see Figure 7.7 “Job Enlargement versus Job Enrichment”). The job of sales clerk, for example, might be expanded to include gift-wrapping and packaging items for shipment. The additional duties would add variety without entailing higher skill levels.
Figure 7.7 Job Enlargement versus Job Enrichment
Job Enrichment
As you can see from Figure 7.7 “Job Enlargement versus Job Enrichment”, merely expanding a job by adding similar tasks won’t necessarily “enrich” it by making it more challenging and rewarding. Job enrichment is the practice of adding tasks that increase both responsibility and opportunity for growth. It provides the kinds of benefits that, according to Maslow and Herzberg, contribute to job satisfaction: stimulating work, sense of personal achievement, self-esteem, recognition, and a chance to reach your potential.
Consider, for example, the evolving role of support staff in the contemporary office. Today, employees who used to be called “secretaries” assume many duties previously in the domain of management, such as project coordination and public relations. Information technology has enriched their jobs because they can now apply such skills as word processing, desktop publishing, creating spreadsheets, and managing databases. That’s why we now hear such a term as administrative assistant instead of secretary.
Work/Life Quality
Building a career requires a substantial commitment in time and energy, and most people find that they aren’t left with much time for nonwork activities. Fortunately, many organizations recognize the need to help employees strike a balance between their work and home lives. By helping employees combine satisfying careers and fulfilling personal lives, companies tend to end up with a happier, less-stressed, and more productive workforce. The financial benefits include lower absenteeism, turnover, and health care costs.
Alternative Work Arrangements
The accounting firm KPMG, which has made the list of the “100 Best Companies for Working Mothers” for twelve years, is committed to promoting a balance between its employees’ work and personal lives. KPMG offers a variety of work arrangements designed to accommodate different employee needs and provide scheduling flexibility.
Flextime
Employers who provide for flextime set guidelines that allow employees to designate starting and quitting times. Guidelines, for example, might specify that all employees must work eight hours a day (with an hour for lunch) and that four of those hours must be between 10 a.m. and 3 p.m. Thus, you could come in at 7 a.m. and leave at 4 p.m., while coworkers arrive at 10 a.m. and leave at 7 p.m. With permission you could even choose to work from 8 a.m to 2 p.m., take two hours for lunch, and then work from 4 p.m. to 6 p.m.
Compressed Workweeks
Rather than work eight hours a day for five days a week, you might elect to earn a three-day weekend by working ten hours a day for four days a week.
Part-Time Work
If you’re willing to have your pay and benefits adjusted accordingly you can work fewer than forty hours a week.
Job Sharing
Under job sharing, two people share one full-time position, splitting the salary and benefits of the position as each handles half the job. Often they arrange their schedules to include at least an hour of shared time during which they can communicate about the job.
Telecommuting
Telecommuting means that you regularly work from home (or from some other nonwork location). You’re connected to the office by computer, fax, and phone. You save on commuting time, enjoy more flexible work hours, and have more opportunity to spend time with your family. A study of 5,500 IBM employees (one-fifth of whom telecommute) found that those who worked at home not only had a better balance between work and home life but also were more highly motivated and less likely to leave the organization.
Though it’s hard to count telecommuters accurately, some estimates put the number of people who work at home at least one day a week at 20 percent. This estimate includes 2 percent of workers who run home-based businesses and 2 percent who work exclusively at home for other companies”. Telecommuting isn’t for everyone. Working at home means that you have to discipline yourself to avoid distractions, such as TV, personal phone calls, home chores, or pets, and some people feel isolated from social interaction in the workplace.
Family-Friendly Programs
In addition to alternative work arrangements, many employers, including KPMG, offer programs and benefits designed to help employees meet family and home obligations while maintaining busy careers. KPMG offers each of the following benefits”.
Dependent Care
Caring for dependents – young children and elderly parents – is of utmost importance to some employees, but combining dependent-care responsibilities with a busy job can be particularly difficult. KPMG provides on-site child care during tax season (when employees are especially busy) and offers emergency backup dependent care all year round, either at a provider’s facility or in the employee’s home. To get referrals or information, employees can call KPMG’s LifeWorks Resource and Referral Service. KPMG is by no means unique in this respect: more than eight thousand companies maintain on-site day care, and 18 percent of all U.S. companies offer child-care resources or referral services”.
Paid Parental Leave
Any employee (whether male or female) who becomes a parent can take two weeks of paid leave. New mothers also get time off through short-term disability benefits.
Caring for Yourself
Like many companies, KPMG allows employees to aggregate all paid days off and use them in any way they want. In other words, instead of getting, say, ten sick days, five personal days, and fifteen vacation days, you get a total of thirty days to use for anything. If you’re having personal problems, you can contact the Employee Assistance Program. If staying fit makes you happier and more productive, you can take out a discount membership at one of more than nine thousand health clubs.
Unmarried without Children
You’ve undoubtedly noticed by now that many programs for balancing work and personal lives target married people, particularly those with children. Single individuals also have trouble striking a satisfactory balance between work and nonwork activities, but many single workers feel that they aren’t getting equal consideration from employers. They report that they’re often expected to work longer hours, travel more, and take on difficult assignments to compensate for married employees with family commitments.
Needless to say, requiring singles to take on additional responsibilities can make it harder for them to balance their work and personal lives. It’s harder to plan and keep personal commitments while meeting heavy work responsibilities, and establishing and maintaining social relations is difficult if work schedules are unpredictable or too demanding. Frustration can lead to increased stress and job dissatisfaction. In several studies of stress in the accounting profession, unmarried workers reported higher levels of stress than any other group, including married people with children.Data was obtained from 1988 and 1991 studies of stress in public accounting by Karen Collins and from a 1995 study on quality of life in the accounting profession by Collins and Jeffrey Greenhaus. Analysis of the data on single individuals was not separately published.
With singles, as with married people, companies can reap substantial benefits from programs that help employees balance their work and nonwork lives: they can increase job satisfaction and employee productivity and reduce turnover. PepsiCo, for example, offers a “concierge service,” which maintains a dry cleaner, travel agency, convenience store, and fitness center on the premises of its national office in Somers, New York”. Single employees seem to find these services helpful, but what they value most of all is control over their time. In particular, they want predictable schedules that allow them to plan social and personal activities. They don’t want employers assuming that being single means that they can change plans at the last minute. It’s often more difficult for singles to deal with last-minute changes because, unlike married coworkers, they don’t have the at-home support structure to handle such tasks as tending to elderly parents or caring for pets.
Compensation and Benefits
Though paychecks and benefits packages aren’t the only reasons why people work, they do matter. Competitive pay and benefits also help organizations attract and retain qualified employees. Companies that pay their employees more than their competitors generally have lower turnover. Consider, for example, The Container Store, which regularly appears on Fortune magazine’s list of “The 100 Best Companies to Work For”. The retail chain staffs its stores with fewer employees than its competitors but pays them more – in some cases, three times the industry average for retail workers. This strategy allows the company to attract extremely talented workers who, moreover, aren’t likely to leave the company. Low turnover is particularly valuable in the retail industry because it depends on service-oriented personnel to generate repeat business.
In addition to salary and wages, compensation packages often include other financial incentives, such as bonuses and profit-sharing plans, as well as benefits, such as medical insurance, vacation time, sick leave, and retirement accounts.
Wages and Salaries
The largest, and most important, component of a compensation package is the payment of wages or salary. If you’re paid according to the number of hours you work, you’re earning wages. Counter personnel at McDonald’s, for instance, get wages, which are determined by multiplying an employee’s hourly wage rate by the number of hours worked during the pay period. On the other hand, if you’re paid for fulfilling the responsibilities of a position – regardless of the number of hours required to do it – you’re earning a salary. The McDonald’s manager gets a salary for overseeing the operations of the restaurant. He or she is expected to work as long as it takes to get the job done, without any adjustment in compensation.
Piecework and Commissions
Sometimes it makes more sense to pay workers according to the quantity of product that they produce or sell. Byrd’s Seafood, a crab-processing plant in Crisfield, Maryland, pays workers on piecework: Workers’ pay is based on the amount of crabmeat that’s picked from recently cooked crabs. (A good picker can produce fifteen pounds of crabmeat an hour and earn about $100 a day.) If you’re working on commission, you’re probably getting paid for quantity of sales. If you were a sales representative for an insurance company, like The Hartford, you’d get a certain amount of money for each automobile or homeowner policy that you sell”.
Incentive Programs
In addition to regular paychecks, many people receive financial rewards based on performance, whether their own, their employer’s, or both. At computer-chip maker Texas Instruments (TI), for example, employees may be eligible for bonuses, profit sharing, and stock options. All three plans are incentive programs: programs designed to reward employees for good performance.
Bonus Plans
TI’s year-end bonuses – annual income given in addition to salary – are based on company-wide performance. If the company has a profitable year, and if you contributed to that success, you’ll get a bonus. If the company doesn’t do well, you’re out of luck, regardless of what you contributed.
Bonus plans have become quite common, and the range of employees eligible for bonuses has widened in recent years. In the past, bonus plans were usually reserved for managers above a certain level. Today, however, companies have realized the value of extending plans to include employees at virtually every level. The magnitude of bonuses still favors those at the top. High-ranking officers (such as CEOs and CFOs) often get bonuses ranging from 30 percent to 50 percent of their salaries. Upper-level managers may get from 15 percent to 25 percent and middle managers from 10 percent to 15 percent. At lower levels, employees may expect bonuses from 3 percent to 5 percent of their annual compensation.
Profit-Sharing Plans
TI also maintains a profit-sharing plan, which relies on a predetermined formula to distribute a share of the company’s profits to eligible employees. Today, about 40 percent of all U.S. companies offer some type of profit-sharing program. TI’s plan, however, is a little unusual: while most plans don’t allow employees to access profit-sharing funds until retirement or termination, TI employees get their shares immediately – in cash.
TI’s plan is also pretty generous – as long as the company has a good year. Here’s how it works. An employee’s profit share depends on the company’s operating profit for the year. If profits from operations reach 10 percent of sales, the employee gets a bonus worth 4 percent of his or her salary. If operating profit soars to 20 percent, the employee bonuses go up to 26 percent of salary. But if operating profits fall short of a certain threshold, nobody gets anything.
Stock-Option Plans
Like most stock-option plans, the TI plan gives employees the right to buy a specific number of shares of company stock at a set price on a specified date. At TI, an employee may buy stock at its selling price at the time when he or she was given the option. So, if the price of the stock goes up, the employee benefits. Say, for example, that the stock was selling for $30 a share when the option was granted in 2007. In 2011, it was selling for $40 a share. Exercising his or her option, the employee could buy TI stock at the 2007 price of $30 a share – a bargain price.
At TI, stock options are used as an incentive to attract and retain top people. Starbucks, by contrast, isn’t nearly as selective in awarding stock options. At Starbucks, all employees can earn “Bean Stock” – the Starbucks employee stock-option plan. Both full- and part-time employees get options to buy Starbucks shares at a set price. If the company does well and its stock goes up, employees make a profit. CEO Howard Schultz believes that Bean Stock pays off: because employees are rewarded when the company does well, they have a stronger incentive to add value to the company (and so drive up its stock price). Shortly after the program was begun, the phrase “bean-stocking” became workplace lingo for figuring out how to save the company money.
Benefits
Another major component of an employee’s compensation package is benefits – compensation other than salaries, hourly wages, or financial incentives. Types of benefits include the following:
- Legally required benefits (Social Security and Medicare, unemployment insurance, workers’ compensation)
- Paid time off (vacations, holidays, sick leave)
- Insurance (health benefits, life insurance, disability insurance)
- Retirement benefits
Unfortunately, the cost of providing benefits is staggering. According to the Employee Benefit Research Institute, it costs an employer 30 percent of a worker’s salary to provide the same worker with benefits. If you include pay for time not worked (while on vacation or sick and so on), the percentage increases to 41 percent. So if you’re a manager making $100,000 a year, your employer is also paying out another $41,000 for your benefits. The most money goes for health care (8 percent of salary costs), paid time off (11 percent), and retirement benefits (5 percent)”.
Some workers receive only benefits required by law, including Social Security, unemployment, and workers’ compensation. Low-wage workers generally get only limited benefits and part-timers often nothing at all. Again, Starbucks is generous in offering benefits. The company provides benefits even to the part-timers who make up two-thirds of the company’s workforce; anyone working at least twenty hours a week gets medical coverage.
Key Takeaways
- Employees report that they’re motivated to perform well when they’re challenged, respected, treated fairly, and appreciated.
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Other factors may contribute to employee satisfaction. Some companies use job redesign to make jobs more interesting and challenging.
- Job rotation allows employees to rotate from one job to another on a systematic basis.
- Job enlargement enhances a job by adding tasks at similar skill levels.
- Job enrichment adds tasks that increase both responsibility and opportunity for growth.
- Many organizations recognize the need to help employees strike a balance between their work and home lives and offer a variety of work arrangements to accommodate different employee needs.
- Flextime allows employees to designate starting and quitting times, compress workweeks, or perform part-time work.
- With job sharing, two people share one full-time position.
- Telecommuting means working from home. Many employers also offer dependent care, paid leave for new parents, employee-assistance programs, and on-site fitness centers.
- Competitive compensation also helps.
- Workers who are paid by the hour earn wages, while those who are paid to fulfill the responsibilities of the job earn salaries.
- Some people receive commissions based on sales or are paid for output, based on a piecework approach.
- In addition to pay, many employees can earn financial rewards based on their own and/or their employer’s performance.
- They may receive year-end bonuses, participate in profit-sharing plans (which use predetermined formulas to distribute a share of company profits among employees), or receive stock options (which let them buy shares of company stock at set prices).
- Another component of many compensation packages is benefits – compensation other than salaries, wages, or financial incentives. Benefits may include paid time off, insurance, and retirement benefits.
Exercise
(AACSB) Analysis
- Describe the ideal job that you’d like to have once you’ve finished college. Be sure to explain the type of work schedule that you’d find most satisfactory, and why. Identify family-friendly programs that you’d find desirable and explain why these appeal to you.
- Describe a typical compensation package for a sales manager in a large organization. If you could design your own compensation package, what would it include?
Catching the Entrepreneurial Spirit
Review the Starbucks case study about employee benefits and answer the critical thinking questions.
Starbucks Perks More Than Coffee
At Starbucks, CEO Howard Schultz understood that the single most important aspect of creating an enduring brand is its people. Schultz wanted to set Starbucks apart from other coffee shops and service businesses, and he did this by offering health benefits and stock ownership for people who work part-time. It had never been done before, and it came with a cost.
In addition to employee benefits, funding to build the brand was funneled into operations to create an experience that would enable the brand to endure and be sold profitably for many years to come. So instead of expensive marketing and advertising campaigns, the company focused on experiential marketing.
Scott Bedbury, the president of marketing of Starbucks at the time, explains. “The stores were once four white walls. There was no comfortable furniture or fireplaces or music. So we set out to create an experience in the stores and a level of brand equity that most traditionally marketed brands couldn’t touch. That meant constant creative development of products, and the look and feel in the stores. It wasn’t cheap. The first year, we spent $100 million building out stores, which is a significant marketing budget for anyone”.
But the defining moment for the brand was the stock option and employee benefit plan. This laid the foundation for the company’s internal brand, and was Schultz’s mission from the very beginning, explains Bedbury. “When Howard took over the company, he was not a rich man and he didn’t own a house or even a car. Howard grew up poor in Brooklyn and was influenced strongly by his dad, who never got health benefits from any of his employers. This fueled Howard’s drive to create a company that put employees first. He is passionate that when it comes to customers versus employees, employees will always come first”.
But it wasn’t easy, and it took a lot of courage to present this idea to investors. Bedbury said, “When Howard tried to raise $2.8 million to buy the company from the three founders, he made 220 presentations and he got shut down in all but 12 of them. He was seen as an idealist who was going to put an unnecessary burden on the bottom line by offering benefits to part-time employees who viewed this as a temporary job. But Howard convinced them that turnover would drop, which it did. Store manager attrition was 15 percent, part-time hourly employees was 65 percent, compared to McDonalds and Taco Bell, which were about 200–300 percent a year. That’s turning over your work force every four months, and when you do that, your service suffers and there are all kinds of problems. I don’t know why more people don’t do it. If you give up some equity to employees, they’ll reward you for that”.
Critical Thinking Questions
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- How can a company like Starbucks sustain its strong employee culture while continuing to grow rapidly?
- Can a firm give its employees too much in terms of benefits and services? Explain.
Joining Labor Unions
A discussion of human resource management would not be complete without including some information on labor unions. While it would be nice to think that business owners would have their employees’ best interests at heart, this is not always the case. To provide employees with some power to negotiate for their benefits, labor unions use collective bargaining to get employees what they deserve. Read this section to learn some key terms in labor unions and labor negotiations.
- What trends and issues are affecting human resource management and labor relations?
Some of today’s most important trends in human resource management are using employee diversity as a competitive advantage, improving efficiency through outsourcing and technology, and hiring employees who fit the organizational culture. Although overall labor union enrollment continues to decline, a possible surge in membership in service unions is anticipated.
Employee Diversity and Competitive Advantage
American society and its workforce are becoming increasingly more diverse in terms of racial and ethnic status, age, educational background, work experience, and gender. A company with a demographic employee profile that looks like its customers may be in a position to gain a competitive advantage, which is a set of unique features of a company and its product or service that are perceived by the target market as superior to those of the competition. Competitive advantage is the factor that causes customers to patronize a firm and not the competition. Many things can be a source of competitive advantage: for Southwest Airlines it is route structure and high asset utilization; for Ritz-Carlton hotels it is very high-quality guest services; for Toyota it is manufacturing efficiency and product durability; and for Starbucks it is location, service, and outstanding coffee products. For these firms, a competitive advantage is also created by their HR practices. Many firms are successful because of employee diversity, which can produce more effective problem-solving, a stronger reputation for hiring women and minorities, greater employee diversity, quicker adaptation to change, and more robust product solutions because a diverse team can generate more options for improvement.
In order for an organization to use employee diversity for competitive advantage, top management must be fully committed to hiring and developing women and minority individuals. An organization that highly values employee diversity is the United States Postal Service (USPS). In 1992 the Postal Service launched a diversity development program to serve as the organization’s “social conscience and to increase employees’ awareness of and appreciation for ethnic and cultural diversity both in the postal workplace and among customers”. Twenty-five years later, 39 percent of postal service employees are minority persons: 21 percent African-American, 8 percent Hispanic, and more than 8.0 percent other minorities. In addition, women make up 40 percent of the organization’s workforce.
Outsourcing HR and Technology
The role of the HR professional has changed noticeably over the past 20 years. One significant change has been the use of technology in handling relatively routine HR tasks, such as payroll processing, initial screening of applicants, and benefits enrollments. Large firms such as Nokia and Lockheed Martin purchase specialized software (SAP and Oracle/PeopleSoft) to perform the information-processing aspects of many HR tasks. Other firms, such as Jacobs Engineering Group (a large professional services firm), outsource – or contract out – these tasks to HR service providers such as Aon Hewitt and Workforce Solutions.
HR outsourcing is done when another firm can perform a task better and more efficiently, thus saving costs. Sometimes HR activities are outsourced because HR requirements are extraordinary and too overwhelming to execute in-house in a timely fashion. Frequently, HR activities are outsourced simply because a provider has greater expertise. For example, media conglomerate CBS Corp. recently announced that it hired Fidelity Investments to manage its 401(k) plan, which has more than $4 billion in assets.
Organizational Culture and Hiring for Fit
Regardless of general business and economic conditions, many firms are expanding operations and hiring additional employees. For many growing firms, corporate culture can be a key aspect of developing employees into a competitive advantage for the firm. Corporate culture refers to the core values and beliefs that support the mission and business model of the firm and guide employee behavior. Companies such as JetBlue, Ritz-Carlton, and Cypress frequently hire for fit with their corporate cultures. This necessitates recruitment and selection of employees who exhibit the values of the firm. Ritz-Carlton and Cypress use carefully crafted applicant questionnaires to screen for values and behaviors that support the corporate culture. JetBlue uses behavioral-based interview questions derived from its corporate values of safety, integrity, caring, fun, and passion. Southwest Airlines has non-HR employees (flight attendants, gate agents, and pilots) and even frequent flyer passengers interview applicants to screen for cultural fit as well as strong customer-service orientation.
In addition to cultural fit, firms are increasingly hiring for technical knowledge and skills fit to the job. Tech companies such as IBM, Amazon, and Microsoft receive thousands of résumés and job applications each year and continue to look for the best and the brightest when it comes to technical knowledge and skills. For example, IBM is now focusing on a skills-based approach rather than a candidate’s education level and number of academic degrees. Amazon is all about the customer and looks for employees who continue to be “relentlessly curious”. Microsoft continues to raise the talent bar by embracing job applicants who have demonstrated leadership, achieved concrete results, and can prove that they love to learn.
More Service Workers Joining Labor Unions
Organized labor has faced tumultuous times during the last several decades due to declining union membership, loss of factory jobs, dwindling political clout, and the shifting of jobs outside the United States. With union membership now down to a little more than 10 percent of the U.S. workforce, some wonder if labor unions, who organize as a united front against poor working conditions, still have a place in the country. Mary Kay Henry, international president of Service Employees International Union (SEIU), is optimistic that unions are capable of resurgence by organizing the growing number of service workers into labor unions. The SEIU is the fastest-growing union in the nation, having jumped to 2 million members from 1.1 million a decade ago.
Henry’s goal is to focus on recruiting the country’s millions of low-wage service workers, positions that are primarily filled by the working poor. These workers are disproportionately women, immigrants, and members of minority groups, which have all been traditionally more open to unionization. If these workers are successfully recruited into the SEIU, Henry believes that their wages and benefits would increase in much the same way unions brought factory workers into the middle class in the 1930s.
The SEIU believes that the service industry provides a target of opportunity, with the largest expected employment growth through 2026 in low-paid local services:
| Job | Projected Growth |
|---|---|
| Home health aides | 47% |
| Personal care aides | 39% |
| Food preparation | 17% |
| Janitorial | 10% |
Many believe that the future of labor lies primarily in the success of recruitment efforts and in enrolling the massive numbers of employees who are in fast-growing, low-wage service jobs. For example, the SEIU was successful recently in unionizing hundreds of workers who provide services to people with disabilities in California, with an eye toward raising standards for their work and increasing hourly wages and benefits. Reversing labor’s decline will be challenging, but the SEIU looks positively toward the future.
Concept Check
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- How can employee diversity give a company a competitive advantage?
- Explain the concept of hiring for fit.
- Why does the service industry provide an opportunity for labor union growth?
Labor Unions
Now, let’s look at why unions exist, how they are structured, and how the collective bargaining process works.
Introduction
Learning Objective
- Explain why workers unionize and how unions are structured, and describe the collective-bargaining process.
As we saw earlier, Maslow believed that individuals are motivated to satisfy five levels of unmet needs (physiological, safety, social, esteem, and self-actualization). From this perspective, employees should expect that full-time work will satisfy at least the two lowest-level needs: they should be paid wages that are sufficient for them to feed, house, and clothe themselves and their families, and they should have safe working conditions and some degree of job security. Organizations also have needs: they need to earn profits that will satisfy their owners. Sometimes, the needs of employees and employers are consistent: the organization can pay decent wages and provide workers with safe working conditions and job security while still making a satisfactory profit. At other times, there is a conflict – real, perceived, or a little bit of both – between the needs of employees and those of employers. In such cases, workers may be motivated to join a labor union – an organized group of workers that bargains with employers to improve its members’ pay, job security, and working conditions.
Figure 7.10 “Labor Union Density, 1930–2010” charts labor-union density – union membership as a percentage of payrolls – in the United States from 1930 to 2010. As you can see, there’s been a steady decline since the mid-1950s, and, today, only about 12 percent of U.S. workers belong to unions”. Only membership among public workers (those employed by federal, state, and local governments, such as teachers, police, and firefighters) has grown. In the 1940s, 10 percent of public workers and 34 percent of those in the private sector belonged to unions. Today, this has reversed: 36 percent of public workers and 7 percent of those in the private sector are union members”.
Figure 7.10 Labor Union Density, 1930–2010
Why the decline in private sector unionization? Many factors come into play. The poor economy has reduced the number of workers who can become union members. In addition, we’ve shifted from a manufacturing-based economy characterized by large, historically unionized companies to a service-based economy made up of many small firms that are hard to unionize. Finally, there are more women in the workforce, and they’re more likely to work part-time or intermittently.
Union Structure
Unions have a pyramidal structure much like that of large corporations. At the bottom are locals that serve workers in a particular geographical area. Certain members are designated as shop stewards to serve as go-betweens in disputes between workers and supervisors. Locals are usually organized into national unions that assist with local contract negotiations, organize new locals, negotiate contracts for entire industries, and lobby government bodies on issues of importance to organized labor. In turn, national unions may be linked by a labor federation, such as the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), which provides assistance to member unions and serves as the principal political organ for organized labor.
Collective Bargaining
In a nonunion environment, the employer makes largely unilateral decisions on issues affecting its labor force, such as salary and benefits. Management, for example, may simply set an average salary increase of 3 percent and require employees to pay an additional $50 a month for medical insurance. Typically, employees are in no position to bargain for better deals. (At the same time, however, for reasons that we’ve discussed earlier in this chapter, employers have a vested interest in treating workers fairly. A reputation for treating employees well, for example, is a key factor in attracting talented people.)
The process is a lot different in a union environment. Basically, union representatives determine with members what they want in terms of salary increases, benefits, working conditions, and job security. Union officials then tell the employer what its workers want and ask what they’re willing to offer. When there’s a discrepancy between what workers want and what management is willing to give – as there usually is – union officials serve as negotiators to bring the two sides together. The process of settling differences and establishing mutually agreeable conditions under which employees will work is called collective bargaining.
The Negotiation Process
Negotiations start when each side states its position and presents its demands. As in most negotiations, these opening demands simply stake out starting positions. Both parties expect some give-and-take and realize that the final agreement will fall somewhere between the two positions. If everything goes smoothly, a tentative agreement is reached and then voted on by union members. If they accept the agreement, the process is complete and a contract is put into place to govern labor-management relations for a stated period. If workers reject the agreement, negotiators go back to the bargaining table.
Mediation and Arbitration
If negotiations stall, the sides may call in outsiders. One option is mediation, under which an impartial third party assesses the situation and makes recommendations for reaching an agreement. A mediator’s advice can be accepted or rejected. If the two sides are willing to accept the decision of a third party, they may opt instead for arbitration, under which the third party studies the situation and arrives at a binding agreement.
Grievance Procedures
Another difference between union and nonunion environments is the handling of grievances – worker complaints on contract-related matters. When nonunion workers feel that they’ve been treated unfairly, they can take up the matter with supervisors, who may or may not satisfy their complaints. When unionized workers have complaints (such as being asked to work more hours than stipulated under their contract), they can call on union representatives to resolve the problem, in conjunction with supervisory personnel. If the outcome isn’t satisfactory, the union can take the problem to higher-level management. If there’s still no resolution, the union may submit the grievance to an arbitrator.
When Negotiations Break Down
At times, labor and management can’t resolve their differences through collective bargaining or formal grievance procedures. When this happens, each side may resort to a variety of tactics to win support for its positions and force the opposition to agree to its demands.
Union Tactics
The tactics available to the union include striking, picketing, and boycotting. When they go on strike, workers walk away from their jobs and refuse to return until the issue at hand has been resolved. As undergraduates at Yale discovered when they arrived on campus in fall 2003, the effects of a strike can engulf parties other than employers and strikers: with four thousand dining room workers on strike, students had to scramble to find food at local minimarkets. The strike – the ninth at the school since 1968 – lasted twenty-three days, and in the end, the workers got what they wanted: better pension plans.
Though a strike sends a strong message to management, it also has consequences for workers, who don’t get paid when they’re on strike. Unions often ease the financial pressure on strikers by providing cash payments. (Some unionized workers, by the way, don’t have the right to strike. Strikes by federal employees, such as air-traffic controllers, are illegal because they jeopardize the public interest.)
When you see workers parading with signs outside a factory or an office building (or even a school), they’re probably picketing. The purpose of picketing is informative – to tell people that a workforce is on strike or to publicize some management practice that’s unacceptable to the union. In addition, because other union workers typically won’t cross picket lines, marchers can interrupt the daily activities of the targeted organization. How would you like to show up for classes to find faculty picketing outside the classroom building? In April 2001, faculty at the University of Hawaii, unhappy about salaries, went on strike for thirteen days. Initially, many students cheerfully headed for the beach to work on their tans, but before long, many more – particularly graduating seniors – began to worry about finishing the semester with the credits they needed to keep their lives on schedule”.
The final tactic available to unions is boycotting, in which union workers refuse to buy a company’s products and try to get other people to follow suit. The tactic is often used by the AFL-CIO, which maintains a national “Don’t Buy or Patronize” boycott list. In 2003, for example, at the request of two affiliates, the Actor’s Equity Association and the American Federation of Musicians, the AFL-CIO added the road show of the Broadway musical Miss Saigon to the list. Why? The unions objected to the use of nonunion performers who worked for particularly low wages and to the use of a “virtual orchestra,” an electronic apparatus that can replace a live orchestra with software-generated orchestral accompaniment.
Management Tactics
Management doesn’t sit by passively, especially if the company has a position to defend or a message to get out. One available tactic is the lockout – closing the workplace to workers – though it’s rarely used because it’s legal only when unionized workers pose a credible threat to the employer’s financial viability. Another tactic is replacing striking workers with strikebreakers – nonunion workers who are willing to cross picket lines to replace strikers. Though the law prohibits companies from permanently replacing striking workers, it’s often possible for a company to get a court injunction that allows it to bring in replacement workers.
Lockout tactics were used in the 2011 labor dispute between the National Football League (NFL) and the National Football League Players Association when club owners and players failed to reach an agreement on a new contract. Prior to the 2011 season, the owners imposed a lockout, which prevented the players from practicing in team training facilities. Both sides had their demands: The players wanted a greater percentage of the revenues, which the owners were against. The owners wanted the players to play two additional season games, which the players were against. With the season drawing closer, an agreement was finally reached in July 2011 bringing the 130-day lockout to an end and ensuring that the 2011 football season would begin on time.
The Future of Unions
As we noted earlier, union membership in the United States is declining. So, what’s the future of organized labor? Will membership continue to decline and unions lose even more power? The AFL-CIO is optimistic about union membership, pointing out recent gains in membership among women and immigrants, as well as health care workers, graduate students, and professionals.
But convincing workers to unionize is still more difficult than it used to be and could become even harder in the future. For one thing, employers have developed strategies for dissuading workers from unionizing – in particular, tactics for withholding job security. If unionization threatens higher costs for wages and benefits, they can resort to part-time or contract workers. They can also outsource work, eliminating jobs entirely, and more employers are now investing in technology designed to reduce the amount of human labor needed to produce goods or offer services.
Key Takeaways
- Some workers belong to labor unions – organized groups of workers that bargain with employers to improve members’ pay, job security, and working conditions.
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Unions have a pyramidal structure. At the bottom are locals, who serve workers in a particular geographical area.
- Locals are usually organized into national unions that assist with local contract negotiations and negotiate industry-wide contracts.
- Nationals may be linked by a labor federation, such as the AFL-CIO, which provides assistance to member unions and serves as the principal political organ for organized labor.
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When there’s a discrepancy between what workers want in terms of salary increases, benefits, working conditions, and job security and what management is willing to give, the two sides engage in a process called collective bargaining.
- If everything goes smoothly, a contract is soon put into place.
- If negotiations break down, the sides may resort to mediation (in which an impartial third party makes recommendations for reaching an agreement) or arbitration (in which the third party imposes a binding agreement).
- When unionized workers feel that they’ve been treated unfairly, they can file grievances – complaints over contract-related matters that are resolved by union representatives and employee supervisors.
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If labor differences can’t be resolved through collective bargaining or formal grievance procedures, each side may resort to a variety of tactics. The union can do the following:
- Call a strike (in which workers leave their jobs until the issue is settled)
- Organize picketing (in which workers congregate outside the workplace to publicize their position)
- Arrange for boycotting (in which workers and other consumers are urged to refrain from buying an employer’s products)
- Management may resort to a lockout – closing the workplace to workers – or call in strikebreakers (nonunion workers who are willing to cross picket lines to replace strikers).
Exercises
- You’ve just gotten a job as an autoworker. Would you prefer to work in a unionized or nonunionized plant? Why? If you were hired as a high-level manager in the company, would you want your workers to be unionized? Why, or why not? What’s your opinion on the future of organized labor? Will union membership grow or decline in the next decade? Why, or why not?
- What happens in a unionized company when negotiations between labor and management break down? Identify and describe the tactics that unions can use against management and those that management can use against unions.